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First lets start with how normal Crowd Funding sites like Kickstarter Works:

In a Nutshell Crowd Funding sites are Marketplaces that connect Innovative Entrepreneurs with Investors of all kinds (here investors are not just the Professional investors. Any common man is an investor ).

It all starts when an Entrepreneur comes up with a Brilliant idea of a project, but does not have the money to kick start it. He goes to Crowd Funding sites like indigogo etc. and posts all the information about his idea. He also mentions how much of funding he would require to get his project completed. The twist here is, instead of giving equity to each person who funds… he promises to give each one a piece of his finished product.