What is crowdfunding and how does it work: the complete guide

There is a way to bring things to life that does not go through the bank, investors or grant applications: asking the people who believe in them. A few dozen euros each, from hundreds or thousands of people. It is called crowdfunding, and this guide gives you everything you need to understand it: where it comes from, how it works, which types exist, who uses it, which rules apply in Europe and where to start.

An idea older than the internet

In 1885 the Statue of Liberty was ready in France, but New York lacked the money for its pedestal. Joseph Pulitzer, publisher of the New York World, launched an appeal to his readers: the name of every donor, even those giving a few cents, would be printed in the paper. In six months more than $100,000 came in^[1], from more than 120,000 people.^[2] It is considered one of the first great crowdfunding campaigns in history, and it already had all of today's ingredients: a clear project, a goal, lots of small contributions and a public thank-you.

The internet made everything easier. In 1997 American fans of the English band Marillion raised about $60,000 online to pay for a US tour the band could not afford.^[3] In Italy, in 2005, Produzioni dal Basso was born, one of the first crowdfunding platforms in the world.^[4] Indiegogo arrived in 2008^[5], Kickstarter in 2009. Since then crowdfunding has become a permanent part of the economy: in 2020, across all models, it was worth more than $113 billion worldwide.^[7]

How it works, step by step

Whatever the platform, a crowdfunding campaign almost always follows the same steps.

1. The project. The person behind it (the creator) decides what they want to make, how much they need and why now.
2. The page. On the platform, the project has a public page: title, story, images, often a video, the goal in euros and the length of the campaign, usually a few weeks.
3. The rewards. In reward-based crowdfunding the creator sets up tiers: €10 for a thank-you, €30 for a copy of the product, €100 for an experience.
4. The launch. The page goes live and the creator spreads the word: friends, family, community, social media, email, the press.
5. The pledges. Anyone who wants to take part chooses a reward, or gives a free amount, and pays by card.
6. The close. At the end of the campaign the money goes to the creator, according to the platform's rules, minus fees.
7. The delivery. The creator makes the project happen and delivers the rewards, keeping backers informed with updates.

The tricky part is almost always the beginning. On Kickstarter, 79% of projects that pass 20% of their goal make it to the end^[6]: the first backers, the ones the creator already knows, are the ones who get everything else moving.

The four types of crowdfunding

1. Reward-based

Backers get something in return: the finished product, the book, the album, a ticket to the show, dinner with the author, their name in the credits. It is the crowdfunding of creative projects, new products and events. Worldwide it was worth $1.25 billion in 2020.^[7]

2. Donation-based

Backers receive nothing, apart from the satisfaction of having helped. It is the model for social causes, emergencies, medical bills and associations.

3. Equity

Those who take part become shareholders in the business. It is an investment, with its own risks, and in Europe it only goes through authorised platforms. In Italy alone, from 2014 to June 2026, equity crowdfunding raised €877 million.^[8]

4. Lending

Those who take part lend money to a business and get it back with interest. It is the largest model by volume worldwide, and in Europe it follows the same rules as equity.^[9]

All or nothing, or keep it all

Before choosing a platform, it pays to understand one rule that changes everything: what happens if you do not reach your goal.

• All or nothing. If the campaign does not reach its goal, nobody pays and you receive nothing. This is Kickstarter's rule. It protects backers, but it forces you to pick a goal you are sure you can reach.
• Keep it all (also called take it all). You keep what you raise even if you fall short of the goal. In return you still have to deliver the rewards you promised. It is the right model if part of the money lets you deliver part of the project.

We cover this in detail in the guide All or nothing or keep it all: which model to choose.

Who crowdfunding is for

Reward and donation crowdfunding is open to anyone with a project and someone to tell about it.

• Artists and creatives: an album, a book, a film, an exhibition, a comic.
• Inventors of a product: to fund the first production run and find out whether people like it before making it.
• Associations and non-profits: an ambulance, a summer camp, a social project.
• Sport: team kits, a tournament, a pitch that needs fixing up.
• Schools and communities: a workshop, a garden, a school trip.
• Local councils and culture: restoring a monument, a festival, a library.
• Small businesses: a new venue, a product line, a piece of equipment.

For associations, sports clubs and local councils there is a dedicated guide: Crowdfunding for associations, sport, culture and local councils.

What it gives you besides money

Anyone who has run a campaign will tell you the same thing: the money is only part of what you take home.

• Proof that people want the project. If a hundred people pay today for a product that will arrive in three months, the idea works. If nobody pays, better to find out before you invest everything.
• A community. Backers become your first customers, your first fans, the people who tell others about the project. On Kickstarter more than a third of those who have backed a project have come back to back others.^[6]
• Visibility. A campaign is news: it gives you a reason to contact journalists, to talk about it on social media, to approach a partner.
• Independence. No bank, no partners: the project stays yours.

A successful campaign does not just bring money: it brings the first people who believe in your project.

The rules in Europe

Reward-based crowdfunding has no dedicated law. Pre-sales follow the usual e-commerce rules, both on VAT and invoicing and on consumer protection. Donation crowdfunding has no dedicated EU framework either: the general rules on donations apply and, for non-profit organisations, any national rules on fundraising.

Equity and business lending are a different matter: since 10 November 2021 they have been governed by EU Regulation 2020/1503^[9], and platforms must be authorised and are supervised by national authorities.

For tax matters, VAT and receipts, see the guide How much a crowdfunding campaign costs. For your own specific case, the advice is always the same: talk to your accountant before you launch.

How much it costs

Platforms make their money from a fee on what is raised, on top of which come card payment costs. Then there is the cost of the rewards: production, packaging, shipping. This is the item creators most often underestimate.

On Campagna Crowdfunding you pay €59 once to activate your campaign, plus 12% of what you raise; card fees are separate. That includes writing the page, the images, a review before publication and the tools for social media and email. All the details are in How it works.

Where to start

If you are thinking about a campaign, these are the first steps, each with its own guide.

1. Choose your goal and your funding model. All or nothing or keep it all.
2. Think about the rewards, and what they cost. How to choose your rewards.
3. Write the page: title, story, images, video. How to write your campaign page.
4. Prepare the launch, starting with your first hundred backers. The launch plan.
5. Let people know you exist: social media, email, the press. Promoting your campaign.

A study of more than 48,000 projects found that the quality of preparation really matters: a video, a page without mistakes, updates from the very first days.^[10] None of these things costs much. They just mean starting early.

Frequently asked questions