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How Crowdfunding Sites Work

posted May 21, 2013, 4:23 PM by Andrew Manzo   [ updated Jun 7, 2013, 9:49 AM ]
    
Crowdfunding sites aim at harnessing the enthusiasm and money of virtual strangers while promising them a cut of the returns. This enables entrepreneurs to tap into the world of the internet and obtain small amounts of money from many supporters through a system that is partly social networking and partly the accumulation of capital.

    Crowdfunding sites provide your project with the necessary credibility and infrastructure to successfully harness the financial power of the "crowd". A good example of a crowdfunding site is RocketHub which is currently one of the largest crowdfunding platforms that enables numerous projects to raise funds and create awareness through the website.In most cases, the crowdfunding site will allow you to rally your family, friends and colleagues, as well as directly sell to your supporters through the site. This will enable you to fulfill all orders without incurring the start up costs of having your own ecommerce shop online.

    Project creators are allowed to add images to their profile pages which are normally free. You may however have to pay a small additional fee to add more images. Other sites employ crowdsourcing to allow supporters to contribute to the requirements of your open source project so as to refine it to completion.At KickStarter, the project creator will only receive the funding they require once their project reaches or exceeds its funding goal. And once you do reach your goal, the site will take a commission of 5%. This is a rather good deal considering that the entrepreneur gets to enjoy the available tools to manage their project, the traffic and reach of the site, as well as getting empowered in the process.

    As a supporter, when you choose to back a project creator whose project you like, you are in some cases buying shares in their endeavor such as at CatWalkGenius. Here, supporters get to invest in the future sales of the entrepreneur for up to six months.Sites such as IndieToGoGo have a unique rewards and pre-sales feature. The former enables artists to provide their supporters with artwork, private concerts as well as signed albums such that they continue to fund the artist’s pursuits in music. The rewards serve as the foundation for the exchange and come in various levels to enable all supporters to participate in the crowdfunding campaign based on their financial means. Pre sales enable the project creator to generate interest in their project even before they start it.