Advances in Crowdfunding

The growing popularity of crowdfunding is manifested through the proliferation of thousands of platforms globally. The current chapter presents an elaborate, up-to-date, and detailed typology of crowdfunding models currently in use, as well as their main characteristics. Furthermore, it suggests some of the first frameworks developed for guiding prospective fundraisers in choosing between models. Each of the frameworks is designed for a different type of fundraiser, including model choice heuristics for organizations and consumers. The chapter concludes with some suggestions for further research and implications for practice.

The chapter presents key international trends relating to crowdfunding market development, and also provides insights into the current research available attempting to explain such developments. Facts and figures from leading national and regional markets are presented in a comparative manner, with specific focus on the diversity of crowdfunding models, growth trajectories, and geographical variations. The chapter shows that crowdfunding is no longer a fringe activity but gradually moving mainstream with substantial volumes recorded nationally, regionally, and globally. Furthermore, we illustrate the dominance of crowd-lending models across regions, as well as their sub-model variations within regions. Overall, we demonstrate that the level of economic development, the appropriateness of regulation, as well as the advancement of IT infrastructure are all key determinants for the development of crowdfunding markets. Finally, we conclude with a discussion of some implications for research and practice.

Crowdlending has emerged as the leading form of crowdfunding in terms of scope and scale. For lenders, it offers new investment opportunities, often offering better returns than some alternative investment channels, as well as opening to incorporate new small-scale investors that have not enjoyed such opportunities before. For borrowers, it offers new channels to access credit, often either offered at better terms or by including groups that have previously been marginalized and underserved by traditional credit service providers. In the current chapter we present the brief history of crowdlending, its diversity of models, the current state or the industry, as well as the underlying mechanisms and principles guiding platform operations including risk assessment and the matching of borrowers and lenders. The discussion is supported by a review of related research, while highlighting trajectories of industry development trends. The chapter concludes with suggestions for future research and insights for practitioners.

The chapter provides a topical summary of the present research knowledge of equity crowdfunding. It describes the typical equity crowdfunding process, investor characteristics, and investor motivations. Recognizing the limited due diligence efforts of the crowd despite the presence of high information asymmetries, the chapter presents the role of platforms in evaluating and preselecting target ventures. Furthermore, it highlights the importance of rapidly observable campaign features and signals of venture quality in investor decision making, while also emphasizing the relevance of experienced investors and the herding tendency of crowdinvestors. The chapter offers a comparison of equity crowdfunding investors with traditional providers of early-stage equity financing including micro funders, angel investors, and venture capital funds. It concludes with a discussion of the challenges and potential of equity crowdfunding.

This chapter offers a review of reward-based crowdfunding. Based on a concrete framework, this chapter extensively explains the definition, mechanisms, and unique aspects of reward-based crowdfunding. To better understand the status of reward-based crowdfunding from a global perspective, the development and regional characteristics of it in different crowdfunding markets are presented and discussed in this chapter. In addition, through a comprehensive literature review of key reward-based crowdfunding research, two main research streams of reward-based crowdfunding (success drivers and contributor behaviour) are summarized. Lastly, this chapter also sheds light on the implications of reward-based crowdfunding for practice and research, as well as mentions its potential contributions and limitations.

Donation crowdfunding is a form of internet-enabled fundraising where backers provide funding based on philanthropic motivations without expectation of monetary or material rewards. Despite accounting for only a marginal share of global crowdfunding volumes, donation crowdfunding is a unique model for supporting a wide range of prosocial and charitable causes, while allowing fundraisers to leverage benefits afforded by ICT solutions for more effective and efficient fundraising. The chapter provides an overview of the limited research on donation crowdfunding while highlighting donor motivations and behaviour, as well as drivers of success in donation campaigns. We find that current research suggests that donation behaviour is driven by impure altruism closely linked to intrinsic motivations such as satisfaction, joy, and a sense of belonging. Furthermore, several success drivers of donation crowdfunding campaigns have been identified with respect to factors at the fundraiser, campaign, and platform levels.

The current chapter addresses ethical issues in crowdfunding practice from a multiple stakeholder perspective. It draws on ethical principles outlined in both classical and business-specific approaches. The discussion first presents classical approaches to ethical decision making. It then discusses whether crowdfunding presents an ethical solution or a source of ethical problems. Later, it suggests a framework presenting a classification of potential ethical dilemmas and pitfalls in crowdfunding practice, as well as potential means for addressing them. The discussion concludes with concrete implications for crowdfunding ethics research and practice.

In recent years, financial crowdfunding for entrepreneurship has experienced exponential growth. Because financial crowdfunding involves a range of risks, it requires comprehensive governance mechanisms. In the entrepreneurial finance literature, both legal institutions and social capital have been discussed in order to address the risks in financial markets. This chapter builds a three-level stylized model to explain how legal institutions and social capital at macro, meso, and micro levels affect the performance of crowdfunding campaigns and the development of the financial crowdfunding market. We explicitly highlight the role of platforms in enforcing laws and building social capital at both meso and micro levels, which has been neglected in extant perspectives on the development of the crowdfunding market, and we develop corresponding propositions.

The history of financial markets and finance are united by continuous fluctuations between economic cycles usually caused by structures that enable opportunism and moral hazards. Every crisis contains the seeds of change and innovation, but also risks for regulative overreactions. Crowdfunding as a form of financing is part of this series of innovations in the history of the financial markets. Understanding of the historical changes of both the financial market and the financial system as a whole helps to put new financial innovations, such as crowdfunding and, more broadly, fintech into perspective. The evolution of financial markets or corporate finance naturally will not end in crowdfunding. This chapter gives an overview of history of crowdfunding as part of the ever-changing modern financial markets and contextualizes it as a new, innovative, and modern form of financing in the financial markets.

This chapter presents how the financial services sector, especially banking, was a driver for ICT development in the last quarter of the twentieth century and early years of this century. But several phenomena happened on technological, social, and financial fronts in the second half of the last decade that led banks to ‘get their eyes off the ball’ and open the window for a whole new industrial sector to emerge, FinTech. This chapter analyses the phenomenon with the objective of answering: Why did FinTech emerge as an industrial sector, independent of banking? How is the FinTech industry organized and where does crowdfunding fit in? The chapter identifies three external forces that acted upon the banking system and created the conditions for the FinTech sector to emerge. It also looks at the FinTech sector from an industrial organization perspective and proposes a framework connecting financial services functionality and technological applications.

This chapter offers a comprehensive review and explanation of crowdfunding in China. It first extensively describes the status of crowdfunding in China by presenting the market facts, insights, and current regulations of the four main crowdfunding models (reward-based, equity-based, loan-based, and donation-based) respectively. Next, through a detailed up-to-date literature review of the key literature of Chinese crowdfunding, three main research streams are summarized and discussed covering success drivers, comparative studies of Chinese versus other contexts of crowdfunding practice, and applications of crowdfunding for creative and sustainability projects. Finally, both practical and research implications are presented together with the challenges and future research directions on crowdfunding in China.

Crowdfunding is a viable approach to financing start-ups and supporting social causes in advanced economies. The World Bank estimates a vast potential for crowdfunding also in emerging markets. The South Asia region consists of predominantly collectivist societies where helping others through donations is an integral part of prevailing religious obligations and societal norms. Thus, these countries share certain cultural and religious traits that are highly consistent with the principles of crowdfunding. In the current chapter, we explore the history, ongoing activity, and future prospects of crowdfunding in new emerging markets, specifically, India and Bangladesh. We observe that India is largely dominating the crowdfunding activity in the region, which is otherwise limited.

The chapter presents the current state of crowdfunding research and practice in Africa while outlining opportunities and challenges associated with them. Conditions of growing popularity of digital and mobile finance, low penetration of traditional financial institutions, and a long cultural heritage of communal mutual support may enhance crowdfunding uptake. On the other hand, conditions of unclear regulation, relatively low levels of internet access, and societies characterized by low social trust may all hinder crowdfunding uptake. Accordingly, African crowdfunding is at its infancy and involves transitory hybrid practices of early adoption, often involving reliance on foreign contributors via donations and pro-social lending platforms. To ensure future development, stakeholders should engage in relevant policy development, technological adaptations, raising public awareness, reducing user entry barriers, and creating incentives for trial.

Crowdfunding has its roots deep in the Israeli entrepreneurship ecosystem. Its characterizing elements of—collective individualism combined with flat social hierarchies, low degree of separation, mandatory army service that enforces innovative thinking and improvisation, Chutzpah, and finally high tolerance for failure, all provide fertile ground for entrepreneurship and facilitate innovative approaches to entrepreneurship funding such as crowdfunding. In light of this, the growth of crowdfunding in Israel is not surprising. While the equity crowdfunding leads the field, rewards and donations platforms are more known and popular, indeed the brand name of the senior rewards and donations platform ‘Headstart’ became a nickname for crowdfunding action in Israel. In this chapter we illustrate the foundations of crowdfunding in Israel, its current state, and likely future development.

The European crowdfunding market is growing rapidly, especially in continental Europe. At the same time, cross-border activities are still constrained. Fragmented markets, especially caused by differences in regulation, are an obstacle to growth of crowdfunding platforms. The European Union introduced the European Crowdfunding Service Provider (ECSP) Regime in 2019. This harmonized regime applies to crowdfunding platforms intermediating equity and debt investments between businesses and retail investors. This chapter discusses evidence on the fragmented nature of the European crowdfunding market, while presenting the ECSP directive, as a critical regulatory initiative towards harmonization in Europe, and the boosting of cross-border crowdfunding in the region.

The chapter focuses on using crowdfunding for financing sustainable projects, that is projects aiming to extend their goal beyond market success and provide benefit to the larger part of society. The chapter discusses the definition and dimensions of sustainable development and sustainable entrepreneurship and provides an overview of the existing literature on crowdfunding of sustainable projects. The authors also review four European sustainability-oriented crowdfunding platforms representing different crowdfunding models. This review reveals that sustainable projects have rather high success rates in crowdfunding and may address all the three dimensions of sustainable development. However, environmental dimension gets the most attention. All the crowdfunding models are relevant for sustainable projects; yet, Loan-based crowdfunding seems to have the highest success rates. Moreover, focus on a particular dimension of sustainability may influence the choice of the crowdfunding model.

Cultural production has stood at the forefront of crowdfunding adoption representing some of the first crowdfunding campaigns on record. This development emerged as part of comprehensive value chain reconfigurations in the cultural sector, which were triggered by the advent of digitalization on the one hand and the downsizing in public funds on the other. As a result, the emerging phenomenon here labelled as ‘cultural crowdfunding’ (CCF) has captured the imagination of researchers and practitioners. The study of CCF is of high relevance, as it presses creators to strike a balance between the commercial and the non-commercial, the economic and the cultural outcomes, as well as the authentic and independent versus the mass dictated and dependent. In this chapter we review earlier research on CCF and identify core themes and key studies representing such themes. Later, we outline an agenda for future research, while also suggesting some implications for practice.

Civic Crowdfunding describes campaigns which aim to create a semi-public good. Unlike other crowdfunding practices, civic crowdfunding creates benefits for people outside of the group of supporters as well. This chapter analyses the literature on civic crowdfunding and proposes to view this increasing field of practice through four perspectives: the project, the supporter, the project owner, and the platform. The chapter argues that the platform is central to understanding the self-positioning of projects, supporters, and project owners within civic crowdfunding.

Despite its rapid growth, little attention has been given to education and training in crowdfunding. Such training is important for ensuring the healthy and ethical development of the crowdfunding industry by educating the public about the challenges and risks as well as the merits and benefits of crowdfunding. While many may have heard the term ‘crowdfunding’, it often remains poorly understood by the larger public. Hence, this chapter argues the need for crowdfunding dedicated education programmes, while presenting a concrete course programme based on the Crowdfunding Lab developed at the University of Agder in Norway. The Crowdfunding Lab is to our knowledge one of the first university courses being offered and will thus provide unique insight. The course objectives, content, pedagogy, and assessment procedures are discussed, and opportunities for further developments are outlined. This chapter concludes with implications for educators, as well as with relevant suggestions for research.

This chapter critically reflects on current crowdfunding research and practice while highlighting eight dilemmas that are expected to shape the future of crowdfunding. Each dilemma is critically discussed and is followed by relevant suggestions for future research. These dilemmas include: (1) the balance between idealism and pragmatism; (2) the extent of cooperation between crowdfunding platforms and traditional financial institutions; (3) measurement of crowdfunding success and performance in financial and socio-economic terms; (4) the balance between quantity and quality in campaigns approved for publication by platforms; (5) domestic versus international growth of crowdfunding platforms; (6) manoeuvring between facilitation of collective decisions as crowd wisdom while avoiding crowd madness, as well as intentional and unintentional harmful crowd behaviour; (7) the focus of platforms’ technological developments in terms of efficiency gains versus community support; and (8) the balance between informing the public and constraining our understanding of crowdfunding in educational efforts.