How does crowdfunding work?
I thought it may be of interest for those who don't know how crowdfunding works. It is an awesome concept that permits people with ideas (creators) to connect to people with interest in supporting these ideas (backers). Essentially, it works like raising capital, but instead of selling equity in the company; the creator sells the product. This medium has contributed to millions of new ideas and entrepreneurs. Its the millennial's version of VC!
-The idea creator sets a fund target (ex. 10,000)
-The fund target is usually set at at a threshold that permits the creator to go into production.
-The idea is shared via the crowdfunding platform, encouraged by backers, media and other platforms.
-The crowdfunding initiative usually last between 15-60 days. And serves to raise the target funds (and more).
-During this period, backers can "pledge" an amount which is the amount that will be paid to the creator if the target amount is reached.
-If the target amount is reached: the creator goes to production
-If the target amount is not reached: the creator does NOT go into production and the backers are NOT charged.
It is a great way to mitigate risk. In this process, the backer that pledges an amount of $ does not lose anything if the idea is not successfully funded, and the creator does not lose anything either.