What Is Crowdfunding? (Updated for 2022)

Crowdfunding is a method of raising money online through the support of many different donors. Owners of crowdfunding pages announce a specific amount of money they need to raise in order to fulfill a goal or begin an enterprise. They also must determine an exact date by which the money has to be raised. Crowdfunding is often the platform of choice for small business start-ups, artistic projects and charitable endeavors looking to reach a global audience. By taking in small donations from many parties, business owners can reach their target amount and begin developing their product (1).

Backers of crowdfunded projects vary greatly. Unlike many new businesses, crowdfunded businesses are made possible by the general public rather than wealthy investors. In most cases, about 25 to 40 percent of a project is funded by the owner's first, second and third degree relations - family, friends and acquaintances. There are typically donation brackets on crowdfunding pages; each donation amount garners the donor a different gift. These gifts can range from a signed DVD copy of the completed movie that is being funded to free tickets to its premier, depending on the project and its owners. After a crowdfunding page has earned a steady following and consistent funds from those first three tiers of backers, it often picks up on a wider scale and reaches its niche markets around the world (2).

To set up a crowdfunding page, the owner must describe their project and its purpose in great detail. Potential donors need to understand exactly where their money is going. The most successful crowdfunding pages contain videos that demonstrate the product or mission in depth, introduce key players, present a back story and describe the project's potential effect on a global scale. This helps donors match a face to the organization.

With more than 450 crowdfunding platforms currently in existence and a World Bank report stating that revenue from this method could reach $96 billion by 2025, ecommerce website owners would be wise to get involved if they have not already.

1. "What is Crowdfunding and How Does It Benefit the Economy" - Forbes

2. "The 6 Waves to Watch in the World of Crowdfunding" - Entrepreneur