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Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship

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It is beyond any doubt that getting finance at eve of establishing the creative projects or entrepreneurial businesses is most difficult task. Creator may face difficulty, or failure sometimes, in gathering finance due to lack of relationships with venture capitalists or banks due to lack of sound financial track record or pledge. This paper is to introduce and explain the model of a new form of financing, crowdfunding (CF) for entrepreneurs or project initiator. This research suggests that the field is fragmented and undeveloped. It explains the distinct features and the key players of CF. Crowdfunding—a mechanism, by which an innovative or patronage idea may get into reality by gathering funds from a large number of people through internet, may prove the problem solver for entrepreneurs or creators who don’t have enough resources for their dream. Research has also shown business models of crowdfunding and different sources of funding. Based on the available empirical data, we have studied how it can be helpful for capital deficit units and what are its advantages and disadvantages from founder, funder and platform’s prospective.
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Chapter 106
Crowdfunding: An Innovative Approach
to Start Up with Entrepreneurship
Muhammad Kaleem Khan, Xiujuan Zhao, Umair Akram, Muhammad
Hashim and Ahmad Kaleem
Abstract It is beyond any doubt that getting finance at eve of establishing the cre-
ative projects or entrepreneurial businesses is most difficult task. Creator may face
difficulty, or failure sometimes, in gathering finance due to lack of relationships with
venture capitalists or banks due to lack of sound financial track record or pledge. This
paper is to introduce and explain the model of a new form of financing, crowdfund-
ing (CF) for entrepreneurs or project initiator. This research suggests that the field
is fragmented and undeveloped. It explains the distinct features and the key players
of CF. Crowdfunding—a mechanism, by which an innovative or patronage idea may
get into reality by gathering funds from a large number of people through internet,
may prove the problem solver for entrepreneurs or creators who don’t have enough
resources for their dream. Research has also shown business models of crowdfund-
ing and different sources of funding. Based on the available empirical data, we have
studied how it can be helpful for capital deficit units and what are its advantages and
disadvantages from founder, funder and platform’s prospective.
Keywords Entrepreneur ·Crowdfunding ·Innovation ·Venture
M.K. Khan ·X. Zhao ·U. Akram
School of Economics and Management, Beijing University of Posts
and Telecommunications, Beijing 100876, People’s Republic of China
M. Hashim (B
)
Faculty of Management Sciences, National Textile University,
Faisalabad 37610, Pakistan
e-mail: hasimscu@gmail.com
A. Kaleem
Investment Banking Institute Business School, Melbourne, Australia
© Springer Science+Business Media Singapore 2017
J. Xu et al. (eds.), Proceedings of the Tenth International Conference
on Management Science and Engineering Management, Advances in Intelligent
Systems and Computing 502, DOI 10.1007/978-981-10-1837-4_106
1293
1294 M.K. Khan et al.
106.1 Introduction
Although an innovative idea for starting a project is very important in the field of
entrepreneurship, but if this idea is not supported with required amount of capital,
it can never be turned into reality. Usually an entrepreneur faces the problems in
collecting necessary capital if he cannot finance project by himself or closed one.
It is because he don’t have collateral, sufficient cash flows, sound track records
of establishing and running a business. Information asymmetry is also a problem
that restricts the investors to finance a huge amount in new venture. Either due
to insufficient assets to be pledged or unsuccessful attempt to convince investors,
many entrepreneurial ventures remain unfunded [14]. An entrepreneur can adopt
one option from many types of financing modes. Most of the ideas are financed by
entrepreneur’s own pocket, savings, credit cards, lending from family members or
relatives or friends. Bank and other financial institutions, angel finance and venture
capital are also other options. What option an entrepreneur adopts, it depends on
circumstances. But reality is that, very few entrepreneurs are successful in getting
capital by any mean of seeding capital. Like Pope [17] illustrated that, only three
percent entrepreneurs out of thousands are successful.
This paper is to introduce a new method of financing that may prove very helpful
to entrepreneurs. In modern era, some initiators have utilized another method of
capital generation which stated as “crowdfunding” by tapping the “crowd” instead
of specialized investors [6]. By this method, entrepreneurs depend upon internet to
directly obtain financial assistance from general public as a substitute of requesting
financial help from investors. This technique is widely used in capital generation for
not only in starting ventures but, also in projects for specific purposes. Crowdfunding
(CF) is a useful tool to assist entrepreneurs in adopting new sources of entrepreneurial
projects and managing ventures, ultimately resulting in the development of new
businesses. The beauty in such established businesses is that, in general, people are
more closely involved in these firms, as an active stakeholders. Most famous example
is from Pebble Watch illustrated by Agrawal et al. [3]. This watch was to coordinate
with Android or iOS device through a wrist interface. Eric Migicovsky, who already
had experience to develop watch for Blackberry, raised US $375K from wealthy
angel investors of Silicon Valley. He further needed around $100K to develop this
prototype into small production unit. Despite a lot of goodwill and relationships with
many angel investors, he found difficulty in raising required capital. On April 11,
2012, he decided to seek help from crowdfunding, purpose was to get seeding finance
in petite amounts from crowd through the online platform of Kickstarter, while in
return promising crowdfunders a watch for every $120 (approximately) they pledged.
Surprisingly, required capital wasgenerated in just two hours. He closed his campaign
after rising $10M from 68,929 funders in 37 days.
Like Eric Migicovsky, numerous entrepreneurs have successfully financed their
projects through different crowdfunding websites. Mostly websites used for crowd-
funding for entrepreneur is, www.kickstarter.com. Since its inception on April 28,
2009 to date, 96,953 (out of 271,043) projects have been funded by the help of
106 Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship 1295
9,970,400 backers. Total amount pledged to be $2,109,885,617. Amount pledged in
successful projects is $2.11 billion whereas amount pledged in unsuccessful projects
is $253 Million. Till date success rate is 36.58% (data source: kickstarter stats).
“Global crowdfunding experienced accelerated growth in 2014, expanding by 167
percent to reach $16.2 billion raised, up from $6.1 billion in 2013. In 2015, the
industry is set to more than double once again, on its way to raising $34.4 billion”,
says crowdfunding report [8]. BRAJI LCC launched a project on 9th February 2014
to gather US $666,667 to develop Dash C Wireless Smart, In Ear Headphones at
Kickstarter. Backers were promised to deliver product for pledging $179 for each
dash. By the end of November 14, 2015, 15,998 backers pledged $3,390,551 to help
brings this project to life. Another example from Kickstarter project is of M3D, inno-
vator of a 3D printer, who successfully raised $3,401,361 USD with 11,855 backers.
Numerous ventures of different sizes have been financed by this manner and CF
has become widely acknowledged by the general public. Hundreds of crowdfunding
platforms to act as intermediary services have originated to facilitate this phenom-
enon. Few are worldwide popular (e.g. Kiva, JustGiving, Kickstarter, Rockerhub,
Upstat, IndieGoGo, Crowdfunder and Spot-us etc.).
The innermost view for this article is that, if carefully devised, CF could turn out
to be an effective substitute to or could be at least harmonize the traditional forms
of seed financing mechanisms. Need of the hour is to study it thoroughly and for
this very reason it needs close monitoring. But, the problem in this regard is that,
this trend is quite new. Due to this reason a little empirical data is in existence and
the number of scientific papers is still limited. On the other hand, multiple number
of online articles and blog are in existence and the social and print media have also
begun to highlight it in news and articles, resultantly popularity of this phenomenon
has increased [11]. But still majority of people cannot take a clear picture of what
crowdfunding really is.
106.2 Definition of Crowdfunding
In simple words, crowdfunding means tapping a large, geographically dispersed
audience, given the name as ‘the crowd’, for small sums of money to fund a project
or a venture. Term “crowdfunding” is derived from better understood term “crowd-
sourcing”, which entails using the “crowd” to acquire ideas, feedback, and solutions
to develop corporate activities [6]. It describes the process of outsourcing tasks to
a large, often anonymous number of individuals, a “crowd of people” and drawing
on their assets, resources, knowledge or expertise. In the case of crowdfunding, the
point is to get money. In crowdsourcing, the use of internet makes sense because it
does not involve transactions of money. But in crowdfunding, it can be problematic
as sometimes it involves transfer of equity and sometimes rewards. This creates legal
constraints on crowdfunding as here input is money, not ideas and time. Therefore,
most of the platforms offer reward based crowdfunding facilities, and some offers
pre specified portion of profit.
1296 M.K. Khan et al.
According to [15] “Crowdfunding involves an open call, essentially through the
Internet, for the provision of financial resources either in the form of donations (with-
out rewards) or in ex-change for some form of reward and/or voting rights in order
to support initiatives for specific purposes”. Crowdfunding denotes the efforts by
entrepreneurs and creators (of projects for any social, political, economic, cultural
or scientific etc.) to find their required funds by attracting on relatively small con-
tributions from a relatively large number of individuals using the internet, without
standard financial intermediaries. Web 2.0 is basic component in producing crowd-
funding platform because it offers two sided interaction of community.
106.3 Literature Review
The literature on crowdfunding is embryonic. Ibrahim and Verliyantina [12] proposed
a model of crowdfunding for SMEs of Indonesia. They suggested micro financing
through web based platform. The proposed model involves donors/funders, volun-
teers, field partners, coaches and non-profit organizations that work together in the
process of screening, supervising, and managing the use of funds. Davidsona and
Poor [9] found that there is some motive that motivates the founder to start another
crowdfunding activity. Among these factors, Davidsona and co found that, higher
the numbers of increased backers than higher the amount of funds, in the simi-
lar manners, goal of that project increases the odds of next project whereas higher
pledged to backers, ratio lessen the chances of second project. Article of Tomczak
and Brem [19] elaborated crowdfunding models, key players, mode and mechanism
of operations. Schwienbacher and Larralde [18] stressed out the need for building
a community of crowdfunders which enjoys additional utility from their participa-
tion. Allison, Davis, Short and Webb [5] described the cognitive evaluation theory to
determine how microlenders respond to both intrinsic and extrinsic cues in the case
of entrepreneurial ventures.
Ahlers, Cumming, Gunther and Schweizer [4] found that retaining equity and
providing more comprehensive information about risks can be interpreted as effec-
tive signals that can increase the likelihood of funding success. Furthermore, gover-
nance structure i.e. proper board structure and more highly qualified board members
can develop attraction for investors as well as accelerate the speed of capital ris-
ing. Colombo, Franzoni and Rossi-Lamastra [7] study the factors of the success
of crowdfunding initiatives by focusing on the internal social capital theory. Study
also briefly discuss self-reinforcement theory that, illustrates, if a campaign receives
contributions in earlier days, it is more likely to be successful. This study tried to
identify the reason of this “success breeds success” pattern. They checked this by
quantitatively documenting the capital raised and number of backers at early days
of project and found that it is the capital raised in early days that trigger the rein-
forcement behavior. Moreover they emphasized on internal social capital which is
to be emerged by crowdfunding platform and flourished by positive behavior by all
106 Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship 1297
the stakeholders in this crowd. They illustrated that, internal social capital appears
stronger in magnitude than external social capital.
Ajay Agrawal, Catalini and Goldfarb [1] examined the role of distance in crowd-
funding. They differentiated local and distant funders. They found that investment
patterns over time are not strongly related to the geographic distance between artist
and funder. They recognized, there are several reasons that the geographic distance
between artists and potential funders might matter, such as spatially correlated tastes,
monitoring progress, search frictions, and reputation effects related to trust and the
risks associated with fraud or managerial incompetence. Mollick [16] suggested that
crowdfunding projects mostly succeed by narrow margins. Moreover, high quality
projects, large social network, projects reflecting cultural taste of geographical com-
ponent, and nature of population in which founder operate are related with success of
project. By using Founders of projects also try to fulfill obligations of funders. Delays
in delivering the promises are more with large projects. Valanciene and Jegeleviciute
[20] explained crowdfunding phenomenon is based on the Content, Context, Link-
ages and Stakeholders logics. By using descriptive approach, they concluded that
value is created on the basis of performing roles of all the stakeholders.
106.4 Key Players in Crowdfunding Phenomenon
There are three main players in crowdfunding process i.e. initiator or entrepreneur,
crowdfunding platform or intermediary and funders. Intermediary, which is called
platform, that serves as a matchmaker between founders and funders. After that, there
are the fundraisers (creators, founders, entrepreneurs, initiators and others) who need
to gather funds via a crowdfunding platform. These are the individuals who are fund
deficits. CF platform helps the founders in getting direct access to the finance market
and to gather required capital only from truly interested contributors. Lastly, there
are the crowdfunders (investors, lenders, supporter, donors) themselves. They are
stated as ‘crowd’ from the term crowdfunding, who decide to financially support
these projects, bearing a risk and expecting a certain payoff [10].
Crowdfunding platforms are usually web and software based. They facilitate neu-
trally to both sides i.e. entrepreneurs and crowdfunders. Primary function of these
platforms are to facilitate interaction between entrepreneurs and crowdfunders by
presenting projects and providing ways to administer pledges. But there are also
some platforms that, go some extra miles by organizing public relations for initia-
tors, making arrangements with micro-payment providers or financial institutions
[11]. What is motive for these platforms for performing their role in bridging initia-
tors and individuals? Most of the websites do it for money. Like Kickstarter charges
founders 5 % fee of total fund gathered but charges individual investors nothing.
Fee of Indiegogo is 4% of the money raised from successful projects and 9 % if a
fundraising goal is unmet and again investors pay nothing.
Although, literature emphasize on these three players only [11], but we cannot
ignore some supporting roles of different agents. Category of these agents varies from
1298 M.K. Khan et al.
Creator, IniƟator, Entrepreneur
Crowdfunding
Plaƞorm
Financial InsƟtuƟon (Banks,
Micropayment providers)
Crowdfunders/backers
(Donors, sponsors, clients, lenders, investors)
Legends:
Flow of informaƟon Pledges Flow of money
Fig. 106.1 Players in crowdfunding phenomenon
nature of model of crowdfunding, but role of financial institutions is most common
in all. This financial institution may be a bank or micropayment provider. There
are some crowdfunding platforms that manage the funding amounts by their own.
But, mostly they out source this function to some financial institutions like bank or
micropayment provider (Fig. 106.1).
106.5 Models of CF
Before knocking a crowdfunding market, entrepreneur must knew about the types
of his or her project. S/He must know which type of project fits in what type of
crowdfunding model. On global level, following models of crowdfunding exist.
106.5.1 Donation Based
This model of crowdfunding is based upon philanthropic approach. Purpose of these
types of projects are to serve humanity and to do work for a social cause. Usually
crowdfunders do this type of funding for self actualization, satisfaction and for being
the part of welfare society, and don’t expect any monitory reward. Nepal Youth
Foundation receives 950 donations from more than 580 donors by GlobalGIving.
106 Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship 1299
They use this donation to rescue indentured girls, send them to their families and
provide families with other sources of income to replace the income from selling
their daughters, and make arrangements of education for these girls.
106.5.2 Reward Based
Some crowdfunders also sponsor some project that is beneficial for the society in
the areas of health care, development of remote areas, poverty alleviation, education,
general charity, public research projects, and open source software. Although there
is no expectation of any type of reward when crowd funder finance a public welfare
project, but some initiators give some rewards as paying thanks to crowdfunders.
These rewards may be just thank you memo, T shirts, autograph of celebrity, posi-
tioning the contributor’s name on the cover of a documentary, film or DVD, meeting
with celebrity or production [11].
Pre purchase: It is very close of reward based model of CF, that’s why most of
the researchers discuss it under reward based model. In pre purchase, entrepreneurs
request customers to order the product before it comes to in existence. Purpose is
to collect the required capital for start up. Due to this model, crowdfunders and
ordinary customers get the product on different prices. Usually entrepreneurs gives
special discount to the customers who order the products before its existence, thereby
helping to founders to produce that products [11]. This type of contribution helps
the founders to write a book, to make a film or music album or other entertainment
segment, to produce innovative software and inventions along with unique services.
JamKazam has uploaded the project of JamBlaster, a device that will play live in sync
with other musicians from different locations over the Internet. In return crowdfunder
will get JamBlaster earlier if they pledge $199 [13].
106.5.3 Equity Based
Crowdfunders invest in ventures and receive some possession or equity-like shares.
This is also called investment based crowdfunding. This alternative micro-investment
is considered to be the most complex model among crowdfunding models. This is
an investment model, in which funders become investors by investing the equity;
in return they achieve share in the venture, dividends, capital gain and/or voting
rights. We also add profit sharing crowdfunding in equity based model in which
entrepreneurs request individuals to finance a project and in return they get a share
of future profits or equity securities. Questol, a social enterprise based in Guatemala
City, aims to offer clients the flexibility to consume electricity based on hourly,
daily, weekly, or monthly installments. For this purpose, they have to install patent
pending technology on gird. The estimated budget for this project is $1 M. The
1300 M.K. Khan et al.
Table 106.1 Existing models of crowdfunding
CF model Description Examples
Reward based Founder receives contributions
from crowdfunders and
rewards them with early issue
of product or anything else
Kickstarter, Indiegogo,
RocketHub, Verkami, Pozible
Donation based Founders get donation from
Crowdfunders for the start up
of community benefit project
GlobalGiving, JustGiving,
Causes, FundRazer
Equity based Founder offers ownership or
equity to in return for their
investment
GrowVC, DragonInnovation,
Upstart, crowdfunder
Lending based Founder borrow money from
Crowdfunders and give them
future repayment of a principal
with or without interest
Kiva, Zidisha, lendingclub,
Propser
current investors of Questol, include the Inter-American Development Bank, Tom
Chi, Global Partnerships, Matias de Tazanos, Eleos Foundation, and private investors.
106.5.4 Lending Based
Contributors may become creditor, if, they lend in the expectations of future repay-
ment of a principal with or without interest. Revenue sharing model is another sub-
stitute of long-term lending. Creditors gives a risk-bearing loan to project but do not
receive regular interest payment, rather receives an amount having a agreed portion
of profit from venture at the defined end of the lending period, this amount could be a
multiple of the original loan but it could be only in the case of bad performance—also
be nothing [11]. Kiva, a lending based crowdfunding website, was founded in 2005.
Since its inception, it has succeeded to facilitate lending amount of $786,932,900
from 1,357,654 lenders. Repayment rate is about 99 % (Table 106.1).
106.6 Advantages of Crowdfunding
106.6.1 Founders Prospective
Demand Generation: Crowdfunding is used to know about the demand of the product
in case of pre-sale type of crowdfunding.
106 Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship 1301
Analysis of all previously created projects: But crowdfunding creates a useful
window for the study of nascent entrepreneurial ventures, as both failed and suc-
cessful projects are represented. All types of new entrepreneurial ventures can be
compared and studied.
Matching Principle: Founder’s need is matched with funder’s willingness to fund.
Founder is able to get finance from a funder who is deeply involved in the project of
founder. In off line financing module, financing decision is primarily dependent upon
the location of entrepreneurs. Like in case of Sellaband, average distance between
creator and financier is about 3000 miles measured by Kiva [2].
Feedback to improve product or project: Crowdfunding also serves as the source
by which founder can get the feedback of his project idea and get suggestions for
improvements in their projects. Like in project of developing a unique product, people
can give ideas of a specific application in the products that may increase value of
product.
106.6.2 Funders Prospective
Motives of funders to fund a project are heterogeneous. They may invest for human-
itarian cause, welfare, political or in the hope of some reward, stake and fix return. In
equity crowdfunding, funders get ownership and in lending crowdfunds, funders get
fix amount of interest over their funds. Similarly in reward based funding projects,
funders get some sort of reward. Like their name written on the product, acknowl-
edgements, being credited in a movie, being part of input providers in manufacturing
of a valuable product and having the opportunity to meet producers. In case of pre-
selling, funders may get the product in early days of releasing. Philanthropy is among
those key factors which play significant role in main crowdfunding platforms. Some
funders support a project without expectation of any type of monitory reward like
pre buying, equity or fixed return of lending. Equity stakes in crowdfunding, legal-
ized after approval of Jumpstart Our Business Startup Act (JOBS) in april 2012,
has become legal stake in equity. Funders can become investors by crowdfunding
activity. As before this Act, equity crowdfunding had no legal status in legislation,
investments in crowdfunding were negligible.
106.6.3 Platform Prospective
Most of the platforms work for profits. Usually they charge some percentage of
funding amount as service fee. Platform has the role in bridging the gap between
entrepreneurs and funders. These platforms have objectives to increase the num-
bers of successful projects. On the other hand, they also try to offer innovative and
workable projects to funders and provide opportunity of investment. They also act
1302 M.K. Khan et al.
as a platform to develop philanthropic habits in society. These patronage deeds help
the deceased section of the society. They are responsible to develop smooth flow of
money from funders to entrepreneurs and project initiators.
106.7 Disadvantages of Crowdfunding
106.7.1 Funders Prospective
Disclosure Problem: other than the cases of crowdfunding, like generation of capital
from home, relatives or venture capitalist, founder does not make his ideas public, so
innovation ideas remain secret from general public. But in case of generating capital
through crowdfunding, ideas become public and it is no more secret. Although this
is not a problem for philanthropic, charity and patronage types of projects, but really
a serious issue for innovative idea of product or entrepreneurial business.
Lack of professional support: In the case when angel investors or venture capi-
talists provide capital to a project, they also provide some extra benefits for example
professional suggestions to establish successful business in the market where entre-
preneurs operating or intention to operate. Non professional fund providers cannot
provide these types of benefits to founders.
Increased cost of Investors Handling: In case of financing by crowdfunding,
investor management cost gets increase. As illustrated by Max Salzberg [21], who
succeeded in raising $200K on Kickstarter to develop an open-source alternative to
Facebook, described his team’s experience as “so consumed with things like answer-
ing emails and making T-shirts for their contributors that they had little time to build
the software”.
Incompetent Founder: Sometimes, idea seems very strong and has the potential to
attract a lot of funders, but on the other hand, founder has not competency to convert
that idea into the reality successfully. As discussed by Mollick [16]. From sample
of 471 projects enlisted on Kickstarter, Mollick found that output of more than 50%
projects is delayed.
Threat of fraudulent projects: Overoptimistic investor can be suffered by frauds
also. By analyzing about 48,000 projects, Mollick [16] concluded that fraudulent
cases were rare. 3 projects were found to be refund and 14 projects apparently
stopped responding to the investors. But chances of fraudulent projects still exist.
106.8 Conclusion
Entrepreneurs and project creators, who cannot finance their venture or project by
their own pockets, friend and family, rush towards venture capitalist and angel
investors. But, if still they are unable to get funded, then their idea remains an
106 Crowdfunding: An Innovative Approach to Start Up with Entrepreneurship 1303
unfulfilled dream only. Crowdfunding is a way of gathering finance that does not
require your strong personal relations or your ability to pledge. “Crowdfunding
involves an open call, essentially through the Internet, for the provision of finan-
cial resources either in form of donations (without rewards) or in ex-change for
some form of reward and/or voting rights in order to support initiatives for specific
purposes” [15]. By crowdfunding, entrepreneurs may tailor their funding campaign
better than on standardized platforms. This enables entrepreneurs to offer a large
variety of compensation to the crowd, such as opportunity of active involvement in
terms of time and expertise.
Entrepreneurs and crowdfunders choose a crowdfunding model according to their
requirements. These models vary from donation based, reward based, pre-sale, equity
based and lending based. Both, the crowdfunders and entrepreneurs or creators have
more advantages of employing crowdfunding than disadvantages. CF is on the verge
of becoming an important complement of seed financing source of innovative busi-
nesses and projects containing patronage ideas. Its importance is increasing because,
up to some extent, it lessens the difficulties of traditional ways of financing entrepre-
neurial ventures like venture capital, loan from bank, angel financing etc. According
to [11], The reason for excelling the CF among all the sources of seeding finance may
be as “entrepreneurial ventures that have difficulties raising capital from traditional
sources like bank loans, angel capital, VC, state promotion and others because they
appear too exotic, too innovative to be understood, too complex, too crazy, too risky
or which are, simply, poorly presented”.
Future research should answer many questions like, what are the successes or fail-
ure factors of crowdfunding projects, how different factors affect on crowdfunders?
Whether crowdfunders can be involved in the decision regarding product develop-
ment or can participate in voting rights? The extent to which platforms increase
the chances of success of crowdfunding initiatives or solve asymmetric information
issues, how risk is minimized? How geography affect it?
Acknowledgments The authors want to extend their gratitude towards the Editor and the anony-
mous Reviewers for their indispensable and valuable suggestions and comments that improved the
quality of the paper significantly.
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... In simple words, crowdfunding means tapping a large, geographically dispersed audience, given the name 'the crowd', for small sums of money to fund a project or a venture [11]. Crowdfunding is an internet-based funding method aimed at implementing an initiative through contributions and micro-sponsorship in the form of small amounts of money, carried out online by many people in a limited amount of time. ...
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Crowdfunding is growing in popularity as a new form of both investment opportunity and source of venture capital. This article takes a view on whether crowdfunding is a replacement or an addition to traditional seed capital sources in the early stages of a new venture. With access to angel investment decreasing since the financial crisis of 2008, crowdfunding is of great importance to start-ups seeking starting capital. However, little effort has been made to define the investment model of crowdfunding with both crowdfunder and crowdfundee in mind. Drawing on an in-depth review of current literature on crowdfunding, this article creates an investment model of crowdfunding with various reward models available to investor and investee in mind. This article provides an extensive survey of the environment of crowdfunding based on current literature. It offers a jumping off point and a thorough literature review for researchers of crowdfunding, providing a detailed examination of the current landscape of crowdfunding based on available literary sources.