What Is Crowdfunding?

Crowdfunding is the process through which one can raise money in order to finance both projects as well as businesses. Crowdfunding enables fundraisers to collect money from a large number of people through a variety of different platforms, usually online.

In other words, crowdfunding is a technology-enabled financial service that covers a wide range of ways through which one can raise money. This is done with a large number of capital givers throughout different online crowdfunding platforms which serve the role of intermediaries, and instead of raising finance from traditional funding sources such as banks, mutual funds or business angels, funds are raised through “crowds.”

The benefits crowdfunders get in return for their investment or the money they put into these projects depends on what kind of crowdfunding model is being used in order to raise the funds in the first place. As compensation for their financial risk, they can receive a tangible reward or an intangible reward. 

However, in many cases, the funds raised are provided as a donation most of the time. Keep in mind that there is investment crowdfunding as well as non-investment crowdfunding. This distinction highlights the difference between when the funders act as investors who aim to achieve an economic return, and when the funders support a charitable project or receive rewards that are non-monetary.

Based on the rights of the funders in the specific project, crowdfunding can be categorized into different models.

In the investment model, you have debt-based crowdfunding and equity-based crowdfunding.

In the non-investment model, you have reward-based crowdfunding and donation-based crowdfunding.

Due to the fact that there are many different models, the definitions of crowdfunding can be limited; however, there are different definitions when it comes to its elements.

A great number of funders are involved in the financing, and an online platform facilitates as well as promotes the contact between the providers are those seeking capital. Then, there is an open call to participate in the financing.