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Crowdfunding 101: What is it and How Does It Work?

Ekaterina Lepikhina Business

Crowdfunding describes the funding of a project or venture by raising money through contributions. Today crowdfunding is tied to many online sites where consumers “back” a product that they are interested in having. The “backer” is rewarded by receiving news, early product samples, or discounted price for items.

For entrepreneurs, this has become a means to fund their ventures as it reaches a great customer base and ensures the marketability of a product.

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How Crowdfunding Works

Sometimes called crowdsourcing, the input of the backer is crucial to the success of the campaigns looking to receive funding. The backers provide and influence the perceived value of the products being showcased. They do so by selecting and promoting the products they believe in. This motivates consumer participation and most importantly, fosters innovation of new products and services that answer a consumer need.

For example, the Pebble, considered the first smartwatch raised over 10 million dollars in 37 days. After some initial investments from angel investing, the owners got on Kickstarter. They set a goal of $100,000. Many enthusiasts who desired a watch that connected to their mobile device joined and backed the project helping it raise its amount.

Early backers received their watches. The Pebble has such a great fan base that the company continues to turn to its supporters online to get their projects backed by their customers.

crowdfunding online

Creator Benefits

For entrepreneurs, these campaigns provide more than monetary benefits. Some of these benefits include:

  • a boost to the reputation of the company
  • knowing that there is an audience and market for your product
  • the engagement of the audience and receiving feedback on the product
  • the opportunity to beta test through preleases

You can start a campaign and create the landing page on the site of your platform of your choice. Agencies, like Tractus Online, can help you create the site your potential backers could learn more about your company. You can also consult on the best way to market your campaign through social media or email marketing. Whatever you decide, there are many companies that have gone through platforms like Kickstarter and IndieGoGo that have proved that this way works. Go ahead and see if this works for you!

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