How does Crowdfunding work?

- Welcome to our first MercyCrowd tutorial.

- Today we are going to explain how crowdfunding works. 

- The best way to explain it is with an example

 - Lets take Paul, he has a project, like creating a new product or buying a studio for his son in college…

 - On the other side you have people that have cash sitting in their account and they are thinking how they could make better use of their money.

 - This is where crowdfunding comes to play, it links people that have project with people that have money.

 - The crowdfunding platform serves as a bridge between Paul and the crowd.

 - You might ask yourself why does the crowd give money to Paul, what do they get in exchange? Well it really depends on which crowdfunding platform you are.

 - You have 3 main ways of using crowdfunding:
  • For a loan
  • For Charity or reward base
  • And finally for equity
 - Lets look first at the loan based financing.

 - Before crowdfunding Paul, to finance his project would have gone to a bank to take a loan. Well now Paul can access funds by directly borrowing from the crowd. This is not free money Paul will have to pay back the money with interest at a pre agreed maturity. Most of the time it’s quicker, had less paperwork than a conventional banks, and sometimes it’s even cheaper!
- The second way to raise money is through donation or reward based. I guess that everybody is familiar with how a donation work so let’s focus on the reward based financing.

 - Lets say that Paul has invented a great product. However he does not have the money to produce it. Using a crowdfunding platform Paul can pre sell or offer some goodies to people funding his manufacturing cost.

 - If Paul raise the amount required he will manufacture his product… and deliver it to you

 - Finally there is Equity financing - Under this format Paul will sell part of his company to the crowd. Every person buying his company shares will become a co-owner with Paul.

 - The company could invest in property, manufacturing, distribution or any way that Paul would have explained in his crowdfunding campaign.

- I hope that you have enjoyed this tutorial and please visit our website to know more about crowdfunding and investment opportunities.

Joining Mercy Crowd is simple, fast and completely free.

Let's get started