Crowdfunding refers to the practice of pooling in of quantitatively small amount of resources by numerous or several people, to fund prospective projects. It is an alternative finance system where funds are raised through mediums like internet-mediated registries, mail-order subscriptions, benefit events, etc.

In the United States the Securities and Exchange Commission defines crowdfunding as an evolving method of raising money via the internet to fund a variety of projects. The Jumpstart Our Business Start-ups (JOBS) Act creates an exemption under the federal securities laws so that crowdfunding can be used to offer and sell securities to the general public. The JOBS Act also establishes the regulatory structure for raising capital through securities offerings using crowdfunding, including limits on the amount of money companies can raise and investors can invest.

The SEBI Consultation Paper on Crowdfunding in India defines crowdfunding as the solicitation of funds in small amounts from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.

Crowdfunding can be divided into four main categories depending on the object the money is being raised for, namely:

• Donation Crowdfunding- it implies solicitation of funds for social, artistic, philanthropic or other purpose, and not in exchange for anything of tangible value.

For example, in the US, Kickstarter, Indiegogo etc. are some of the platforms that support donation based crowdfunding.