Crowd-funding is like crowd-sourcing (think Wikipedia), except there is a great deal of money, and business's livelihood at stake. But with little ROI why do investors give small piles of their hard earned capital to small, likely to fail businesses?
Because, as HBR.org explains, crowd-funding for small businesses follow the same strategy as social media. They want to build and create a culture, and they're inviting stakeholders to invest small quantities of time, effort and/or yes, money to be part of that culture. It's not a cold, calculated investment that is asking for a 20% return, with 10% equity a la Kevin O'leary on Dragon's Den.
Crowd-sourcing is said to have a more of an emotional, rather than rational decision. This could be partially because of the relatively small investments as well. Personally, my experience with Kickstarter was I invested $50 into a local restaurant that had a video game theme. I still haven't received my kickback ($50 giftcard), but I don't really mind. It's an investment to be part of something, not for a financial return.
http://blogs.hbr.org/cs/2012/12/why_successful_crowdfunding_re.html
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