Crowdfunding as an Investment: Is It Really Possible to Earn Money?

Crowdfunding as an Investment: Is It Really Possible to Earn Money?
Crowdfunding has evolved from a simple fundraising mechanism into a potential investment avenue for those looking to diversify their portfolios. This document explores the realities of crowdfunding as an investment tool, analyzing the advantages, disadvantages, platforms, and success stories to help private investors and potential backers make informed decisions. 
Understanding Crowdfunding Investment Models
Crowdfunding (from English crowd and funding) represents collective project financing through specialized platforms. Investors, also called backers, contribute money to projects and receive various forms of returns depending on the crowdfunding model employed.
Reward-Based
Investors receive products or bonuses in return for their financial support. This model is popular on platforms like Kickstarter and Indiegogo where backers essentially pre-purchase products.
Equity-Based
Investors acquire ownership shares in the company. Platforms like StartEngine and Wefunder facilitate these transactions, allowing backers to become actual shareholders in early-stage ventures.
Debt-Based (Crowdlending)
Investors lend money with the expectation of receiving interest payments. Platforms like Funding Circle connect lenders with borrowers seeking alternatives to traditional financing.
Donation-Based
Contributors provide funds without expecting financial returns. Platforms like GoFundMe focus on charitable and personal causes where the primary motivation is helping others.
For investors seeking financial returns, equity-based crowdfunding and crowdlending represent the most promising models. These structures provide clear mechanisms for potential profit through either company growth (equity) or interest payments (lending).
The crowdfunding investment landscape continues to evolve with regulatory changes and increasing professionalization. Understanding the distinctions between these models is crucial for investors to align their expectations with the appropriate investment vehicle.
Advantages of Crowdfunding Investments
Accessibility for Beginning Investors
Crowdfunding democratizes investment opportunities with entry thresholds as low as €9.5 (equivalent to $10). This accessibility opens doors for individuals without significant capital to participate in potentially lucrative ventures that were previously available only to accredited investors or venture capitalists.
Supporting Innovation
Crowdfunding provides a channel to invest in unique, cutting-edge projects that might struggle to secure traditional financing through banks or venture funds. This gives investors the opportunity to become part of groundbreaking initiatives, from revolutionary gadgets to transformative technology startups.
Potentially High Returns
Successful projects, particularly in equity crowdfunding, can deliver impressive returns. Early Oculus Rift investors on Kickstarter witnessed phenomenal gains following Facebook's acquisition of the company. While rare, these success stories demonstrate the ceiling for returns in this alternative investment class.
Concept Validation
Crowdfunding serves as a real-world market test, allowing investors to gauge demand for a product before its official launch. Strong fundraising performance signals market interest and potentially reduces investment risk by confirming that the concept resonates with consumers.
Global Investment Reach
Platforms like Kickstarter and Indiegogo provide access to projects from around the world, expanding diversification opportunities beyond local markets. This global perspective allows investors to participate in innovations regardless of geographic boundaries.
These advantages make crowdfunding an appealing option for investors seeking to diversify their portfolios with alternative investments that combine financial opportunity with direct support for innovation and entrepreneurship.
Disadvantages and Risks of Crowdfunding Investments
While crowdfunding presents exciting opportunities, investors must carefully consider the significant risks involved before committing capital to these platforms. Understanding these challenges is essential for responsible investment decision-making.
"The democratization of investment through crowdfunding comes with a democratization of risk. The lower barriers to entry mean less rigorous vetting compared to traditional investment channels."
The most significant risks emerge from the early-stage nature of most crowdfunded ventures and the limited regulatory oversight compared to traditional securities markets. Investors should approach crowdfunding as a high-risk portion of a diversified portfolio rather than a primary investment vehicle.
High Failure Rate
Approximately 30-40% of projects on Kickstarter fail to deliver on their promises. For equity crowdfunding, the statistics are even more sobering, with most startups failing to achieve profitability. Investors face a substantial risk of losing their entire investment, especially in equity-based models.
Lack of Guarantees
Unlike bank deposits or bonds, crowdfunding offers no guarantees of capital preservation or returns. Even campaigns that successfully raise funds may encounter execution challenges, production difficulties, or market shifts that prevent the fulfillment of initial promises.
Low Liquidity
In equity crowdfunding, selling shares before a company goes public or gets acquired is extremely difficult. This illiquidity means investor capital may be locked up for years with no clear exit timeline, making these investments unsuitable for those who might need access to their money in the short or medium term.
Fraud Potential
Some projects turn out to be fraudulent, and platforms cannot always guarantee reliability. Investors need to conduct thorough due diligence before committing funds, as regulatory protections are typically less robust than in traditional securities markets.
Limited Scale
Crowdfunding rarely suits large investments. The funding caps and project sizes are typically restricted, making this vehicle less attractive for substantial capital deployment or for projects requiring significant funding to achieve commercial viability.
Crowdfunding Platform Landscape
The crowdfunding ecosystem features a diverse array of platforms, each with unique characteristics, strengths, and limitations. Understanding these distinctions is crucial for investors to select platforms aligned with their investment objectives and risk tolerance.
The crowdfunding market continues to evolve, with reward-based platforms maintaining the largest share due to their broader appeal and established presence. However, equity and lending platforms are growing rapidly as regulatory frameworks mature and investor interest in financial returns increases.
1
Reward-Based Platforms
Kickstarter (www.kickstarter.com) and Indiegogo (www.indiegogo.com) dominate this category with €9.5 ($10) minimum investments. Kickstarter offers strict project vetting and an all-or-nothing funding model, while Indiegogo provides more flexible funding options. These platforms excel for creative and technology projects but typically don't offer direct financial returns beyond product rewards.
2
Equity-Based Platforms
StartEngine (www.startengine.com), Wefunder (www.wefunder.com), and Republic (www.republic.com) lead in this space with minimum investments ranging from €9.5 to €95 ($10-100). These platforms allow investors to purchase actual ownership stakes in startups, offering potential for significant returns but with correspondingly high risks and limited liquidity.
3
Specialized Platforms
SeedInvest (www.seedinvest.com) targets accredited investors with a €475 ($500) minimum and rigorous startup selection. GoFundMe (www.gofundme.com) focuses on donation-based campaigns with minimal €4.75 ($5) contributions. These specialized platforms serve distinct niches within the broader crowdfunding ecosystem.
When selecting a platform, investors should consider factors including fee structures, regulatory compliance, investor protections, transparency requirements, and track record of successful projects. Different platforms may be appropriate for different investment objectives and risk profiles.
Success Stories: Reward-Based Crowdfunding
Reward-based crowdfunding has produced some of the most visible success stories in the crowdfunding universe. These projects demonstrate the potential for innovative ideas to gain market validation and launch successful products through backer support.
1
Pebble Time (2015)
Platform: Kickstarter
Raised: €19.3 million
Description: Innovative smartwatch with e-ink display that revolutionized the wearable technology market. The campaign reached its initial funding goal in just 17 minutes and became one of Kickstarter's most successful projects.
Outcome for Backers: Backers received watches at discounted prices. The company was later acquired by Fitbit, though backers didn't receive equity returns from this acquisition.
2
Oculus Rift (2012)
Platform: Kickstarter
Raised: €2.3 million
Description: Virtual reality headset that reignited interest in VR technology. The project exceeded its modest funding goal by over 900%, signaling strong market interest.
Outcome for Backers: Early backers received the product as promised, but didn't benefit from Facebook's €1.9 billion acquisition of the company since they weren't equity holders—highlighting a key limitation of reward-based crowdfunding.
3
Exploding Kittens (2015)
Platform: Kickstarter
Raised: €8.3 million
Description: Humorous card game that became the most-backed game in Kickstarter history at the time, with over 200,000 backers. The campaign demonstrated the potential for entertainment products on crowdfunding platforms.
Outcome for Backers: Backers received the game as promised. The project became a worldwide hit, generating profits for its creators and establishing a successful brand that continues to release new products.
4
Flow Hive (2015)
Platform: Indiegogo
Raised: €12.5 million
Description: Innovative beehive system that revolutionized honey collection by allowing extraction without disturbing the bees. The project resonated with environmentally conscious backers and practical beekeepers alike.
Outcome for Backers: Backers received the product, which performed as advertised. The company continues to develop successfully and has expanded its product line based on the initial crowdfunding success.
These success stories illustrate how reward-based crowdfunding can effectively validate products and build customer communities. However, they also highlight that backers primarily benefit from product access rather than financial returns, with the most significant financial gains accruing to the project creators.
Success Stories: Equity-Based Crowdfunding
Equity-based crowdfunding represents a more direct investment approach, where backers receive actual ownership stakes in the companies they support. These success stories demonstrate the potential financial returns possible through this model.
"Equity crowdfunding transforms customers into owners, creating powerful alignment between a company's success and investor returns. When the company wins, everyone wins."
While equity crowdfunding success stories are less numerous than their reward-based counterparts due to the relative youth of this model, several notable examples provide insight into the potential of this investment approach.
01
Knightscope
Platform: StartEngine
Raised: €20 million through multiple crowdfunding rounds
Description: Developer of autonomous security robots for surveillance and monitoring. The company has successfully leveraged equity crowdfunding to fuel its growth across multiple funding rounds.
Outcome for Investors: Investors received equity stakes that have appreciated as the company has grown. Knightscope has continued to attract investment and expand its operations, though it has not yet achieved a major exit event.
02
Zenefits
Platform: Wefunder
Description: HR software platform that streamlines benefits administration for small businesses. Early investors through equity crowdfunding gained exposure to a fast-growing SaaS business.
Outcome for Investors: Early investors saw significant paper gains as the company raised venture capital at increasingly higher valuations, though regulatory challenges later impacted the company's trajectory.
03
Gumroad
Platform: Republic
Description: Platform enabling creators to sell products directly to their audience. The company turned to equity crowdfunding after traditional venture capital paths presented challenges.
Outcome for Investors: Investors gained stakes in a profitable, creator-focused business with strong growth potential. The company continues to operate profitably, though it has not yet provided an exit opportunity for early investors.
These equity crowdfunding examples demonstrate both the potential and the patience required for this investment model. Unlike reward-based crowdfunding where backers receive products within months, equity crowdfunding investors may wait years for returns through company acquisitions, public offerings, or dividend distributions.
Risk Analysis: Success Rates and Returns
Understanding the empirical performance of crowdfunding investments is crucial for setting realistic expectations. While individual success stories capture attention, the broader statistical landscape provides a more balanced view of potential outcomes.
65%
Project Delivery Delay
The percentage of successful crowdfunding projects that deliver later than initially promised. This reflects the challenges of production and scaling that many projects encounter after successful fundraising.
9%
Significant Financial Returns
The percentage of equity crowdfunding investments that deliver returns exceeding 100% of the initial investment. This highlights the rare nature of breakthrough successes in this space.
31%
Total Loss Rate
The percentage of equity crowdfunding investments that result in complete loss of capital. This underscores the high-risk nature of startup investing through crowdfunding platforms.
The data reveals several important insights for potential investors:
Reward-based crowdfunding offers the highest project completion rate but provides no financial returns beyond the product itself.
Equity crowdfunding presents the highest potential returns but also the highest failure rate and longest time horizon before seeing any returns.
Crowdlending provides the most reliable returns with moderate interest rates and shorter investment periods.
Real estate crowdfunding balances reasonable returns with relatively high success rates, though with longer investment periods than lending.
These statistics emphasize that crowdfunding should be approached as a high-risk, potentially high-reward component of a diversified investment strategy rather than a primary investment vehicle.
Due Diligence: Selecting Promising Projects
Effective due diligence is the cornerstone of successful crowdfunding investments. Given the limited regulatory oversight compared to traditional securities, investors must take primary responsibility for evaluating project viability and team credibility.
Team Evaluation
Research founders' professional backgrounds and previous ventures
Verify claimed expertise and industry experience
Assess team completeness—does it include necessary technical, business, and marketing expertise?
Look for transparency in communications and willingness to answer tough questions
Check social media presence and professional networks for consistency
Product/Concept Assessment
Evaluate uniqueness and market differentiation
Verify technical feasibility and development stage
Assess intellectual property protection
Compare pricing and features to existing alternatives
Consider regulatory or certification requirements
Market Analysis
Determine market size and growth potential
Identify target customer segments and acquisition strategies
Analyze competition and barriers to entry
Evaluate pricing strategy and revenue model
Consider scalability and international potential
Financial Scrutiny
Review detailed budget and funding allocation plans
Assess revenue projections for realism
Calculate unit economics and margin potential
Evaluate timeline to profitability
Consider future funding requirements and dilution potential
Red Flags to Watch For:
Unrealistic promises or claims without supporting evidence
Lack of prototype or proof of concept for technology products
Excessive founder salaries in the budget
Poor communication with potential backers
Vague explanations about how funds will be used
Absence of clear risks and challenges section
Thorough due diligence requires time and effort but significantly improves investment outcomes. For equity investments in particular, consider consulting with professionals who specialize in startup evaluation if the investment amount justifies the additional expense.
Risk Management Strategies for Crowdfunding Investors
Given the inherently high-risk nature of crowdfunding investments, implementing effective risk management strategies is essential. These approaches can help investors participate in this alternative asset class while protecting their overall financial health.
Diversification: The Foundation of Risk Management
The single most important risk management strategy is diversification across multiple dimensions:
Invest across multiple projects rather than concentrating in a single opportunity
Spread investments across different crowdfunding types (reward, equity, lending)
Diversify across industry sectors to reduce exposure to sector-specific risks
Vary investment timing to avoid market cycle concentration
1
Portfolio Allocation
Limit crowdfunding investments to no more than 5-10% of your total investment portfolio. This ensures that even complete losses won't significantly impact your overall financial position.
2
Investment Sizing
Follow the "2% rule"—invest no more than 2% of your crowdfunding allocation in any single project. This prevents outsized exposure to individual project risks.
3
Platform Selection
Choose platforms with strong due diligence processes, transparent fees, and established track records. Prefer platforms that provide detailed information about project risks and financials.
4
Staged Investing
For larger allocations, consider investing in stages rather than all at once. This allows you to evaluate project progress before committing additional capital.
Risk management also involves maintaining realistic expectations about potential outcomes. Industry data suggests that:
10x
Unicorn Returns
Only about 1% of equity crowdfunding investments achieve returns of 10x or greater—similar to traditional venture capital success rates.
3-5 yrs
Investment Horizon
The average time to exit or liquidity for successful equity crowdfunding investments, requiring significant patience from investors.
1:10
1:10
Winners-to-Losers Ratio
For every successful equity crowdfunding investment that returns capital with a profit, approximately ten investments will result in partial or complete losses.
By approaching crowdfunding with these risk management principles in mind, investors can participate in this innovative funding mechanism while maintaining financial prudence.
Legal and Regulatory Considerations
The regulatory landscape for crowdfunding continues to evolve as governments worldwide seek to balance investor protection with capital formation objectives. Understanding the regulatory framework is essential for investors to navigate this space effectively.
1
United States Regulations
The JOBS Act of 2012 created the legal framework for equity crowdfunding in the US, with implementation through Regulation Crowdfunding (Reg CF) in 2016. Key provisions include:
Investment limits based on income and net worth (generally capped at €4,750 or $5,000 for investors below certain thresholds)
Company funding caps of approximately €4.75 million ($5 million) per 12-month period
Mandatory disclosures including financial statements, business plans, and risk factors
Required use of regulated funding portals or broker-dealers
2
European Union Framework
The European Crowdfunding Service Providers Regulation (ECSPR) took effect in November 2021, creating a harmonized approach across EU member states:
Standardized rules for crowdfunding platforms operating across EU countries
Project funding caps of €5 million per 12-month period
Investor protection measures including knowledge tests and simulation of ability to bear losses
Transparency requirements for risk disclosures and key investment information
3
Investor Implications
These regulatory frameworks create both protections and limitations for investors:
Investment caps may restrict participation for smaller investors interested in larger allocations
Disclosure requirements provide critical information for due diligence, though quality varies
Platform licensing ensures basic oversight but doesn't guarantee investment quality
Secondary market restrictions severely limit liquidity for equity investments
Cross-border investments may face complex regulatory considerations
Tax Considerations: Crowdfunding investments may have unique tax implications depending on the structure and your jurisdiction. Rewards might be taxable as income in some cases, while equity investments may involve capital gains considerations. Consult with a tax professional regarding your specific situation.
The regulatory environment continues to evolve, with many jurisdictions exploring ways to enhance investor protections while expanding access to this alternative funding mechanism. Investors should stay informed about regulatory changes that may affect their rights and obligations in this space.
Psychological Aspects of Crowdfunding Investment
The psychology of crowdfunding investment differs significantly from traditional investment vehicles. Understanding these psychological factors can help investors make more rational decisions and avoid common pitfalls.
Emotional Drivers
Crowdfunding often triggers emotional responses that can cloud judgment:
Excitement about innovative products or technologies
Desire to be part of something new and revolutionary
Fear of missing out (FOMO) on potentially lucrative opportunities
Personal connection to creators or their mission
"The social aspect of crowdfunding creates powerful herding effects. Seeing others invest can validate our interest, but it can also lead us to overlook critical flaws in a project's fundamentals."
— Dr. Elena Mikhailov, Behavioral Finance Researcher
"We found that crowdfunding investors are 37% more likely to make impulsive investment decisions compared to traditional retail investors, driven by the limited-time nature of campaigns and social proof mechanics."
— Journal of Alternative Investments, 2024
Cognitive Biases in Crowdfunding
Confirmation Bias: Seeking information that confirms pre-existing interest in a project while ignoring warning signs or contradictory data.
Overconfidence Bias
Overestimating one's ability to pick winning projects or underestimating the complexity of bringing products to market.
Bandwagon Effect
Assuming that a project's popularity validates its quality or viability, leading to investment decisions based on social proof rather than fundamentals.
Sunk Cost Fallacy
Continuing to support troubled projects with additional investments due to emotional attachment to initial contributions.
Psychological Safeguards
To counteract these psychological pitfalls, consider implementing these mental safeguards:
Establish a personal "cooling-off period" of at least 48 hours before committing to any crowdfunding investment
Create a standardized evaluation checklist to ensure consistent assessment across different opportunities
Seek contrary opinions and actively search for reasons why a project might fail
Set firm investment limits in advance and commit to not exceeding them regardless of emotional impulses
Maintain a decision journal documenting your investment rationale to review and learn from past decisions
By recognizing and actively managing these psychological factors, investors can make more rational decisions and improve their crowdfunding investment outcomes.
Alternative Investment Comparison
To evaluate crowdfunding's place in an investment portfolio, it's valuable to compare it with other alternative investment options. This comparison helps investors understand the relative advantages, disadvantages, and appropriate allocation strategies.
Accessibility
Crowdfunding stands out for its exceptionally low minimum investments, making alternative investments accessible to a much broader range of investors compared to traditional vehicles like venture capital or private equity.
Return Potential
Equity crowdfunding offers return potential comparable to angel investing but with significantly lower minimum investments. However, success rates may be lower due to less rigorous vetting and reduced post-investment support.
Time Horizon
All these alternative investments require patient capital, but crowdfunding offers slightly more diversity in time horizons—from short-term lending options to multi-year equity investments.
Investor Protection
Crowdfunding generally offers fewer investor protections and governance rights compared to more established alternative investments, though regulations continue to evolve to address these gaps.
Direct Engagement
Unlike most alternatives, crowdfunding offers direct engagement with specific projects or companies, allowing investors to select individual opportunities rather than pooled investments managed by third parties.
When considering portfolio allocation, crowdfunding is best positioned as a small portion (1-5%) of an alternative investment bucket within a diversified portfolio. Its high-risk, high-potential-return profile makes it comparable to venture capital but with greater accessibility and potentially higher risk due to less rigorous due diligence processes.
Future Trends in Crowdfunding Investment
The crowdfunding investment landscape continues to evolve rapidly, driven by technological innovation, regulatory developments, and changing investor preferences. Understanding emerging trends can help investors anticipate new opportunities and challenges.
Tokenization and Blockchain Integration
The integration of blockchain technology is enabling the tokenization of crowdfunding investments, potentially creating secondary markets that address the critical liquidity challenge. Security Token Offerings (STOs) represent a hybrid of traditional equity crowdfunding and cryptocurrency mechanisms, offering programmable compliance and fractional ownership.
Institutional Participation
As the crowdfunding market matures, institutional investors are increasingly participating alongside retail investors. This trend brings more capital and professional due diligence to the ecosystem but may also change platform dynamics and potentially reduce opportunities for small investors in the most promising projects.
Cross-Border Harmonization
Regulatory frameworks are gradually evolving toward greater international compatibility, potentially enabling more seamless cross-border investments. The European Union's ECSPR regulation represents a significant step in this direction, creating a unified framework across member states.
Specialized Platforms
The crowdfunding market is increasingly segmenting into specialized platforms focusing on specific industries, geographic regions, or investment structures. This specialization enables more tailored due diligence processes and attracts investors and project creators with domain expertise.
27%
Annual Growth Rate
Projected compound annual growth rate for the global equity crowdfunding market from 2025-2030, indicating continued strong expansion of this investment sector.
€12B
Market Size
Estimated global equity crowdfunding market size by 2027, representing significant growth from the €4.7 billion market in 2022.
68%
Mobile Transactions
Percentage of crowdfunding investments expected to be made via mobile devices by 2026, highlighting the importance of platform usability and mobile-first design.
Emerging Models and Innovations
Several innovative approaches are reshaping the crowdfunding landscape:
Revenue-sharing models offer investors returns based on future revenues rather than equity or debt, potentially providing earlier liquidity than traditional equity investments
Hybrid securities combining elements of debt and equity aim to balance investor protection with upside potential
AI-powered due diligence tools are emerging to help investors evaluate projects more effectively by analyzing vast datasets and identifying risk factors
Secondary markets are developing to address the liquidity challenge, though regulatory hurdles remain significant in many jurisdictions
Environmental and social impact metrics are becoming more standardized, enabling investors to evaluate projects based on both financial and impact potential
These trends suggest that crowdfunding will continue to evolve as an investment class, potentially addressing some of its current limitations while maintaining its core appeal of democratized access to early-stage investments.
Conclusion: Is Crowdfunding a Viable Investment Strategy?
After examining the various dimensions of crowdfunding as an investment vehicle, we can draw several key conclusions about its viability and appropriate role in investment portfolios.
"Crowdfunding represents not just a new investment channel but a fundamental shift in how capital is allocated to early-stage ventures. Its democratizing impact extends beyond individual returns to reshaping the innovation landscape itself."
The question "Is it really possible to earn money through crowdfunding?" can be answered with a qualified "yes"—but with important caveats that should inform investor expectations and strategies.
For Whom Crowdfunding Works Best
Investors with sufficient risk tolerance and diversified portfolios who can absorb potential losses
Those interested in direct participation in specific companies or projects rather than passive index investing
Investors seeking exposure to early-stage ventures without the high minimums of traditional venture capital
Individuals with domain expertise who can effectively evaluate projects in their field
Patient capital providers comfortable with long-term, illiquid investments
Strategic Recommendations
Limit crowdfunding to no more than 5-10% of your overall investment portfolio
Diversify across multiple projects, platforms, and crowdfunding types
Conduct thorough due diligence focusing on team competence, market potential, and execution capabilities
Set realistic return expectations—recognize that most investments will underperform while a few may significantly outperform
Consider starting with debt-based crowdfunding before venturing into equity for a more measured risk exposure
Final Perspective: Crowdfunding investments combine elements of financial investment with patronage and early adoption. The most successful investors approach this space with a balanced mindset—seeking financial returns while also valuing the non-financial benefits of supporting innovation and entrepreneurship.
Crowdfunding as an investment strategy offers unique opportunities to participate in early-stage ventures with minimal capital requirements. While not suitable as a primary investment vehicle for most investors, it can serve as a valuable complement to a well-diversified portfolio, providing exposure to innovative ideas, direct investment selection, and potential for outsized returns on a small portion of capital.
The most prudent approach is to view crowdfunding as a high-risk, high-potential-reward component of an alternative investment allocation. By maintaining appropriate position sizing, conducting thorough due diligence, and diversifying across multiple opportunities, investors can participate in this innovative funding mechanism while managing its inherent risks.
Material prepared by an analytical group of independent consultants under the guidance of Vitaly Drut