Crowdfunding: What it is, types, platforms, and how it boosts your business

When the spark of an entrepreneurial idea ignites, one of the first and most significant barriers to overcome is obtaining the necessary funds. This initial capital is crucial not only to launch the project but also to sustain it until it achieves profitability. Traditionally, the routes to secure financing have been limited: resorting to personal savings, applying for bank loans (often with requirements difficult for new businesses to meet), or seeking support from family and friends. But what happens when these options are not viable or sufficient?

This is where crowdfunding, also known as collective financing or micro-patronage, emerges as a powerful and democratizing alternative. If you are looking for capital for a personal financial emergency, to bring an innovative business idea to life, to launch a creative project, or to bring your innovative product to market, crowdfunding is an avenue you should seriously consider.

In recent years, crowdfunding has radically transformed the fundraising landscape. It has broken down the traditional barriers between those who need capital and a multitude of people willing to invest, lend, or donate. As relevant studies point out, collective financing has established itself as a crucial catalyst for entrepreneurship (Cumming et al., 2021) and represents an alternative and increasingly popular way to finance business projects (Kraus et al., 2016) and a valuable and growing tool for financing innovation (Hoque, 2024). Entrepreneurs, especially in early stages, have begun to significantly rely on micro-patronage to finance their investments and validate their ideas in the market (Hervé and Schwienbacher, 2018).

This article will offer you a complete and updated guide to crowdfunding. We will explore in detail what crowdfunding is and how it works, its advantages and disadvantages, the different types of crowdfunding that exist, the most relevant crowdfunding platforms globally and with a focus on regions like Latin America, and, most importantly, how it can help you materialize your entrepreneurial venture. We will also address strategies for a successful campaign, the costs and risks involved, and the future trends of this financing modality.

What is Crowdfunding and How does this financing mechanism work?

Crowdfunding, which translates to micro-patronage or collective financing, is a collective cooperation mechanism, usually carried out through online platforms, that allows entrepreneurs, creators, or people with a specific need to raise funds directly from a large number of individuals (the “multitude” or “crowd”). In essence, it’s about “passing the hat” in the digital age, but with much more defined structures and objectives.

Smith (2022) defines collective financing as “the use of small amounts of capital from a large number of individuals to finance new business ventures”; while Cumming et al. (2021) highlight that collective financing is an alternative solution to the capital gap problem for startups, crowdfunding can complement or substitute other sources of financing, such as venture capital or angel investors.

The participatory financing mechanism of crowdfunding is based on the idea that many small contributions can add up to a significant amount of capital. Project promoters present their idea, establish a funding goal, and a deadline to reach it. Contributors, in exchange for their contribution, usually receive some type of reward, a share in the company, interest on a loan, or simply the satisfaction of supporting a cause.

How does crowdfunding work in practice?

Collective financing uses the power of social networks, the internet, and crowdfunding platforms to spread the message about the causes it cares about, and to bring together investors and entrepreneurs. To launch a successful crowdfunding campaign, you need to capture the attention of a large number of backers and convince them that your project deserves their investment (Johnson, 2022).

• The Promoter: An entrepreneur, artist, or an organization with a specific project needs financing.
• The Platform: The promoter chooses a crowdfunding platform that suits their project type and needs. These platforms act as intermediaries, facilitating the connection between promoters and contributors, and managing transactions.
• The Campaign: A campaign page is created detailing the project: its purpose, the amount of money needed, what it will be used for, what is offered in exchange for contributions, and the deadline to raise funds. It is crucial to communicate the value proposition clearly and attractively.
• The Crowd (Contributors): Interested individuals make financial contributions. These can range from small amounts to more considerable sums, depending on the type of crowdfunding and the contributor’s interest.
• Collection Systems: There are mainly two models:
  • All or Nothing: The promoter only receives the funds if they reach or exceed the established funding goal within the deadline. If not reached, contributions are usually returned to the contributors. This model is common on platforms like Kickstarter and minimizes risk for contributors.
  • Keep it All (Flexible Funding): The promoter receives all contributions raised, even if they do not reach the initial goal. This model may be suitable for projects that can advance with less capital, although it can create challenges if the funds are insufficient to fulfill all promises.
• Closing and Delivery: If the campaign is successful (especially in the “all or nothing” model), the promoter receives the funds (less the platform’s commission) and proceeds to develop the project and deliver the promised rewards or shares.

Crowdfunding is not just a source of mass financing; it is also a powerful tool for validating a business idea, building a community around a project, and generating excitement before the official launch.

Types of crowdfunding: Choose the modality that best suits your project

Understanding the different types of crowdfunding is fundamental to selecting the appropriate strategy for your venture or cause. Each modality has its own characteristics, benefits, and specialized platforms:

Reward-based Crowdfunding

• Concept: Contributors make contributions in exchange for a non-monetary reward, which is usually the product or service being developed, exclusive merchandising, unique experiences, or acknowledgments. It is very popular for creative, technological, and consumer projects. According to Bech et al. (2022), reward-based crowdfunding is often seen as a tool to validate a business idea or generate brand awareness, not as a source of funding. Likewise, this type of collective financing is a dominant model for financing sustainable initiatives in all dimensions (Bartoli et al., 2025).
• Popular Platforms: Kickstarter, Indiegogo, Verkami, Ulule, Goteo, Patreon (the latter more focused on recurring content creators).
• Ideal for: Launching new products, artistic projects, video games, books, fashion.

Equity Crowdfunding

• Concept: Contributors invest money in exchange for an equity stake in the company. They become shareholders and expect a financial return if the company succeeds and grows in value or is acquired.

• Popular Platforms: Crowdcube, The Crowd Angel, Seedrs (mainly in Europe and the USA, but with growing global reach).

• Ideal for: Startups with high growth potential seeking seed or expansion capital and willing to give up part of their ownership.

Lending-based Crowdfunding (or Crowdlending)

• Concept: Also known as P2P lending (peer-to-peer lending). Contributors lend money to a person or company with the expectation of receiving it back with interest within a specified period.

• Popular Platforms: LendingClub (USA), and various local platforms in different countries.

• Ideal for: Companies seeking financing for working capital, expansion, or specific projects and prefer not to give up equity. Also for individuals seeking personal loans.

• Sub-modality – Crowdfactoring: Companies can obtain liquidity by anticipating the collection of their pending invoices, financed by a multitude of investors.

Donation-based Crowdfunding

• Concept: Contributors donate money without expecting a material or financial reward in return. The main return is emotional or the satisfaction of supporting a social, charitable, personal, or community cause.

• Popular Platforms: GoFundMe, migranodearena.org.

• Ideal for: Solidarity causes, community projects, personal emergencies, NGOs.

Hybrid Crowdfunding (e.g., Donation with Reward)

• Concept: Some campaigns combine elements of different types. For example, a donation campaign might offer small symbolic rewards to incentivize participation.

• Popular Platforms: Omaze (offers unique experiences in exchange for donations to charitable causes).

Real Estate Crowdfunding

• Concept: Allows multiple investors to contribute capital to finance real estate projects, whether for development, purchase, or rental, in exchange for a share in the profits or rents.

• Ideal for: Investors looking to diversify in the real estate sector with more accessible amounts and for developers seeking alternative financing.

• Popular platforms: According to Folger (2022), the best platforms for Real Estate Crowdfunding are: CrowdStreet, DiversyFund, Fundrise, PeerStreet and RealtyMogul.

Choosing the right type will depend on the nature of your project, your financial objectives, what you are willing to offer in return, and the profile of your target audience. In this regard, Bech et al. (2022) found that entrepreneurs often engage in crowdfunding as a first resort with three distinct motives: to raise capital, to validate a business idea, or to create brand awareness.

Advantages and disadvantages of Crowdfunding for entrepreneurs

While crowdfunding offers exciting opportunities, it is crucial to weigh both its benefits and potential drawbacks before launching a campaign.

Advantages of Crowdfunding

• Access to capital: This is the most obvious advantage. It allows entrepreneurs to obtain financing when other sources are unavailable or too restrictive. Contrary to typical financial investments, micro-patronage is fundamentally open to anyone (Kraus et al., 2016).
• Market validation: A successful campaign not only provides funds but also validates your business idea or product. If people are willing to pay upfront or invest, it’s a strong signal that there is demand.
• Community building and early marketing: It allows you to create a base of loyal customers and followers even before the product is on the market. Contributors become ambassadors for your brand.
• Feedback and Co-creation: You can get valuable comments from your first backers, allowing you to refine your product or service.
• Lower initial financial risk (for some types): In reward-based or donation-based crowdfunding, you do not accumulate debt or give up equity in your company in the same way as with bank loans or traditional venture capital investors.
• Accessibility and transparency: Online platforms make the process relatively accessible for a wide range of projects. Furthermore, the public nature of campaigns promotes transparency.
• Financial inclusion: It offers opportunities for both entrepreneurs from diverse backgrounds and micro-investors who can participate with small amounts.

Disadvantages and risks of Crowdfunding

• Public exposure of the idea: By presenting your project publicly, you run the risk of others copying your idea if it is not properly protected (although execution remains key). In this regard, Bargoni et al. (2024) reported that crowdfunding is facilitating the flow of knowledge between different actors, such as project initiators and investors, which represents a risk.
• Public failure and damage to reputation: According to Smith (2022), potential disadvantages of collective financing include possible damage to the company’s reputation caused by “resorting” to collective financing; if the campaign does not reach its goal (especially in “all or nothing” models) or if you cannot fulfill the promised rewards, it can damage your reputation and that of your brand. The “Coolest Cooler” case is a notorious example of post-campaign delivery problems.
• Considerable effort and time: Planning and executing a successful crowdfunding campaign requires a large amount of time, effort in marketing, communication, and management. It is not “easy” money.
• Platform fees and other costs: Platforms charge commissions (usually a percentage of the amount raised). Additionally, there are costs associated with the production of rewards, shipping, taxes, and marketing.
• Pressure to deliver: Once funded, there is great pressure to deliver what was promised to your backers, who have clear expectations.
• Legal, regulatory, and geopolitical risks: Depending on the type of crowdfunding and the jurisdiction, legal and regulatory complexities may exist, especially for investment and lending crowdfunding. Alsagr et al. (2023) found that geopolitical risk is negatively associated with crowdfunding performance; in this sense, crowdfunding campaigns launched by entrepreneurs in developing countries experiencing higher levels of geopolitical risk have a lower probability of fundraising success.
• Limited information for investors: In some cases, investors may have limited information about the project or the team, which increases the risk of their investment.
• Market and execution risks: Like any business project, there is a risk that the market will not respond as expected or that problems will arise in the project’s execution.
• Not having a safety margin or profits: It is crucial to calculate costs and the funding goal well to ensure there is a sufficient margin for unforeseen events and, ideally, profits.

How to minimize risks

Research by Shrestha et al. (2023) reports that entrepreneurs should communicate risks and be aware that online backers make calculated assessments and have material motivations. In this sense, some recommendations to reduce risks include:

• Exhaustive research: Research platforms, similar campaigns, and your target audience.
• Detailed planning: Prepare a solid business plan, a detailed budget, and a clear marketing strategy.
• Transparency and constant communication: Keep your backers informed throughout the entire process.
• Realistic goals: Set an achievable funding goal and rewards that you can deliver.
• Legal and financial advice: Consider seeking professional advice, especially for investment crowdfunding or if you have doubts about taxes and regulations.
• Intellectual property protection: If applicable, consider protecting your idea before launching it publicly.

The process of a successful Crowdfunding campaign: Key phases

By now, you have a basic understanding of what collective financing is. However, if you consider micro-patronage an alternative for your financing needs, you must prepare before launching a campaign.

Launching a crowdfunding campaign goes far beyond simply publishing your project on a platform. It requires meticulous planning and strategic execution. The research findings of Liu et al. (2022) highlight that the success of micro-patronage depends on a collection of significant factors: the fundraiser’s human capital, project location, team size, investor experience, project quality, and interactivity on the crowdfunding platform. For their part, Borrero and Escobar (2023) report that the factors with the greatest direct influence on the success of crowdfunding projects are: social media, social capital, and the promoters’ prior experience.

Below, I present the key phases for developing a crowdfunding campaign based on the research of Allison et al. (2017), Vismara (2019), Liu et al. (2022), Johnson (2022), and Borrero y Escobar (2023), among others:

Phase 1: Preparation and Pre-campaign (The Foundation of Success)

• Define your project and objectives: What do you want to achieve? How much money do you need and for what exactly? What type of crowdfunding is appropriate?
• Research and choose the platform: Compare commissions, reach, types of projects that are usually successful, and the tools they offer. Likewise, Cumming et al. (2024) found that collective financing platforms that include environmental, social, and governance (ESG) criteria in company selection attract a broader investor base.
• Develop your value proposition: Why should someone finance your project? What makes it unique and attractive? Although it may seem anecdotal, research by Namin et al. (2025) found that the length of the campaign description text (word count) acts as an important and actionable moderator; a lower word count leads to better performance for U.S. campaigns, while a higher word count leads to better performance for U.K. campaigns.
• Create high-quality campaign materials:
  • Main video: Essential. It should be concise, emotional, and clearly explain the project and the team behind it.
  • Persuasive text: Describe your story, the problem you solve, the solution you offer, and how the funds will be used.
  • Images and graphics: Visually attractive and professional.
  • Prototypes or samples: If it’s a physical product, show that it’s real.
• Establish rewards (if applicable): They should be attractive, tiered, and appropriately priced. Calculate production and shipping costs carefully.
• Set your funding goal and deadline: Be realistic. Consider campaign costs and commissions. Also, you must consider the campaign duration; Borrero y Escobar (2023) found that campaign duration has a negative influence on success. Longer campaigns may be perceived as a lack of confidence in the promoters’ fundraising ability.
• Build a prior audience (Pre-campaign): This step is CRUCIAL!
  • Create a landing page to capture email addresses.
  • Activate your social media and generate anticipation.
  • Contact your personal and professional network.
  • Identify relevant influencers and media.
  • The goal is to have a group of followers ready to support your campaign from day one. A good crowdfunding pre-campaign strategy can mean the difference between success and failure.
• Prepare your communication and marketing strategy: How will you promote your campaign before and during its launch?

Phase 2: Launch and Campaign Management

• Strong launch: Try to get 20-30% of your goal in the first few days, ideally from your close network and pre-built audience. This generates social proof and attracts more contributors.
• Continuous promotion: Don’t relax after the launch.
  • Publish regular updates on the platform and social media.
  • Send emails to your subscriber list.
  • Contact media outlets and bloggers.
  • Consider paid advertising if your budget allows.
• Interact with your audience: Respond to questions and comments quickly. Thank your backers.
• Monitor your KPIs (Key Performance Indicators):
  • Daily visits to the campaign page.
  • Conversion rate (visits to contributions).
  • Daily funds raised.
  • Number of contributions per day.
  • Average contribution per backer (ACPB).
  • Accumulated funds raised.
  • Traffic sources.
  • Analyze this data to adjust your crowdfunding communication strategy and promotional efforts.
• Adapt your strategy: If things don’t go as expected, don’t be afraid to try new approaches or messages.

Phase 3: Post-Campaign (Fulfillment and Loyalty Building)

• Acknowledgment: Thank all your backers, regardless of the final outcome.
• Fund management: If the campaign was successful, receive the funds (less commissions) and manage them carefully as promised.
• Delivery of rewards or fulfillment of promises: This is a critical phase. Communicate any delays or problems transparently. The timely and quality delivery of crowdfunding returns is fundamental for reputation.
• Maintain communication: Continue to inform your backers about the project’s progress, even after they have received their rewards.
• Build loyalty in your community: These early followers are your best ambassadors. Take care of them and consider offering them exclusive benefits in the future.
• Analyze and learn: Review what worked and what didn’t for future campaigns or projects.

Mastering these phases and applying a well-thought-out crowdfunding fundraising strategy will significantly increase your chances of success.

Key strategies for a successful Crowdfunding campaign

Beyond the general process, certain strategies can make a big difference in your campaign’s outcome:

• Attractive and Professional Campaign Design:
  • Compelling Narrative (Storytelling): Connect emotionally with your audience. Tell the story behind your project, your passion, and the impact it will have. Bade and Reichenbach (2025) conducted a study of collective financing campaigns on the Indiegogo platform and found that focusing more on topics related to climate, energy, sustainable societies, and responsible consumption promotes fundraising success; whereas focusing on ending poverty or on topics related to innovation, industry, and infrastructure reduces fundraising success.
  • High-Quality Video: It’s the centerpiece of your campaign. Invest time and resources in making it professional, clear, and emotional. It should last between 2-3 minutes.
  • Impactful Images: Show your product, team, or the problem you solve with good quality images and graphics.
  • Clear Calls to Action: Indicate exactly what you want visitors to do (e.g., “Support this project,” “Choose your reward”).
• Smart Pricing for Rewards:
  • Perceived Value: Rewards should offer good value for the money contributed.
  • Exclusivity and Scarcity: Offer limited edition or “early bird” rewards to incentivize early contributions.
  • Logical Tiering: Create reward levels that encourage people to contribute a bit more to get an additional benefit.
  • Cover Your Costs: Ensure the price of rewards covers their production, shipping, and still leaves a margin to finance the project. Consider the overall costs of the crowdfunding campaign.
• Effective Communication and Marketing Strategy:
  • Identify Your Target Audience: Who are the people most likely to support your project? Where are they online?
  • Content Marketing: Create valuable content related to your project (blog posts, videos, infographics) to attract and engage your audience.
  • Public Relations (PR): Contact relevant journalists, bloggers, and influencers who might be interested in covering your campaign. Prepare a press kit.
  • Social Media: Use the platforms where your audience is most active. Adapt your message to each network. Create a hashtag for your campaign. Bartoli et al. (2025) highlight that social media is a key driver of success in crowdfunding campaigns for sustainable development.
  • Email Marketing: It’s one of the most effective tools. Build your mailing list before and during the campaign. Send personalized updates.
  • Paid Advertising (Optional): If you have a budget, consider social media ads or Google Ads to reach a wider audience.
• Building Trust and Credibility:
  • Show Your Team: Introduce the people behind the project. People invest in people.
  • Be Transparent: Clearly explain how the funds will be used and be honest about risks and challenges.
  • Social Proof: Show testimonials, early endorsements, or any recognition you have received.
  • Constant Updates: Keep your backers and interested parties informed throughout the campaign.
• Planning for the Mid-Campaign “Slump”:
  • It’s common for campaigns to have a strong start, a slowdown in the middle, and a final surge.
  • Prepare content, ads, or special promotions to reactivate interest during the interim period.

Applying these crowdfunding strategies consistently and tailored to your specific project will better position you to achieve your funding goals.

Costs and risks of Crowdfunding: What you should know before starting

While crowdfunding may seem like an attractive way to obtain capital, it is essential to be aware of the costs of a crowdfunding campaign and the associated crowdfunding risks.

Costs Involved in a Crowdfunding Campaign

• Platform Fees: Most platforms charge a percentage of the total amount raised if the campaign is successful (generally between 5% and 12%). Some may also have fixed fees or transaction costs.
• Payment Processors: In addition to the platform fee, payment processors (like Stripe or PayPal) also charge a fee for each transaction (usually between 2% and 5%).
• Reward Production: If you offer physical rewards, you must calculate the cost of producing them in the required quantity.
• Shipping and Logistics: Shipping crowdfunding rewards can be costly, especially for international shipments. Research rates and logistics options in advance.
• Marketing and Promotion: Creating a quality video, designing graphic materials, paid advertising, email marketing tools, etc., all add up. Investments in this area of the crowdfunding campaign are crucial.
• Taxes: Funds raised through crowdfunding may be subject to crowdfunding taxes. The rules vary significantly depending on the country, the type of crowdfunding, and the nature of the funds (income, investment, donation). It is vital to consult with a tax advisor.
• Legal and Administrative Costs: Especially for equity crowdfunding or if you are incorporating a company, you might incur legal expenses.
• Contingencies: It’s always good to have a buffer for unforeseen events (e.g., an increase in production costs, shipping problems).

Risks and Challenges of Crowdfunding

• Not Reaching the Funding Goal: This is the most obvious risk. In “all or nothing” models, you will not receive funds and will have invested time and resources in vain.
• Underestimating Costs or Deadlines: A common mistake that can lead to an inability to deliver rewards or operating at a loss.
• Production or Delivery Problems: Delays or inability to produce or deliver promised rewards can severely damage your reputation.
• Fraud or Lack of Transparency: Although platforms try to mitigate this, the risk of fraudulent campaigns exists, affecting trust in the system. For promoters, a lack of transparency can generate distrust among backers.
• Legal and Regulatory Risk: Crowdfunding, especially investment and lending types, is subject to regulations that can be complex and change. Lack of knowledge can lead to penalties.
• Liquidity Risk (for equity/lending investors): It can be difficult to sell shares or recover loans before the agreed-upon term.
• Limited Information for Investors: It can be challenging for investors to adequately assess the risk of a project with limited information.
• Market Risks: That the product or service does not receive the expected market reception once launched.
• Not Having a Safety Margin or Profits: Poor financial planning can lead to the campaign only covering costs, leaving no margin for growth or unforeseen events.
• Specific Disadvantages (e.g., Real Estate Crowdfunding): These can include lack of investment liquidity, specific real estate market risks, or dependence on the promoter’s management.

Main existing Crowdfunding platforms

Choosing the right platform is a crucial step. Here we present some of the most recognized globally and mention the importance of looking for local options, especially in Latin America where the ecosystem is growing:

Leading Global Platforms

• Kickstarter:
  • Main Type: Rewards.
  • Focus: Creative projects (art, design, film, games, music, technology).
  • Model: All or nothing.
  • Considerations: Very popular, large community, but high competition.
• Indiegogo:
  • Main Type: Rewards (but more flexible).
  • Focus: Technological projects, creative projects, and social causes.
  • Model: Offers “all or nothing” and “flexible funding.”
  • Considerations: More open to different types of projects than Kickstarter. Also has a section called InDemand for projects that have already been funded and want to continue selling.
• GoFundMe:
  • Main Type: Donations.
  • Focus: Personal causes, medical emergencies, charitable organizations, community projects.
  • Considerations: Leader in personal and charity crowdfunding. Easy to use.
• Patreon:
  • Main Type: Rewards (subscription model).
  • Focus: Content creators (artists, musicians, writers, podcasters, YouTubers) seeking recurring income from their followers.
  • Considerations: Ideal for building a long-term community of patrons.
• Crowdcube / Seedrs:
  • Main Type: Investment (Equity).
  • Focus: Startups and growing companies seeking investors in exchange for shares.
  • Considerations: Regulated platforms, mainly active in Europe, but with projects and investors from all over the world. They require a higher level of preparation and documentation.

Factors to consider when choosing a platform

• Type of crowdfunding: Ensure the platform supports the model you need.
• Commissions and fees: Compare costs.
• Reach and audience: Does the platform have a relevant community for your project?
• Tools and support: What facilities does it offer to create and manage your campaign?
• Reputation and success cases: Research the platform’s track record.
• Regulation and compliance: Especially important for investment and lending crowdfunding.

Dedicating time to research and select the right platform is an investment that can have a big impact on your campaign’s success.

Success stories (and inspiration) and notorious ailures of Crowdfunding

Studying both the triumphs and stumbles in the world of crowdfunding offers valuable lessons.

Inspiring success stories

• Pebble Time (Smartwatch):
  • Platform: Kickstarter.
  • Achievement: Raised over $20 million in 2015 (its second successful campaign, the first raised over $10 million in 2012).
  • Keys: Innovative product, strong community built from the first campaign, attractive rewards, and excellent communication. It demonstrated the power of crowdfunding to launch technological products.
• Brandon Sanderson (Fantasy Novels):
  • Platform: Kickstarter.
  • Achievement: His “Surprise! Four Secret Novels by Brandon Sanderson” campaign in 2022 broke records, raising over $41 million.
  • Keys: Author with a massive and loyal fanbase, unique offer (surprise books), well-thought-out rewards, and a direct connection with his readers. Shows how established creators can also use crowdfunding.
• Exploding Kittens (Card Game):
  • Platform: Kickstarter.
  • Achievement: Raised over $8.7 million in 2015.
  • Keys: Game with irreverent humor, attractive design, fun and viral campaign video. A great example of a creative project that captured the public’s imagination.
• Social Impact Projects: Many campaigns on platforms like GoFundMe or Goteo have successfully funded community projects, humanitarian aid, medical research, or environmental initiatives, demonstrating the power of crowdfunding for social good.

Notorious failures and lessons learned

• Coolest Cooler (Multifunctional Cooler):
  • Platform: Kickstarter.
  • Initial Achievement: Raised over $13 million in 2014, one of the biggest successes at the time.
  • Problem: The company vastly underestimated production and logistics costs. Many backers never received their product or received it years late and with inferior quality.
  • Lesson: Production planning and supply chain management are as crucial as fundraising. Do not underestimate the costs or complexity of delivering physical products on a large scale.
• Ouya (Android Video Game Console):
  • Platform: Kickstarter.
  • Initial Achievement: Raised over $8.5 million in 2012.
  • Problem: Although the product was delivered, it did not meet the high expectations generated, had software and hardware issues, and failed to compete in the console market.
  • Lesson: Generating too much “hype” can be counterproductive if the final product doesn’t measure up. Post-campaign execution and product quality are fundamental.
• Zano (Mini Drone):
  • Platform: Kickstarter.
  • Initial Achievement: Raised over £2.3 million (approx. $3.4 million) in 2015.
  • Problem: The project collapsed before delivering most of the drones. There were accusations of mismanagement and promising features they couldn’t develop.
  • Lesson: Transparency, realistic management of technological capabilities, and financial responsibility are vital.

These examples underscore that a viral campaign or a million-dollar fundraising effort do not guarantee long-term success. Careful planning, efficient management, and, above all, the ability to deliver on promises are essential.

The future of Crowdfunding: Trends and innovations

Crowdfunding is not a static phenomenon; it continues to evolve with technology and market dynamics. These are some of the crowdfunding trends and innovations shaping its future:

• Integration of Blockchain and Tokenization:
  • Blockchain: Offers greater transparency, security, and efficiency in transactions. It could reduce costs and facilitate cross-border crowdfunding.
  • Tokenization: Allows converting rights over assets (equity, debt, future rewards, intellectual property) into digital tokens that can be easily transferred or traded. This could increase liquidity in investment crowdfunding and open new ways to finance and participate in projects (e.g., Security Token Offerings – STOs).
• Artificial Intelligence (AI) and Big Data:
  • Improved Project Selection: AI can analyze large amounts of data to help platforms and investors identify projects with higher success potential and assess risks.
  • Personalization: Offer more personalized project recommendations to contributors.
  • Campaign Optimization: Help promoters optimize their campaigns (e.g., suggesting better times to post, keywords, etc.).
• Growth of Real Estate Crowdfunding:
  • This segment continues to expand, allowing more people to invest in real estate with lower amounts and diversify their portfolios. Technology facilitates the management of multiple investors and properties.
• Greater Emphasis on Social Impact and Sustainability (ESG):
  • Investors and contributors are increasingly interested in supporting projects that not only offer financial returns but also generate a positive social or environmental impact (Environmental, Social, and Governance – ESG Criteria).
• Evolving Regulation and Regulatory Frameworks:
  • As the market matures, regulators worldwide continue to develop and adjust regulatory frameworks for crowdfunding. This seeks to protect investors and promoters and foster trust.
  • Fintech regulatory sandboxes allow companies to test innovations in a controlled environment, which can accelerate the adoption of new technologies in crowdfunding.
• Crowdfunding for Specific Niches:
  • Emergence of platforms and crowdfunding models focused on very specific industries or project types (e.g., scientific research, renewable energy, sustainable agriculture).
• Greater Professionalization of Campaigns:
  • As the space becomes more competitive, promoters need more sophisticated campaigns, with better marketing, higher quality videos, and more rigorous planning.
• Banking APIs and Open Banking:
  • Integration with Fintech banking APIs can facilitate payment processes, identity verification, and fund management, making crowdfunding platforms more efficient.

The future of crowdfunding will likely be more technological, more specialized, more regulated (but ideally in an enabling way), and more integrated into the general financial ecosystem, offering new and exciting opportunities for both those seeking financing and those wishing to support new ideas.

The role of Crowdfunding in financial inclusion and for Micro-investors

Crowdfunding is not only changing how projects are financed but also who can participate in these financing and investment opportunities. It plays an increasingly important role in financial inclusion.

Entrepreneurs

• Access to capital for the underserved: Many entrepreneurs, especially those without a credit history, traditional collateral, or belonging to underrepresented groups, find crowdfunding a way to obtain capital that would otherwise be inaccessible through traditional banking.
• Democratization of opportunity: It allows a good idea, well-presented and with market potential, to obtain financing regardless of the entrepreneur’s socioeconomic background or connections.

Micro-investors

• Accessible investment opportunities: Investment and lending crowdfunding allow people with small amounts of capital (micro-investors) to participate in financing startups or real estate projects, markets that were previously reserved for large investors or institutional capital.
• Diversification: Micro-investors can diversify their portfolios by investing small amounts in multiple projects, which can help mitigate risk.
• Potential for attractive returns: Although it involves risks, some crowdfunding investments can offer interesting returns, especially in high-growth projects or in lending crowdfunding with competitive rates.
• Direct connection with projects: Investors can feel more connected to the projects they finance, choosing those that align with their interests or values.
• Education and empowerment: Participating in crowdfunding can be a valuable learning experience about investment, project evaluation, and market dynamics.

Challenges for Financial Inclusion through Crowdfunding

• Digital divide: Internet access and digital skills are required to participate.
• Financial education: Both entrepreneurs and investors need to understand the mechanisms, benefits, and risks. Dissemination and training in crowdfunding are crucial.
• Investor protection: It is fundamental that regulations adequately protect micro-investors, who can be more vulnerable.
• Risk of loss: Investments, especially in startups, are risky, and micro-investors must be aware that they can lose their capital.

Despite the challenges, crowdfunding has enormous potential to democratize access to capital and investment opportunities, fostering a more inclusive and participatory financial ecosystem. Crowdfunding education initiatives are key to maximizing this potential.

Conclusion

Crowdfunding has transcended its “alternative” label to become a fundamental strategic tool in the modern entrepreneur’s financing arsenal. Whether you are looking to launch an innovative product, expand your startup, finance a creative project, or support a social cause, collective financing offers a range of possibilities adapted to diverse needs and objectives.

We have explored what crowdfunding is and how it works, from its basic mechanisms to the different types such as reward-based, investment, lending, and donation. We analyzed the crucial advantages – like market validation and community building – and the inherent disadvantages and risks that demand careful planning and transparent management.

Understanding the phases of a campaign, from the crucial pre-campaign to post-delivery, and applying effective communication, design, and pricing strategies, are decisive for success. Likewise, being aware of the costs involved and regulatory frameworks, especially in developing regions like Latin America, is indispensable.

The future of crowdfunding looks dynamic, with technological innovations like blockchain and AI, and a growing focus on social impact and financial inclusion for micro-investors.

Ultimately, crowdfunding is not just a way to get money; it’s a way to build relationships, validate ideas, and mobilize a community around a vision. For the entrepreneur, mastering the “art” and “science” of crowdfunding can be the necessary impetus to transform a brilliant idea into a successful reality. We encourage you to research, plan, and, if it aligns with your goals, launch your own campaign with the preparation and passion your project deserves.

Frequently Asked Questions (FAQ) about Crowdfunding

What exactly is crowdfunding and how does it work?

Crowdfunding, or collective financing, is a method of raising funds for a project or venture through small contributions from a large number of people, usually via online platforms. Promoters present their idea, set a financial goal and a deadline. Contributors provide money and, in return, may receive rewards, equity, interest, or the satisfaction of supporting a cause.

What types of projects can I use crowdfunding for?

Crowdfunding is versatile and can be used for a wide range of projects, including:

• New ventures and startups.
• Creative projects (films, music, books, art, video games).
• Development of technological and innovative products.
• Social, charitable, or community causes.
• Urgent personal needs (e.g., medical expenses).
• Real estate projects.

What are the main types of crowdfunding?

Several types exist, the most common being:

• Reward-based: Products, services, or experiences are offered in exchange for the contribution.
• Investment-based (Equity): Shares or stakes in the company are offered in exchange for capital.
• Lending-based (Crowdlending): Money is lent with the expectation of it being returned with interest.
• Donation-based: Contributions are made without expecting material reward, usually for altruistic causes.
• Hybrid: Combine elements of the above.

What is the difference between “all or nothing” and “keep it all” in crowdfunding campaigns?

• All or Nothing: The project creator only receives the funds if they reach or exceed the established funding goal. If not, the money is returned to the contributors.
• Keep it All (Flexible Funding): The creator receives all contributions, even if they do not reach the initial goal.

What advantages does crowdfunding offer entrepreneurs besides money?

Besides funding, crowdfunding offers:

• Market validation: Checks if there is real interest in your product or service.
• Community building: Creates a base of loyal customers and followers from the start.
• Marketing and visibility: Generates buzz and publicizes your project.
• Early feedback: You get valuable opinions to improve your offering.

What are the main risks of launching a crowdfunding campaign?

Some risks include:

• Not reaching the funding goal.
• Underestimating production costs or reward shipping.
• Damage to reputation if promises are not kept.
• Public exposure of the idea before its protection.
• The considerable time and effort the campaign requires.

How much does it cost to run a crowdfunding campaign?

Costs vary, but generally include:

• Platform fees (between 5% and 12% of the amount raised).
• Payment processor fees (between 2% and 5% per transaction).
• Reward production and shipping costs.
• Marketing and promotion expenses (video, advertising, etc.).
• Possible taxes on funds raised.

How important is the “pre-campaign” in crowdfunding?

It is crucial. A good pre-campaign allows you to build an interested audience and ensure a strong initial boost in the first days of your campaign, which significantly increases the chances of success by generating social proof.

Do I have to pay taxes on the money I raise in a crowdfunding campaign?

Generally, yes, but tax rules vary greatly by country, type of crowdfunding (reward, donation, investment), and the promoter’s legal nature. It is essential to consult a tax advisor in your jurisdiction to understand your obligations.

Can anyone invest in crowdfunding projects?

In many types of crowdfunding (rewards, donations), yes. For investment (equity) or lending (crowdlending) crowdfunding, there may be requirements according to each country’s regulations to protect investors. However, one of crowdfunding’s advantages is that it has made investment more accessible for micro-investors with small amounts.

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Milthon Lujan Monja

Editor and founder of “Innovar o Morir” (‘Innovate or Die’). Milthon holds a Master’s degree in Science and Innovation Management from the Polytechnic University of Valencia, with postgraduate diplomas in Business Innovation (UPV) and Market-Oriented Innovation Management (UPCH-Universitat Leipzig). He has practical experience in innovation management, having led the Fisheries Innovation Unit of the National Program for Innovation in Fisheries and Aquaculture (PNIPA) and worked as a consultant on open innovation diagnostics and technology watch. He firmly believes in the power of innovation and creativity as drivers of change and development.