Crowdfunding

Crowdfunding is a way of raising many small amounts of money from a large pool of investors to fund a project or business venture. Investors can be friends, family members, customers, individual investors, and so on. For better exposure to supporters, crowdfunding is typically hosted on the internet, crowdfunding platforms, or on social media sites. Because of this, the term crowdfunding represents internet-mediated registries.

The concept of crowdfunding has been around for centuries with a long history. However, to many, especially for people outside the US, it is a new and alternative way of raising funds. Several driving forces made crowdfunding popular and well-known in this century:

• The wide adoption of the internet and social media sites
• More crowdfunding sites such as Kiva, Indiegogo, GoFundMe (2010), YouCaring, and RocketHub started to serve these needs
• Jumpstart Our Business startups Act (JOBS), signed by President Barack Obama on April 5, 2012, includes provisions that allow for crowdfunding
• Regulation Crowdfunding (Reg CF), starting on May 16, 2016, allows a startup to raise up to $1,070,000 USD in a 12 month period
• The majority of ICOs were held in the form of crowdfunding

It is estimated that, in 2015, over $34 billion USD was raised via crowdfunding worldwide. Money that's been raised via crowdfunding has been used to finance ventures such as technology, artistic, medical expenses, travel, or community/social projects.

Crowdfunding involves three groups of players:

• Project initiators who recommend the project
• Groups of supporters that provide a small sum each
• A platform or moderating organization that matches initiators and supporters

There are two primary types of crowdfunding:

• Rewards crowdfunding: Initiators pre-sell a product or service to supporters without incurring debt or giving out equity shares
• Equity crowdfunding: Initiators give out equity shares to supporters in exchange for a sum of money

A crowdfunding-based ICO belongs to rewards crowdfunding, while STO, which will be discussed in detail later, belongs to the second type, equity crowdfunding.