Merriam-Webster Defines Crowdfunding Practices and Investment Types

Merriam-Webster defined crowdfunding as the practice of obtaining funding for a new business by soliciting contributions from a large number of people online. The definition encompasses numerous types, including donation, reward, lending, equity, and royalty. The definition also detailed reward-based crowdfunding, where entrepreneurs sell a product or service, and equity crowdfunding, where backers receive shares in exchange for money.

The guidance provides entrepreneurs with an overview of different funding vehicles. One report noted that in direct equity crowdfunding, investors purchase shares in individual startups, which exposes them to risks such as dilution and lack of influence.