DEFINITION of 'Crowdfunding'

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.

  1. Hedge Fund

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  3. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  4. Risk Capital

    Investment funds allocated to speculative activity. Risk capital ...
  5. Love Money

    Seed money or capital given by family or friends to an entrepreneur ...
  6. Angel Investor

    An investor who provides financial backing for small startups ...
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  1. What resources are available to an entrepreneur to raise capital?

    The greatest challenges an entrepreneur faces throughout the various stages of owning a business are directly related to ... Read Full Answer >>
  2. What is real estate crowdfunding?

    Crowdfunding is a new tool for raising money for businesses and an easier way to access such ventures for investors. It utilizes ... Read Full Answer >>
  3. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  4. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  5. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
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    You can replicate hedge fund returns to a degree but not perfectly. Most replication strategies underperform hedge funds ... Read Full Answer >>

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