In DepthFunding

Ambitious web fundraising startup fails to meet big goals

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Science  04 Nov 2016:
Vol. 354, Issue 6312, pp. 534
DOI: 10.1126/science.354.6312.534

It seemed like a promising deal. Pay up to $2000 to have your research project featured on a slick website aimed at affluent donors looking to support a good cause and get a tax break, and then watch the money roll in. But it hasn't paid off for most of the 650 researchers who signed up with Benefunder, a 3-year-old firm based in San Diego, California, that once envisioned raising more than a billion dollars annually for research. Just six researchers have received donations totaling some $250,000 through Benefunder, Science has learned. The startup has had to lay off most of its employees and is struggling to revamp its business model.

Benefunder's stumble represents a cautionary tale from the promising but sometimes perilous frontier of internet fundraising. Over the past decade, so-called crowd-funding websites, including Kickstarter, Indiegogo, and GoFundMe, have enabled moviemakers, entrepreneurs, and others to raise sometimes vast sums from small donors around the world. A few sites have specialized in raising money for scientists, with varying success. Experiment has raised nearly $7 million for more than 550 researchers since it began 5 years ago, with nearly half of proposed projects meeting funding goals. But another site, Petridish, quietly closed its doors in 2014 after funding just a few dozen experiments over 3 years.

Benefunder, the brainchild of entrepreneur Christian Braemer and Gert Lanckriet, a machine learning professor at the University of California, San Diego, aimed to become a science funding star. Instead of seeking donations from rank-and-file web users, it targeted affluent contributors and the organizations they use to make charitable donations. Benefunder even set up a financial mechanism, known as a donor advised fund, to ease a donor's ability to claim U.S. tax breaks. By taking a 10% cut of the donations, Benefunder expected to earn some $1 million in 2014, $13 million in 2015, and a staggering $165 million in 2016—representing more than $1 billion in donations—according to forms Braemer filed with the state of California.

Benefunder's vision appealed to hundreds of scientists, many from top universities. Each paid about $500 to have their work profiled on the website, and some spent up to $1500 more for a short video produced by the firm. “The idea of targeting small investors and exploiting a tax break strategy felt very innovative,” says François Baneyx, a chemical engineer at the University of Washington in Seattle, who signed up in 2014. “I had reasonable expectations, perhaps getting $10,000 to $50,000.”

But even as Benefunder bulged with projects, donors remained scarce. “We were never able to get off the ground,” Braemer says. Donor funds “were not willing to take the reputational risk [on] an unknown entity,” he says. And the firm received just a few “small transactions … a bit out of the blue.”

To stay afloat, Benefunder ramped up sales of the profiles and videos. In 2014 and 2015, it earned more than $660,000 this way but attracted just $62,000 in gifts, tax forms show. In late 2015, as the firm ran out of cash, it abruptly stopped recruiting researchers, left some videos unfinished, and laid off all but three of the 12 employees who worked for it and an allied firm.

Benefunder is now “licking its wounds,” Braemer says, and with the help of new investors has “pivoted” to advising large wealth management firms on how to match their donors with its researchers. It's not clear how that strategy will fare. But the firm, Braemer says, no longer expects “anyone to go to the website and actually make a donation.”

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