Crowdfunding pools money from a large number of backers — typically online — to fund a product, project, or company without relying on a single institutional lead investor.

How it works

Models differ by what backers receive:

• Rewards crowdfunding — backers pre-buy products (Kickstarter, Indiegogo). Not equity; good for hardware and consumer launches.
• Equity crowdfunding — investors buy securities under exemptions like Regulation Crowdfunding (Reg CF) in the U.S., with caps on raise size and investor limits.
• Debt crowdfunding — peer lending platforms connect borrowers with many small lenders.

Equity campaigns require disclosures, platform fees, and cap table tracking. A successful Reg CF round adds hundreds of small shareholders — manageable with transfer agents but sometimes viewed cautiously by later VCs.

Founders use crowdfunding for market validation, community building, and non-dilutive pre-orders before attempting priced rounds.

Why it matters

• Founders: Choose the model that matches your next milestone. Rewards funding avoids securities law complexity; equity crowdfunding trades cap table simplicity for broader reach.
• Investors: Diligence checks for prior crowdfunding obligations, side agreements with platforms, and whether marketing claims in campaigns create liability.

Common mistake

Assuming crowdfunding replaces a full seed round for scalable SaaS. Institutional investors still expect professional governance, clean IP, and room for future priced rounds.

Related ideas

See also bootstrapping, Reg CF, rewards vs equity campaigns, and community round.