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Crowdfunding: Definitions, Foundations and Framework

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Crowdfunding in the Public Sector

Part of the book series: Contributions to Finance and Accounting ((CFA))

Abstract

Crowdfunding is a form of financing or fundraising where a large number of investors pool their small (typically) individual contributions to support a project offered by an entrepreneurial firm. It is sometimes credited to be one of the top 10 innovations of the twenty-first century. This chapter discusses the basics of crowdfunding. It starts with a description of new innovative terminology related to crowdfunding. Examples include such terms as project founders/originators, project supporters/backers, crowdfunding platform etc. It then focuses on the foundations and details of the main types of crowdfunding, which includes reward-based crowdfunding, equity-based crowdfunding, debt-based crowdfunding and donation-based crowdfunding. We then discuss some major theories of crowdfunding including asymmetric information-based and moral hazard-based theories. For each theory, its major implications are presented and compared with available evidence. Particular attention is paid to the basics of crowdfunding in the public sector. We discuss government participation in crowdfunding and its role in the context of previously discussed theories. The benefits of government participation in crowdfunding projects include increasing trust in projects, improving information and increasing transparency related to projects, and reducing project risk.

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Notes

  1. 1.

    http://www2.technologyreview.com/tr10/?year=2012

  2. 2.

    Statista. https://www.statista.com/outlook/335/100/crowdfunding/worldwide

  3. 3.

    https://crowdfundcampus.com/blog/2017/01/crowdfunding-in-2017-three-key-trends/

  4. 4.

    See e.g., Simons (2016).

  5. 5.

    BBC Online (2013).

  6. 6.

    For more discussions related to different concepts of crowdfunding and terminology used see e.g. Brüntje and Gajda (2016), Kraus et al. (2016) and Assenmacher (2017). Also see crowdfunding blogs such as https://www.beauhurst.com/research/following-the-crowd/

  7. 7.

    Seedrs—one if the two largest equity-based crowdfunding platforms- is launching its secondary market offering to all private businesses. See e.g. https://www.seedrs.com/learn/blog/the-seedrs-secondary-market-now-open-to-all-investors

  8. 8.

    For an analysis of economics of debt-based crowdfunding see e.g. Milne and Parboteeah (2016).

  9. 9.

    For a recent example see Cason and Zubrickas (2019).

  10. 10.

    Examples of popular crowdfunding platforms include, among others, Kickstarter, Indiegogo, Crowdcube, Seedrs, etc.

  11. 11.

    See e.g. https://www.woodshed.agency/blog/use-amazon-launchpad-after-your-successful-crowdfunding-campaign. Also see Miglo (2020).

  12. 12.

    https://www.popularmechanics.com/culture/gaming/a8990/10-questions-for-oculus-rift-ceo-palmer-luckey-15502842/

  13. 13.

    See e.g., Xu (2017) or https://learn.indiegogo.com/benefits-of-crowdfunding-essential-guide/. Also, Miglo (2019) suggests that entrepreneurs can learn from observing the share price during equity-based crowdfunding. This model uses the elements of behavioral finance, i.e., overconfident entrepreneurs.

  14. 14.

    See e.g., https://econsultancy.com/the-crowdfund-act-everything-you-need-to-know/

  15. 15.

    For more discussion see e.g., Tamburro (2018).

  16. 16.

    See, for example: http://crowdfunding.cmf-fmc.ca/facts_and_stats/how-likely-is-your-crowdfunding-campaign-to-succeed

  17. 17.

    See e.g., https://help.kickstarter.com/hc/en-us/articles/360010120934-If-my-project-is-successfully-funded-how-do-I-receive-my-funds

  18. 18.

    See Adamo et al. (2020) for an analysis of crowdfunding in Italy that includes among others an analysis of crowdfunding in public sector (civic crowdfunding).

  19. 19.

    Other examples include Lee et al. (2016) and Miglietta et al. (2014).

  20. 20.

    FinTech offers similar approach in other areas of finance such as payments using cryptocurrencies.

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Acknowledgements

The authors gratefully acknowledge the helpful comments and suggestions of the reviewers, which have improved the presentation.

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  1. University of Salford, Salford, Greater Manchester, UK

    Anton Miglo

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    Regina Lenart-Gansiniec

  2. Tsinghua University, Beijing, China

    Jin Chen

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Miglo, A. (2021). Crowdfunding: Definitions, Foundations and Framework. In: Lenart-Gansiniec, R., Chen, J. (eds) Crowdfunding in the Public Sector. Contributions to Finance and Accounting. Springer, Cham. https://doi.org/10.1007/978-3-030-77841-5_1

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