What is Crowdfunding?
Crowdfunding is a method of raising capital by pooling small contributions from a large number of backers, typically through an online platform. It comes in four main forms: donation-based, reward-based (e.g., Kickstarter), debt-based (peer-to-peer lending), and equity-based (issuing shares to many small investors). Equity and debt crowdfunding are regulated activities in most jurisdictions.
How It Works
- Project owner publishes a campaign on a crowdfunding platform.
- Backers pledge funds in exchange for rewards, donations, debt instruments, or equity.
- Platform escrows the funds until the funding target is met (or beyond a soft cap).
- Project owner receives funds, net of platform fees.
- Investors receive returns through rewards, interest, principal repayment, or equity ownership.
Saudi Context
The Saudi Capital Market Authority (CMA) introduced equity crowdfunding regulation through its Financial Technology (FinTech) experimental permit. Licensed platforms (such as Manafa and Scopeer) connect Saudi SMEs to retail and institutional investors. SAMA regulates debt crowdfunding and P2P lending under the FinTech regulatory sandbox. Compliant platforms are now an important funding channel for Saudi SMEs alongside Kafalah and SIDF.
Example
A Saudi food and beverage startup raises SAR 4 million on a CMA-licensed equity crowdfunding platform from 480 investors averaging SAR 8,300 each. In exchange, investors receive 12% of the company’s equity. The platform charges a 7% success fee on funds raised.