What is crowdfunding? The four kinds, and which one you actually need

What is crowdfunding, stripped of the marketing: raising money from a lot of people, each giving a small amount, through a page that collects the payments.

That definition covers four completely different activities, governed by different rules, different expectations and in two cases different laws. Picking the wrong one is an expensive mistake, and a common one.

The four kinds

Donation crowdfunding

People give money and get nothing back except the knowledge that they helped. Medical bills, funerals, disaster relief, an animal shelter, a school trip, a neighbour who lost their home.

This is what most people mean when they say crowdfunding, and it’s what a personal cause needs. It’s also the only one of the four where the main obstacle is trust rather than paperwork.

Reward crowdfunding

Backers pay in advance and receive something later: the product, a copy of the album, a credit in the film. Kickstarter and Indiegogo made this category.

It has a hard requirement that most people underestimate: you have to deliver. Backers who never receive what they paid for have a consumer complaint rather than a disappointment, and campaigns have ended in court over it.

Equity crowdfunding

Investors buy a stake in a company. This is a regulated financial activity nearly everywhere, with prospectus requirements, investor limits and licensed platforms.

If someone offers you “equity crowdfunding” without mentioning regulation, walk away.

Lending crowdfunding

People lend money and get it back with interest. Also regulated, also not something you set up on a weekend.

Which one you need, in one question

Is anyone getting anything back?

If nobody is, it’s donation. If they get a thing, reward. If they get a share of a company, equity. If they get their money back with interest, lending.

If the answer is “no”, stop reading comparisons of Kickstarter and Indiegogo. They’re excellent at a job that isn’t yours, and their all-or-nothing model (you get nothing unless you hit your target) is actively wrong for a bill that arrives next month.

What donation crowdfunding actually costs

Almost every platform now says 0%. That refers to one of four possible charges:

1. The platform fee, a percentage of what you raise.
2. Payment processing, charged by the card network. Nobody removes this; the only question is who absorbs it.
3. Withdrawal, to move money to your account.
4. The donor tip, asked of the person donating, frequently pre-selected.

The fourth is how most “free” platforms are funded, and it’s worth understanding because it comes out of the same pocket your donors were giving from. The full version is in how online fundraising actually works.

Who can run one

For donation crowdfunding, anyone. No company, no registration, no minimum. A neighbour raising for the family two doors down is the most common case there is, and it needs nothing more than a name and a bank account or wallet.

Organisations can too, on the same footing. Where it gets more involved is the other three types, which assume a legal entity and, for equity and lending, a licence.

What decides whether it works

The platform decides less than these three do, and they hold on every platform.

People recognise you. Your name, your face, your connection to the situation, and a way to reach you. Anonymous campaigns don’t raise money, however genuine.

They can see where the money goes. Itemised, with amounts. A single round number reads as a guess; a list can be checked.

They see others have already given. Donations cause donations, which is why the first ten matter more than everything after them, and why they should come from private messages to people who know you rather than a post in a large group.

Two things crowdfunding is not

It is not a way to reach strangers. No page makes people who’ve never heard of you send money. It makes it easy for people who already know you, or know your situation, to help and to pass it on. Campaigns that reach strangers do so because someone in the second ring shared it, not because the platform surfaced it.

It is not instant either. From publishing to money in your account is days, sometimes longer depending on the platform. If your deadline is this week, that’s the first question to ask, before the fee.

What crowdfunding platforms differ on, beyond the type

Two platforms doing donation crowdfunding can still be very different products. The things that separate them:

Who holds the money. Platform account until you withdraw, or straight to yours. This matters most when a deadline is short or a campaign gets flagged.

Which payment methods work. Cards everywhere; bank transfer and stablecoins depend on the country and on the platform. If part of your list is abroad, this decides more than the fee does.

What you are left with afterwards. A spreadsheet export, or a verifiable record per contribution. Nobody thinks about this until someone asks them to account for the money.

Whether it also collects signatures. Plenty of causes need both, people behind them and money for them, and splitting those across two unrelated tools splits the audience too.

The detail on fees and payouts is in how online fundraising actually works.

One more distinction worth making early: whether you need money, support, or both. A repair fund alongside a request to the council is two asks of the same people, and two unrelated links is how you lose half of them.

If you’re raising for a cause and nobody is getting anything in return, see how it works on Causfy: creating is free, we take no percentage, and the money goes straight to your account or wallet.