Crowdfunding is a way to raise money by asking many individuals to contribute funds, often in small amounts, to a specific business venture or cause. The contributions can be in small amounts, say $1, or large amounts such as in the thousands of dollars or even millions.
Crowdfunding can also refer to the funding of a specific company by selling small amounts of equity to investors. It's also been used to raise money for charities, disaster relief, political campaigns and by artists and musicians to raise money for their projects.
The term crowdfunding was reportedly coined in 2006 by a man named Michael Sullivan, who started a fundraising effort to build a video blogging community.
Usually, crowdfunding takes place through the Internet. Those asking for the funds create an online profile to explain their fundraising goals and then share their project with the pubic as well as their friends, family and social networks.
The projects have a deadline and a financial goal when starting out, with the money usually returned if the goal is not reached by the deadline.
Sites such as Kickstarter, founded in 2011, are designed for people to place their requests for money.
An example of a successful and ongoing crowdfunding project is Star Citizen, a combat simulator game for Microsoft Windows that's supposed to be released in late 2014.
Started in 2011, Star Citizen is the largest crowdfunded project ever and highest crowdfunded amount for a video game. The initial target fund amount was $500,000, but so far, more than $21 million has been raised, with $2,134,374 of that on Kickstarter.
Film director Spike Lee (seen here on CNBC talking about his crowdfunding effort) used Kickstarter to raise funds in the summer of 2013 for a movie project. Lee raised more than $1.4 million from 6,421 backers by his deadline, exceeding his $1.25 million goal.