microfundering

Microfundering is a funding model that aggregates small contributions from a large number of individual backers to finance projects, ventures, or causes. It is typically carried out through online platforms that connect creators, researchers, entrepreneurs, and community initiatives with supporters. Contributions are usually modest and can range from a few euros or dollars to several hundred, depending on the project and the rewards or expectations offered.

Platforms supporting microfunding offer several funding models. In rewards-based schemes, backers receive a product, service, or acknowledgment. Donation-based microfunding involves contributions with no financial return. Equity-based microfunding grants partial ownership, while debt-based microfunding involves loans repaid with interest. Platforms also provide project pages, payment processing, updates, and dispute resolution, charging fees on successful funds or pledges.

Microfunding emerged alongside the broader crowdfunding movement in the early 21st century, expanding access to capital for arts, scientific research, civic projects, and small businesses. While it overlaps with microfinance, microfunding focuses on voluntary contributions that may or may not be repaid or rewarded, rather than formal lending programs.

Benefits include democratizing access to capital, enabling rapid validation of demand, and enabling niche or local projects to reach audiences beyond traditional funders. Challenges include the risk of fraud or misrepresentation, variable success rates, platform dependence, and the need for clear governance, transparency, and reporting. Regulatory and tax considerations vary by country and funding model, particularly for equity or loan-based microfunding.

Typical use cases include independent filmmaking, early-stage research, community improvement projects, open-source software, and disaster relief campaigns. Critics caution that campaigns can be underfunded despite strong interest, and that ongoing sustainability depends on more than initial backing.

See also: crowdfunding, microfinance, philanthropy, impact investing, crowd economy.