What Is Crowdfunding?

Crowdfunding is when an person or company raises money for their project, startup business, or cause in small amounts of money from a large number of people via the Internet.

Crowdfunding was first popularized in the US by the site KickStarter. KickStarter.com allowed people to raise donations for projects via crowdfunding. KickStarter projects often featured various tiers of donation that corresponded to a different levels of reward in exchange for their donation, such as the product being developed, or credit as a funder. A few successful projects have raised over $10 million dollars on KickStarter.

What is “Investment” or “Equity” crowdfunding?

Investment Crowdfunding is when someone gives money to a business via crowdfunding in order to own a part of the company as an investment, with the hope of earning a return on their money invested. Crowdfunded companies are much smaller than the companies you can invest in by buying shares on the stock market.

How can I invest in crowdfunding?

To invest in crowdfunded companies, you have to create an account on a crowdfunding site, often called a crowdfunding platform, or crowdfunding portal. (See our list of investment crowdfunding platforms)

Right now you need to be an accredited investor to buy equity shares of startup or crowdfunded companies. Soon though, a new law called the JOBS act will go into effect, allowing non-accredited investors to invest, with some limitations.