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.

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