Crowdfunding works by having multiple people individually contribute a small amount to a project, a new business, or a cause. Usually, the pool of people is large and they may not know each other, which is where the “crowd” in crowdfunding comes from. Instead of having just a few investors fund the venture, crowdfunding allows a lot more people to give a little bit of money.

There are three types of crowdfunding:

• Reward crowdfunding: You reward contributors with a product sample or a gift if they give a certain amount
• Debt crowdfunding: Instead of getting a bank loan, you get a loan from crowdfunding and then repay it
• Equity crowdfunding: You give your contributors equity in the company in exchange for cash