Also known as ICO somewhat similar to an IPO (Initial Public Offering) on the regular stock markets. Cryptocurrency startups issue their own tokens in exchange for Ethereum typically, or sometimes fiat currencies to fund their projects. This is essentially crowdfunding in the cryptocurrency world.
The reason that so many ICOs are held using Ethereum as the payment is that the new coins are ERC20 coins and are based off the Ethereum protocol and network. Accepting Ethereum as payment makes it easier for the startups. Other ICOs have accepted other cryptocurrencies as well, including Bitcoin.
ICOs are often used as a way to bypass the rigorous and expensive regulations required by traditional financial institutions.
When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO), it usually creates a plan on a whitepaper which states what the project is about, what need(s) the project will fulfil upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for.
If the ICO doesn’t meet its stated monetary objective, the funds from investors are returned and the ICO is considered unsuccessful. Some ICOs are extremely successful however. Consider Ethereum, which had an ICO in 2014 at roughly $0.40 per token.