Full Definition
Crowdfunding is a method of raising capital by collecting small contributions from a large number of people, typically through online platforms. For startups, crowdfunding can provide capital, market validation, and early customer acquisition simultaneously.
Types of Crowdfunding
- Reward-Based: Backers receive a product or perk (Kickstarter, Indiegogo)
- Equity Crowdfunding: Investors receive equity shares (Wefunder, Republic, StartEngine)
- Debt Crowdfunding: Investors make loans to be repaid with interest
- Donation-Based: Contributions without return expectations (GoFundMe)
Regulation Crowdfunding (Reg CF)
Under SEC Regulation CF, startups can raise up to $5 million per year from non-accredited investors through registered platforms. This democratizes startup investing beyond traditional accredited investor requirements.
Real-World Example
A hardware startup raises $2M on Kickstarter with 15,000 backers, validating demand while funding initial production runs.
Related Terms
The first significant round of funding for a startup, typically used to build an MVP and validate market fit.
An individual or entity meeting specific SEC financial criteria required to invest in private securities.
The earliest informal fundraising round where founders raise small amounts from personal connections.
The earliest stage of startup funding, usually from founders, friends, family, or early angel investors.
Ownership interest in a company, represented by shares of stock.
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