Initial coin offering is a new method to raise funds. If you have an idea, you can create a white paper and start issuing shares in your company in the form of cryptocurrencies. People who believe in your idea can buy these coins or shares. If your company becomes profitable, then the value of these coins would increase. Hence, your initial investor can sell your coins for a higher value and make profits. Some companies choose to offer utility coins, hence people who buy your coins will be able to redeem them for a service from your company at a future date. 

Janet wants to start a cupcake store, but she doesn't have enough money. She requires funding of $25,000. She can use Ripple to issue JCS (Janet's Cupcake Store) coins. People who initially believe in her idea can purchase these coins. Janet can use the funding to build her cupcake store. As she starts delivering cupcakes, initial investors can use JCS coins to buy cupcakes from her store.