Crowdfunding

Crowdfunding allows people to bypass traditional funders such as banks and investors. There are several main types.

Reward-based crowdfunding offers backers a product, service or other reward in return for their support, often an early version of a product. Donation-based crowdfunding raises money for charitable or personal causes without any return. Equity crowdfunding offers investors shares in a company, and debt or lending crowdfunding offers interest on loans.

For example, a designer might raise 50,000 on a reward-based platform from 1,000 backers, each paying 50 to receive one of the first products made.

Crowdfunding can help test demand, build a community of early customers and raise money without giving up control. For backers and investors, however, the risks are significant. Projects may be delayed, never delivered or fail entirely. Equity crowdfunding investments in young companies are high-risk and hard to sell. Many countries regulate investment crowdfunding, limiting how much companies can raise and, in some cases, how much individuals can invest.