Financial Glossary
Crowdfunding
Crowdfunding is a capital-raising mechanism in which a business, project creator, or individual solicits small contributions from a large number of participants, typically via an online platform. The four primary models are: reward-based (backers receive a product or perk), donation-based (no financial return), equity-based (backers receive an ownership stake, regulated under securities law), and debt-based or revenue-share (backers are repaid from future revenues). Equity crowdfunding in the US operates under Regulation Crowdfunding or Regulation A and imposes disclosure and filing requirements on issuers.
Problem & Application
A family-owned campground wants to add a glamping village -- 12 safari tents at $30,000 each -- but cannot qualify for a conventional construction loan without two years of glamping-specific revenue history. The owners launch a Regulation Crowdfunding campaign offering revenue-share agreements to backers: investors contribute a minimum of $500 and receive a proportionate share of glamping revenue for five years, capped at 1.5x their investment. The campaign raises $200,000 from 140 backers, covering the first phase of tents. Because revenue-share obligations are tied to actual glamping income, the owners avoid fixed debt payments during the ramp-up period. The campaign also functions as pre-marketing, converting many backers into future guests who feel personally invested in the project's success.
In Short
Crowdfunding is a viable funding option for startups and creative projects. Success requires strategic marketing, clear messaging, and strong community engagement.