How Does Crowdfunding Work? The Ultimate Guide (2025)

Over many years of capitalism that the world has endured, many different methods to take a business loan (or funding) have been introduced by the ecosystem players, mostly the bankers and the private investors. The world has rapidly changed due to technological advancements. With the rise of the Fintech industry, crowdfunding has emerged as one of the most beloved by entrepreneurs. 

Not too long ago, if you wanted to raise funds for your business or project, your options were limited – you would typically approach a handful of investors or institutions and ask for a large chunk of money. It was a high-stakes, high-pressure process. But today, crowdfunding has flipped that model on its head. Thanks to the internet, you are no longer restricted to a few potential backers. Instead, you can reach thousands, sometimes even millions, of everyday people who are each willing to contribute a small amount toward your vision.

Over the past decade, crowdfunding has exploded in popularity, becoming a go-to funding option for startups, creatives, nonprofits, and even established entrepreneurs looking to validate new ideas. It’s not just a financial tool anymore; it’s a powerful way to build community, test demand, and gain early traction.

So, how exactly does crowdfunding work, and more importantly, is it right for your business? Before we dive into that, let’s start with the basics.

What is Crowdfunding?

Crowdfunding is when individuals, businesses, or organizations raise money for a venture or project by collecting small contributions from a large number of people, usually through online platforms.

Unlike traditional funding models that rely on one or two major investors, crowdfunding taps into the collective support of a broad audience. Break down the term, and you get a clear picture: a “crowd” that helps “fund” an idea.

In essence, crowdfunding merges the principles of crowdsourcing and microfinancing. It brings together a community of backers who contribute based on their interests, values, or belief in a specific cause or niche. Whether it’s a tech startup, an indie film, a social initiative, or an innovative gadget, crowdfunding allows people to support projects they genuinely care about.

The Crowdfunding Model

This funding model is reshaping the way businesses access capital. It’s a relatively young but rapidly expanding market that is changing how people think about both investing and fundraising. Entrepreneurs, artists, nonprofits, inventors, and even filmmakers are turning to crowdfunding not only to secure capital but also to build early traction, validate demand, and create engaged communities around their ideas.

A successful crowdfunding campaign can provide a critical cash flow boost, enough to kickstart product development, launch a new venture, or take an existing idea to the next level. These campaigns typically run on dedicated online platforms with clear timelines, fundraising goals, and transparent progress tracking to build trust and momentum among potential backers.

According to Massolution’s Global Crowdfunding Report, the industry is projected to reach $300 billion by 2025. Some consulting firms also anticipate a compound annual growth rate of up to 100 percent in the coming years, highlighting just how explosive and influential this space is becoming.

So now that you have a clear understanding of what crowdfunding is and why it matters, let’s dive into the next big question: How does crowdfunding work?

How does Crowdfunding Work?

The four main types of crowdfunding are donation, reward, equity, and lending.

Every crowdfunding platform involves two key participants: the project owner (the one with a new idea) and the project backer (the one willing to fund it). Anyone with a solid idea can share their project details, along with specific terms and conditions, on a crowdfunding platform. Those interested in the idea can choose to fund it. It’s important to note that the funding amount and project duration are entirely decided by the project owner.

Donation-Based Crowdfunding

This is the most straightforward form. You receive money from contributors without any expectation of return. It’s commonly used for social causes, non-profits, disaster relief, or community projects. If your goal is mission-driven rather than profit-focused, this type of crowdfunding can help rally people who believe in your cause.

Reward-Based Crowdfunding

Here, backers receive a reward in exchange for their support. The reward is often tiered based on the contribution amount and typically includes early access to a product, branded merchandise, or exclusive content. This model is popular among startups, creators, and product-based businesses launching something new.

Equity Crowdfunding

This is ideal if you are building a growth-focused business and looking for long-term investors. Backers receive shares or a small equity stake in your company in return for their investment. It’s regulated, and while the process is more complex, it allows you to raise larger amounts and bring on shareholders who are financially invested in your success.

Lending-Based (or Debt) Crowdfunding

Also known as peer-to-peer (P2P) lending, this model lets you borrow money from backers with the agreement that you will repay them with interest over time. It’s an alternative to traditional bank loans and often appeals to small businesses or entrepreneurs who need working capital without giving up ownership.

How Does Crowdfunding Work for Real Estate?

At its core, crowdfunding means pooling money from a group of investors to fund a shared investment. In that sense, real estate crowdfunding isn’t entirely new; it reflects a model that has existed for centuries, where people collectively invest in property.

With modern crowdfunding platforms, you can now invest in real estate in two primary ways:

• Equity Investments: This involves owning shares in a property, like an apartment building or commercial project. As an investor, you earn returns through rental income and a share in the property’s appreciation when it’s eventually sold.
• Debt Investments: This works like a loan secured by real estate. Just like a bank, you lend money to a project and receive monthly interest payments. The loan is backed by the property, providing an added layer of security for your investment.

That’s how crowdfunding works in the real estate space. Now, let’s explore the next question: how does crowdfunding work for charities?

How Does Crowdfunding Work for Charities?

Crowdfunding platforms allow charities to raise money online by launching dedicated campaigns. Each campaign typically outlines the purpose of the fundraising effort, what the charity is raising funds for, and why it matters. Once live, the campaign is promoted across digital channels to reach as many potential supporters as possible.

The more clearly a charity presents its goals and needs, the more likely it is to connect with donors on crowdfunding platforms. Supporters who relate to the cause can then make financial pledges directly through the campaign page.

Crowdfunding also helps charities expand their reach, raise awareness, and attract new supporters beyond their existing networks. It’s not just about the money, it’s also about building a community around a cause. And because most crowdfunding platforms charge only a small percentage of the total amount raised to cover administrative costs, it’s a cost-effective way for charities to fundraise online.

Now that you understand how crowdfunding works across different fields, let’s move ahead.

How Do Crowdfunding Platforms Make Money?

This brings us to one of the most important questions: how do crowdfunding platforms make money?

The primary source of income for most platforms is platform fees. These are charges applied to the total funds raised through a campaign. Generally, there are two main models through which fees are collected:

• All-or-Nothing Campaigns: In this model, you only receive the funds if you hit your fundraising goal. If successful, the platform usually charges a fee of around 5% on the total amount raised.
• Keep-What-You-Raise Campaigns: Here, you get to keep whatever amount you have raised, even if you don’t meet your goal. However, the platform typically charges a higher fee, usually between 8% and 10% of the total funds raised.

In addition to platform fees, almost all crowdfunding platforms charge payment processing fees. These cover the cost of handling transactions and typically average around 3%, though this can vary depending on the platform and payment provider.

So, between platform fees and processing charges, this is how crowdfunding platforms generate revenue.

Popular Crowdfunding Websites

Crowdfunding has become the go-to method for launching innovative ideas, projects, and social campaigns. Whether you are a startup founder, product creator, or someone looking to raise money for a cause, there’s a platform built for your needs. Here are some of the most popular and widely used crowdfunding websites you should explore:

Kickstarter

Kickstarter is arguably the most well-known crowdfunding platform in the world. It’s built primarily for creative projects – think tech gadgets, games, films, music, and design ideas. Project creators set a funding goal and a timeline, and the campaign must meet that goal within the deadline to receive any funds. Kickstarter follows an all-or-nothing funding model, meaning backers are only charged if the campaign is successful. This model creates urgency and builds trust with supporters, as funds are only taken if the idea gets fully backed.

Learn more – how does Kickstarter work

Indiegogo

Indiegogo works in a similar space as Kickstarter but with a few key differences. The standout feature here is the flexible funding option. Unlike Kickstarter’s all-or-nothing approach, Indiegogo allows you to keep the funds you raise, even if you don’t hit your goal. This makes it a great choice for campaigns where every bit helps. Indiegogo is also known for its partnerships with retailers and logistics partners, giving successful projects a chance to transition from funding to distribution more smoothly.

Find out more – how does Indiegogo work

GoFundMe

GoFundMe is the go-to platform for personal and social fundraising. It’s widely used to support medical expenses, disaster relief, education, memorials, and community causes. Unlike Kickstarter or Indiegogo, GoFundMe isn’t product-focused. There’s no need to offer rewards, and there’s no all-or-nothing requirement. It’s built on goodwill and empathy, making it a powerful platform for charitable giving and emergency fundraising.

Deep dive – How does GoFundMe work

Other Noteworthy Crowdfunding Platforms

While Kickstarter, Indiegogo, and GoFundMe dominate the general crowdfunding space, there are several other platforms that cater to specific audiences like startups, creators, or real estate investors. Let’s take a look at some of the most prominent ones.

SeedInvest

SeedInvest (now acquired by StartEngine) is one of the top equity crowdfunding platforms, connecting accredited and non-accredited investors with vetted startups and early-stage companies. Unlike donation or reward-based platforms, here investors receive equity in the companies they back. SeedInvest has a rigorous vetting process – only a small percentage of applicants are approved, which helps maintain quality and credibility. It’s a powerful option if you are looking to raise serious capital while bringing on early shareholders who are aligned with your business vision.

Crowdcube

Crowdcube is a UK-based equity crowdfunding platform that allows individuals to invest in startups and growing businesses in exchange for shares. It’s popular in Europe and has helped fund well-known companies like Monzo and BrewDog. Crowdcube is especially appealing for entrepreneurs looking to raise capital from a crowd while also turning their customers into shareholders. For investors, it’s a way to diversify their portfolios with early access to potentially high-growth ventures.

Patreon

Patreon is a crowdfunding platform built specifically for creators, such as podcasters, artists, writers, and YouTubers. Instead of a one-time campaign, Patreon enables ongoing monthly support. Supporters (or “patrons”) subscribe to creators and often receive exclusive content or perks in return. It’s more of a membership model than traditional crowdfunding, making it ideal for creators who want consistent income while building a direct connection with their audience.

Fundrise

Fundrise is a standout platform in the real estate crowdfunding space. It allows individuals to invest in a diversified portfolio of commercial and residential real estate projects with as little as $10. Fundrise handles everything from property acquisition to management, and returns are paid out regularly. For investors, it’s a hands-off way to gain exposure to the real estate market without needing large capital or real estate experience.

RealtyMogul

Another major player in real estate crowdfunding is RealtyMogul. It offers both debt and equity investments in commercial properties. Accredited investors can access REITs (Real Estate Investment Trusts) and individual property deals, while non-accredited investors can invest in diversified portfolios. It’s a great platform if you are seeking passive income through real estate without managing properties yourself.

StartEngine

StartEngine is another equity crowdfunding platform that has grown rapidly in the US market. It allows both startups and growth-stage businesses to raise capital from everyday investors. One of its unique selling points is the inclusion of investor perks and bonus shares for early supporters. StartEngine is also backed by prominent names like Kevin O’Leary (from Shark Tank), which adds credibility to the platform.

These platforms show how crowdfunding is no longer limited to gadgets or social causes. Whether you are building a SaaS product, producing content, launching a real estate project, or expanding a brand, you now have access to niche platforms that connect you directly with the right kind of backers or investors.

Want to Start Your Own Crowdfunding Platform?

Thinking of launching your crowdfunding platform with features that go beyond what’s commonly available? If you are an entrepreneur looking to build something unique in this space, Fundraiser is built just for you. Our solution helps you set up your own fully functional crowdfunding software, tailored to your specific needs.

Whether you want a custom-built platform or a ready-made clone of popular crowdfunding sites, we offer flexible options and full customization to give your website a personal touch. Just share your requirements with us, and our team will handle the rest.

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