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Which method of financing involves raising small amounts of money from a large number of people?
By Solomon Wiesen, editor. Updated October 2026. Editorial standards | How this site is funded
Crowdfunding is the method of financing that raises small amounts of money from a large number of people, almost always through a website. It comes in four types, and the difference between them is what you owe the crowd afterward: a product (rewards), nothing (donations), repayment (loans), or a piece of your company (equity).
- The answer is crowdfunding. Its four types are rewards, donations, loans and equity.
- Fees: about 8% to 10% on Kickstarter or Indiegogo, 7.9% on Wefunder, 2.9% plus $0.30 on GoFundMe, and nothing on a Kiva loan.
- Equity crowdfunding is capped at $5 million in 12 months under the SEC’s Regulation Crowdfunding.
- Rewards money is taxable income; only true gifts are excluded.
| Type | What backers get | Example platform | What the platform charges |
|---|---|---|---|
| Rewards | The product or a perk | Kickstarter | 5% of funds raised, plus 3% and $0.30 per pledge for processing |
| Donations | Nothing | GoFundMe | No platform fee; 2.9% plus $0.30 per donation |
| Loans | Their money back | Kiva (US) | No fees and 0% interest on $1,000 to $15,000 |
| Equity | Shares or another security | Wefunder | 7.9% of the amount raised |
What a $10,000 raise costs on each platform
Platform and payment fees on $10,000 from 200 backers giving $50 each, using each platform’s published fees in October 2026.
Rewards: pre-selling a product
A rewards campaign is a pre-order with a deadline. Kickstarter takes 5% of the funds raised, and its payment processor takes 3% plus $0.30 per pledge (pledges under $10 are charged 5% plus $0.08). Funding is all-or-nothing: miss the goal and no backer is charged and you pay no fees. Indiegogo’s fees are close to identical, at 5% plus 3% and $0.20 per transaction. Budget 8% to 10% off the top on either site, before you have made or shipped anything. Backers have paid for a thing and expect to receive it, which is where rewards campaigns go wrong.
What failure looks like
Coolest Cooler is the case to study. In 2014 it raised $13,285,226 from 62,642 Kickstarter backers on a $50,000 goal, more than 265 times what it asked for. In December 2019 the company shut down, and more than 20,000 backers never got a cooler, according to GeekWire. Under a 2017 settlement with the Oregon Department of Justice, the founder told them they might be eligible for up to $20.
Pebble is a different kind of failure. Its first smartwatch campaign raised $10,266,845 from 68,929 backers in 2012, and a 2016 campaign raised $12,779,843 from 66,673 backers. That December, Pebble told backers it was shutting down and selling assets to Fitbit. More than $23 million from the crowd did not produce a company that could stand on its own.
For ordinary campaigns, Kickstarter published an independent study by Wharton professor Ethan Mollick covering 65,326 funded projects from 2009 through May 2015. Its fulfillment report found that 9% of funded projects failed to deliver rewards. The data is a decade old and counts only projects that reached their goal.
My read of all three: set the goal at what it costs to manufacture and ship at the volume you might hit, and price the reward so that a tenfold overshoot makes money on every unit.
Donations
GoFundMe charges organizers no platform fee. A transaction fee of 2.9% plus $0.30 comes out of each donation, so a $50 gift delivers $48.25. Donors get nothing in return, which suits medical bills and disaster relief. I would not count on strangers donating to a company that plans to turn a profit.
Loans from the crowd
The cheapest money of the four types is a Kiva US loan: $1,000 to $15,000 at 0% interest with no fees, repaid over 12 to 36 months, with no minimum credit score. You first have to get people you know to lend during a private period of up to 15 days, and then the loan has up to 35 days to fill publicly, all-or-nothing. For a few thousand dollars of equipment or inventory, I would try this before any other startup financing method. More options that skip the credit score are in startup funding without a credit check.
Equity: Regulation Crowdfunding
Selling shares to the general public online is legal in the US under the SEC’s Regulation Crowdfunding. A company can raise up to $5 million in any 12-month period, through one SEC-registered intermediary. FINRA’s list of funding portals showed 73 of them at the end of September 2026, including Wefunder, StartEngine and Republic.
| Amount raised in 12 months | Financial statements required |
|---|---|
| $124,000 or less | Certified by your principal executive officer |
| $124,001 to $618,000 | Reviewed by an independent accountant |
| Over $618,000 | Audited (first-time issuers can use reviewed statements up to $1,235,000) |
Thresholds are from 17 CFR 227.201(t). After the raise you file an annual report within 120 days of each fiscal year-end until you qualify to stop. Investors face limits too: a non-accredited investor whose income or net worth is below $124,000 can put the greater of $2,500 or 5% of the larger figure into all Regulation Crowdfunding deals combined in 12 months, and shares generally cannot be resold for a year.
On cost, Wefunder charges 7.9% of the amount raised, only if the round closes. Republic’s cost page lists $1,500 up front for the Form C filing, about $1,500 for escrow and $1,000 to $4,000 for financial statements, before its commission. Raise $200,000 on Wefunder and $15,800 goes to the portal, plus the accountant’s bill. That is a high price for capital unless your customers are the likely investors, in which case the campaign doubles as marketing.
How the money is taxed
The IRS addressed this in fact sheet FS-2022-20. Crowdfunding money is included in gross income unless an exclusion applies, and the main one is for gifts. A backer who gets a product in return is not making a gift, so plan on rewards money being taxable business income. Keep campaign records for at least three years.
The current Form 1099-K threshold is more than $20,000 across more than 200 transactions, not the $600 in the older fact sheet. Income has to be reported whether or not a 1099-K arrives. The startup taxes section covers what to track.
Where to go next
Frequently asked questions
Which method of financing involves raising small amounts of money from a large number of people?
Crowdfunding. It raises small amounts from many people, usually online, in four forms: rewards, donations, loans and equity.
What are the four types of crowdfunding?
Rewards (backers get a product, as on Kickstarter), donations (backers get nothing, as on GoFundMe), loans (backers are repaid, as on Kiva) and equity (backers get shares, as on Wefunder).
How much does crowdfunding cost?
Rewards platforms take about 8% to 10% including payment processing, Wefunder charges 7.9% of an equity raise, GoFundMe takes 2.9% plus $0.30 per donation, and Kiva loans carry no fees or interest.
How much can a company raise with equity crowdfunding?
Up to $5 million in any 12-month period under Regulation Crowdfunding, through a single SEC-registered broker-dealer or funding portal.
Is crowdfunding money taxable?
Usually. The IRS includes crowdfunding money in gross income unless an exclusion such as the gift exclusion applies; rewards money is business income.
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