I recently gave a brief presentation on Ethics in fundraising. Although, raising capital by any other name may smell as sweet, at its root, the manner in which one does so matters greatly.
Transparency builds trust. Trust builds confidence. Confidence results in donations, investment and stronger relationships.
With the rise of Crowdfunding portals, we have come to see more challenges to the legitimacy of many types of crowdfunding campaigns. Online donation-based crowdfunding campaigns may have started in the spirit of altruism early in the digital age—often in response to emergencies or tragedies, but it has evolved into a vehicle with:
- the potential for mismanagement of funds for organizations,
- a means for some to crowd fund a vacation or gaps in personal cash flow.
As with rewards-based crowdfunding campaigns, we have seen the disenchantment of early investors and supporters for being rewarded with a t-shirt, free screening passes or the product whose manufacture they helped finance, once it hits the market, only to find out later that accredited investors took home a much larger reward: shares of the company, not available to a certain kind of investor at the time of the offering. Perhaps not a breach of ethics, but those early supporters who didn’t make the cut may be left with a bad taste in their mouths and unlikely to support future seed capital raises.
Just after Regulation Crowdfunding (also known as Title III of the JOBS Act of 2012) was enacted, allowing more opportunity for the average investor who may not be “accredited,” KoreConX partnered with another company to help add a layer of transparency to equity crowdfunding platforms with the aim to reduce identity theft and fraud.
Conducting yourself and your organization in an ethical manner is critical to your success no matter if you are a for-profit company seeking investment capital from individual or institutional investors, a business owner applying for a bank loan or a nonprofit seeking foundation and/or donor support.
Ethics—it’s just good business.