“Rejected, rejected, rejected,” said Eric Migicovsky, summarizing his initial experience finding investors to fund his revolutionary tech idea.

All the investors he approached liked the concept, but, for one reason or another, were not sold. “It was mostly my fault,” admitted Migicovsky. But these early failures set the stage for a sudden, thrilling success in mid-2012 that netted the young CEO and his company over $10 million and changed the way we think about raising money in today’s age.

You may not have heard of Eric Migicovsky, but you’ve probably seen his invention. It’s the Pebble smartwatch – one of the best-selling
smartwatches on the market today – and the money that made it possible came via crowdfunding.

How does crowdfunding work? First, a few words on the challenges of turning a business idea into a reality.

Surviving the Valley of Death

There is an old adage that says that you need to have money to make money. For those who are at all familiar with the world of business and investing, the logic behind this statement is easy to understand. Access to money opens doors to all kinds of opportunities for a fledgling business. Entrepreneurs with the ability to provide their own seed money to finance their ventures – or obtain it easily from family and friends – have a clear leg up over most of the population. Research and development, initial production, distribution and overhead are only a few of the costs that one needs to consider before starting a business. A business that is not equipped with the necessary financing during its early stages will rarely survive the “valley of death” – the period of negative cash flow that almost all businesses experience before starting to turn a profit and becoming successful.

Bank loans can be prohibitively expensive – increasingly so in recent years – and many new small business owners don’t have the qualifications necessary to be approved for one in the first place. A traditional solution for an entrepreneur who lacks easy access to seed money is to seek out funding from a venture capital company, which invests in businesses it deems potentially successful in exchange for equity in the company. Alternatively, angel investors (wealthy individuals, rather than large companies) are often more willing to take on the risk of funding an uncertain business venture. But even angel investors can be difficult to bring around to your side and to convince of the potential value of your idea, especially if it involves an unusualproduct or service or a non-standard business model.

The Power of the Crowd

Enter crowdfunding. The core premise of crowdfunding is simple: Instead of relying on one large contribution from an angel investor or a venture capitalist, any person with a good idea and an appealing presentation can turn to the internet in hopes of persuading a much larger pool of contributors to put in relatively small amounts of money. Each person who donates to a crowdfunding campaign through one of numerous platform websites (Kickstarter and Indiegogo are among the more popular ones) can expect to receive a reward from the campaign’s creator – such as a discounted or free product – if and when its funding goal is achieved. Some sites even offer equity in the company itself,similar to traditional investing models. But more than the draw of these tangible incentives, small-sum contributors are often attracted to the notion that they are supporting an idea and an initiative with which they identify, participating in something bigger than themselves.

When Migicovsky decided to pursue crowdfunding, he launched a Kickstarter campaign with the goal of raising $10,000, promising a Pebble watch to backers contributing $115 (significantly less than the watch’s eventual retail value).He received over 10 times that sum from almost 69,000 backers, making it one of the most successful crowdfunding campaigns of all time.

If those numbers sound daunting, it is important to remember that smaller-scale campaigns are still the lifeblood of the
multi-billion-dollar crowdfunding industry, with the average successful campaign garnering about $7,000.

Not Just for Business

Every day, people all over the world initiate new crowdfunding campaigns. These projects are by no means limited to business ventures. Far from it – more often than not, today’s campaigns center around supporting social causes or promoting independent films or music. Many crowdfunding platforms cater to highly specific types of projects, such as paying for school supplies or publishing an author’s book independently.

Not to be left behind on this international phenomenon, the Jewish community has embraced crowdfunding, as well. Jewcer, a platform whose mission is “to strengthen and connect the global Jewish community,” has seen widespread participation and acclaim.

No matter what a person’s project mightbe, the rise of crowdfunding has brought a new world of ideas – many of which would never have seen the light of day just 10 years ago – into the realm of the possible.