Crowdfunding

What is 'Crowdfunding'

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.

BREAKING DOWN 'Crowdfunding'

In the United States, crowdfunding is restricted by regulations on who is allowed to fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge fund investing, these regulations are supposed to protect unsophisticated and/or non-wealthy investors from putting too much of their savings at risk. Because so many new businesses fail, their investors face a high risk of losing their principal.

RELATED TERMS
  1. Investment Crowdfunding

    Investment crowdfunding is a way to source money for a company ...
  2. Donation-based Crowd Funding

    Donation-based crowdfunding is a way to source money for a project ...
  3. Series B Financing

    The second round of financing for a business by private equity ...
  4. Jumpstart Our Business Startups ...

    An act signed into law on April 5, 2012 that allays the regulations ...
  5. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  6. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
Related Articles
  1. Financial Advisor

    Invest through Equity Crowdfunding: Risks and Rewards

    Investing through equity crowdfunding carries risks such as risk of failure, fraud and doubtful returns. But it also offer a number of rewards.
  2. Managing Wealth

    A Guide to Building a Portfolio with Crowdfunded Investments

    Crowdfunding has moved beyond fundraising for personal projects and it now represents a new frontier for beginning and seasoned investors alike.
  3. Investing

    New Options For Investors To Crowdfund The Next Billion Dollar Startup

    The phenomenal success of crowdfunding shows the public's support for startups and small business projects.
  4. Managing Wealth

    Crowdfunding: Wide Opening For Tech Investors

    Crowdfunding has dramatically changed investing and opened the door for the public to get in on all types of exciting startups, including tech firms.
  5. Managing Wealth

    Real Estate and Crowdfunding: A New Path For Investors

    Real estate investing and crowdfunding - is this a good mix?
  6. Personal Finance

    Pros & Cons of Investing in Crowdfunded Property

    Although the basic concept of real estate crowdfunding might sound great, it does come with a few disadvantages of which potential investors should be aware.
  7. Investing

    FINRA Issues Crowdfunding Warning

    Participating in crowdfunding deals can be riskier than many investors think. Knowing this, FINRA recently issued a warning.
  8. Entrepreneurship & Small Business

    Equity Crowdfunding Sites Disrupt Banking and VC

    Equity crowdfunding is poised to revolutionize the way companies are funded and disrupt the traditional private equity, banking and venture capital industries.
  9. Financial Advisor

    Crowdfunding: What Advisors and Clients Must Know

    Now even the most elementary investor can take a stake in a startup via a crowdfuding platform. Does that mean they should?
  10. Personal Finance

    You Can Now Crowdfund Your Divorce

    Crowdfunding can now be used to raise money needed for a divorce.
RELATED FAQS
  1. What is real estate crowdfunding?

    Invest directly in real estate projects through crowdfunding. Currently only open for accredited investors, the SEC is working ... Read Answer >>
  2. What resources are available to an entrepreneur to raise capital?

    Learn how entrepreneurs can use various resources to raise capital and how each is beneficial throughout the different phases ... Read Answer >>
  3. What are some of the disadvantages to taking venture capital?

    Learn how financing a business through venture capital can be a viable source of funding for small businesses but know caveats ... Read Answer >>
  4. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  5. What are the different equity financing options available to companies in the United ...

    Learn what equity financing options are available to small, mid-sized and large companies within the United States and understand ... Read Answer >>
  6. What is the best form of equity financing for a start-up company?

    Learn the equity financing options available to small business, and understand the best equity options for companies during ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center