Crowdfunding involves funding a project with relatively modest contributions from a large group of individuals, rather than seeking substantial sums from a small number of investors, as has traditionally been the case for businesses funded with venture capital (VC) or other private equity. Equity-based campaigns are typically used to launch a startup or to provide funds for a new business venture for an established company.
The model is empowering for both businesses and investors because it enables the development of projects that might otherwise be hard to fund, and allows individuals to invest in ideas they believe in without incurring unmanageable risk.
Crowdfunding was made possible through the JOBS (Jumpstart Our Business Startups) Act of 2012. Title IV of the Act, passed by the SEC (Securities and Exchange Commission) in 2015, made it legal for people other than accredited investors to purchase equity. Accredited investors are required to have either a net worth of $1 million or an annual individual income of $200,000.
SyndicateRoom explains equity crowdfunding: