Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.
It depends on who you ask. Crowdfunding can mean different things to different people. It is not a uniformly defined term nor is it used in any uniform way. Some examples of crowdfunding can involve the sale of securities, the pre-sale of products, or capital contributions to nonprofits or charities, among others.
In recent years, crowdfunding has come to describe the process by which companies and individuals looking to meet a defined need by raising capital online through the collective capital contributions of a large number of widely-dispersed persons (friends, family, customers, and individual investors or consumers). Crowdfunding campaigns can involve, among other things, the sale of securities, contributions to support individuals or causes, and product pre-purchases.
There are generally two defining factors in a crowdfunding campaign:
- a crowd (that is, a critical mass of persons willing to support, invest, or contribute), and
- small-dollar investments or contributions (on a per person basis).
These two factors combine to form a powerful capital resource for those raising money, while also providing some modicum of protection to potential campaign participants through the collective wisdom of the crowd’s critical eye. At least, that’s the idea…
Read more in our learning center about the different types of crowdfunding, including securities-based crowdfunding pursuant to Regulation Crowdfunding and Regulation A, donation-based crowdfunding, and rewards-based crowdfunding.