Crowdfunding explained: four types, opportunities, risks and investor protection

What is crowdfunding?

In crowdfunding, many people jointly finance a project, usually with small amounts and through an online platform. For founders it is a route to capital without a traditional bank. For individuals it is a way to support projects or to invest in companies that would otherwise only be open to business angels.

The key question is: what do backers get in return for their money? That defines four types.

The four types of crowdfunding

1. Donation-based

Money for a cause people believe in, such as a club, cultural or social project. No material return is promised.

2. Reward-based

The Kickstarter model: backers pre-finance a product or experience and receive it later. For founders it doubles as a market test: pre-orders are votes with the wallet.

3. Lending (crowdlending)

Many people lend money to a company, which repays it with interest if all goes well.

4. Equity (crowdinvesting)

Investors acquire shares in the company. They become co-owners and share both the upside and the risk.

Comparison at a glance

Type	Backers get	Risk	Suits	EU rules (ECSP)
Donation	Thanks, purpose	Low: the money is gone, but nothing was promised.	Social, culture, clubs	No
Reward	Product or experience	Medium: delays or no delivery	Consumer products, market tests, community	No
Lending	Interest and repayment	Medium to high: the company defaults	SMEs with cash flow, real estate, energy	Yes
Equity	A stake, chance of value growth	High: total loss possible, shares hard to sell	Scalable start-ups with a growth story	Yes

The risk rating is simplified, not an official scale. The EU crowdfunding regulation (ECSP) covers the facilitation of loans and the placing of transferable securities and admitted instruments for crowdfunding purposes (Art. 2(1)(a)). Donation- and reward-based crowdfunding are not covered. Source: Regulation (EU) 2020/1503, EUR-Lex.

Pros and cons for founders

Pros

Capital without a bank: no loan interview, no traditional collateral.
Community and ambassadors: backers become customers, fans and multipliers.
Market test: real demand instead of surveys, before much money is spent.

Cons

Effort and transparency duties: campaign, video, updates and information sheet are a project of their own.
Many small shareholders: communication, cap table and future rounds get more complex.
Public failure: a missed target is visible to everyone, including future investors.

Pros and cons for investors

Pros

Access to early deals usually reserved for business angels.
Diversification with small amounts across several companies.
Emotional bond: you know the product and the people behind it.

Cons

Total loss possible: many young companies fail.
Illiquidity: shares are hard to trade, an exit can take years.
Information asymmetry and valuation: founders know more. Who checks whether the price is fair?

Investor protection under the ECSP Regulation

Regulation (EU) 2020/1503 on European crowdfunding service providers for business (ECSP) has applied in the EU since 10 November 2021 (Art. 51). It distinguishes between sophisticated and non-sophisticated investors. For non-sophisticated investors it sets specific safeguards:

Entry knowledge test (Art. 21(1)–(4)): before granting full access, the platform assesses knowledge and experience and issues a risk warning where appropriate.
Loss simulation (Art. 21(5)): investors simulate their ability to bear a loss of 10% of their net worth.
Warning threshold per offer (Art. 21(7)): investing more than the higher of EUR 1,000 or 5% of net worth triggers a risk warning, explicit consent and proof that the investor understands the investment and its risks. It is a warning threshold, not a hard cap.
Pre-contractual reflection period (Art. 22): an offer can be revoked within four calendar days without giving a reason and without penalty.
Key investment information sheet, KIIS (Art. 23): for each offer, drawn up by the project owner, covering risks, costs and conditions.
Scope threshold (Art. 1(2)(c)): the regulation applies to crowdfunding offers of up to EUR 5 million per project owner, calculated over 12 months.

Source: Regulation (EU) 2020/1503 of 7 October 2020, OJ L 347, 20.10.2020.

What applies in Liechtenstein?

As an EEA member, Liechtenstein applies EU regulations only once they are incorporated into the EEA Agreement. For the ECSP Regulation:

7 September 2023: Parliament adopts the implementing act EWR-SFDG (LGBl. 2023 No. 414).
2 February 2024: the EEA Joint Committee incorporates the regulation into the EEA Agreement (Decision No. 30/2024).
5 September 2024: Parliament approves the decision.
1 August 2026: the decision enters into force for Liechtenstein (LGBl. 2026 No. 199).

For the purposes of the EEA Agreement, the terms “Member State(s)” and “competent authorities” in the regulation also cover the EFTA States and their authorities. The same protection rules therefore apply in Liechtenstein as in the EU. Background: Government report No. 51/2024 (German).

Outlook: tokenisation and regulated platforms

Investments are becoming digital: shares as digital securities, smaller denominations, automated settlement and, in time, a secondary market that eases illiquidity. The legal building blocks already exist:

Liechtenstein’s Token and TT Service Provider Act (TVTG) has provided a framework for tokens since 1 January 2020 (LGBl. 2019 No. 301).
The ECSP Regulation allows platforms to run a bulletin board where clients can advertise buying and selling interest, but not an internal matching system (Art. 25).
The EU DLT Pilot Regime, Regulation (EU) 2022/858, has applied since 23 March 2023 and provides a test framework for trading and settling tokenised financial instruments (EUR-Lex).

Technology alone does not create trust. For good capital to reach good founders, regulated platforms need to implement investor protection in a binding way.

Frequently asked questions

What is the difference between crowdfunding and crowdinvesting?

Crowdfunding is the umbrella term. Crowdinvesting means investing in the company itself: investors receive shares rather than a product, a thank-you or interest.

Does the ECSP Regulation apply to Kickstarter campaigns?

No. Regulation (EU) 2020/1503 covers the facilitation of loans and the placing of transferable securities and admitted instruments (Art. 2(1)(a)). Donation- and reward-based crowdfunding are not covered.

How much can I invest as a retail investor?

The ECSP Regulation sets no hard cap but a warning threshold: a non-sophisticated investor who wants to invest more than the higher of EUR 1,000 or 5% of net worth in one offer receives a risk warning and must give explicit consent (Art. 21(7)).

Can I withdraw a commitment?

Yes. Non-sophisticated investors have a pre-contractual reflection period of four calendar days in which they can revoke their offer without giving a reason and without penalty (Art. 22).

Does the ECSP Regulation apply in Liechtenstein?

Yes. EEA Joint Committee Decision No. 30/2024, which incorporates the regulation into the EEA Agreement, entered into force for Liechtenstein on 1 August 2026 (LGBl. 2026 No. 199).

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Sources

Content from digihub.li · as of 26 October 2026. Orientation only, not legal or investment advice.