“We’re finding people contributing saying, ‘Hey, I love this,’” Cordero said. “If an uncle was going to buy his niece a $25 toy, he'll now give 40 or 50 bucks to a college education fund because he knows it’s not something that's just going to get tossed to the side. It’s meaningful.”
The growth crowdfunding has seen during the recession seems counterintuitive when so many industries are taking a hit. But it may be no coincidence that crowdfunding has become more popular during an economic downtime, according to those in the industry.
“The recession has definitely played a role in how crowdfunding has taken off,” Sperling said. “People have been hit so hard — it’s commonplace now to be in financial difficulty. And that hardship has also increased people’s emotional desire to give.”
Coupled with tough economic times has been a tightening in traditional financing, leading people to look for alternative ways of getting needed cash. A recent survey from the Federal Reserve showed that the net percentage of financial institutions reporting increased willingness to make installment loans, which include credit cards, has averaged 15.4 percent, down from 18.9 percent last year and almost 25.4 percent in 2011. When people can’t turn to banks and traditional sources, they look to crowdfunding, said David Sperling, who co-founded youvegotfunds.com.
In addition to the recession, the cost of items like a college education or medical procedure has also increased, even as earnings decrease. Cordero says the growing cost of college is a major factor in parents signing up their young kids for a GradSave account.
“The disparity between earnings and cost of college is going to get so out of whack, it’s going to take different ways of saving than ever before,” Cordero said. “You know the saying, it takes a village to raise a child? Well now it takes a village from a financial perspective as well. And that’s not going away anytime soon.”
In many ways, crowdfunding isn’t new, say the experts. For example, grandparents have always wanted to contribute to their grandkids’ education, Cordero said. The difference now is that people can ask for money through a much larger platform, thanks to social media networks like Evites, Twitter and Facebook.
But unlike asking your family and friends for money in the past, often the success of a crowdfunding campaign depends on how you present your situation online. Many sites have consultants that help you create a successful “narrative” that will attract people to give to a particular campaign.
“The success of a campaign depends on two things: the promotion of the campaign and how you phrase it,” Andrews said. “I’ve seen people raise more money for a trip to Cabo than a dog dying of cancer. If you don’t phrase it well, people won’t donate.”
Andrews added that there is almost a mathematical formula to predict the success of a crowdfunding venture. “You want to have the first 5 percent of funding lined up before you launch a campaign,” he said. “Then your personal or inner circle needs to donate — when you get to 30 percent, that’s when you start seeing strangers donate.”
Dave Sperling said that crowdfunding is not a simple way to get cash — if the person isn’t willing to put in the work to create a compelling story and promote it, they’re not going to raise any money. But if a person can show contributors how the money will help them accomplish a goal or change their financial habits, they’re is much more likely to succeed in raising money.
“When you have a compelling story and provide updates about your progress, the crowd becomes part of it,” he said. “It becomes more than ‘pay my bills,’ but instead becomes ‘help me become an engineer.’ Then, when the goal is accomplished, the contributor really feels like ‘I helped build that.’ ”
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