Content uploaded by Phil Harris
Author content
All content in this area was uploaded by Phil Harris on Jan 04, 2021
Content may be subject to copyright.
A preview of the PDF is not available
Crowdfunding industry—History, development, policies, and potential issues
Abstract and Figures
Crowdfunding has gained a great deal of attention from policy makers, researchers, and practitioners. This paper attempts to provide an overview of the history and development of the industry and discusses different types of crowdfunding and their public policies. It is identified that the operation of peer‐to‐peer lending and equity‐based crowdfunding is regulated by the Financial Authority; the reward‐based crowdfunding (RBC) and donation‐based crowdfunding (DBC) is yet to be regulated, neither in the United Kingdom or United States. The lack of rules and regulations in the latter two models highlights the burning issues such as potential fraud and malpractice. Therefore, we suggest that it is timely to consider regulating the two types of crowdfunding possibly by governance mechanism with reporting requirements to keep track of the fund and to provide timely information. Additionally, it is advisable that practitioners to work on an agreed framework to establish industry standard, so potential investors can compare and assess the quality of projects easily. Finally, the management of crowdfunding platforms especially the RBC and DBC platforms should be improved. The ease of launching campaigns has made it difficult for both initiators and investors to succeed in the crowdfunding process. Further research to develop some form of assessment framework would be useful to both parties.
Figures - uploaded by Phil Harris
Author content
All figure content in this area was uploaded by Phil Harris
Content may be subject to copyright.
... In the United States, the frst major crowdfunding campaign is arguably the campaign to fund the pedestal for the Statue of Liberty in New York City (Zhao et al., 2019). Started in 1885 by Joseph Pulitzer in his newspaper New York World, the campaign covered a shortfall in funding for the statue's base and allowed the statue to remain in New York via the contributions of individual donors ("The Statue of Liberty and America's Crowdfunding Pioneer," 2013). ...
... Moving beyond the historical antecedent in the campaign for the Statue of Liberty, most modern crowdfunding narratives start between 1997 and 2000 and focus on the music industry (Gamble et al., 2017;Strähle & Bulling, 2018;Zhao et al., 2019) as the impetus for the earliest online crowdfunding campaigns. The earliest music campaign by some accounts is the informal one for the British band Marillion that raised over $60,000 to fnance a reunion tour in 1997 (Bradley & Luong, 2014, pp. ...
... Some seven years later in 2008, Indiegogo was launched, with Kickstarter following in 2009 (Zhao et al., 2019) and GoFundMe in 2010 (Mac, n.d.). Though several other smaller crowdfunding ventures were founded and operated in the space between the frst Marillion campaign and the founding of Indiegogo, Kickstarter, and GoFundMe, these three platforms in many ways have come to defne the modern crowdfunding space, with other platforms operating in contrast or opposition to these three. ...
... Crowdfunding can be broadly divided into four categories: loan-based, donation-based, equity-based, and reward-based. Peer-topeer lending, also known as loan-based crowdfunding, is a model where investors lend money in exchange for interest and the promise of a later repayment of the principal (Zhao et al., 2019). According to the equity-based approach, investors should receive shares of the businesses they invest in as compensation. ...
The purpose of this review is to shed light on the current state of crowdfunding and its possible effects on African communities. The goal of this article is to give a narrative overview of how crowdfunding has evolved, along with trends, challenges, and potential effects on African communities. Despite recent advancements in the usage of mobile technology on the continent, the growth of crowdfunding based on internet platforms has been quite gradual. According to research, the success of crowdsourcing initiatives in Africa depends on a hybrid strategy that involves an "offline" network of backers. The majority of research concluded that the biggest barriers to the growth of crowdfunding in Africa were a lack of knowledge and trust in public institutions, lax laws protecting the rights of backers and ensuring transparency, as well as technology (internet connection). Also mentioned was the possibility that significant cultural aspects of offline crowdfunding, if taken into consideration, would make it easier for African business owners to adopt the practice. It has lagged behind other continents in the use of crowdfunding to raise money for small businesses or individuals, which could also help with financial inclusion in Africa, either directly for individuals or by sponsoring small enterprises. It is necessary to have a regulatory framework that promotes technological advancement while also reducing crime and fraud. Additionally, establishing platforms based on continents and creating synergies with existing financial actors would raise awareness, boost confidence, and whet interest in using them.
... Crowdfunding can be broadly divided into four categories: loan-based, donation-based, equity-based, and reward-based. Peer-topeer lending, also known as loan-based crowdfunding, is a model where investors lend money in exchange for interest and the promise of a later repayment of the principal (Zhao et al., 2019). According to the equity-based approach, investors should receive shares of the businesses they invest in as compensation. ...
The purpose of this review is to shed light on the current state of crowdfunding and its possible effects on African communities. The goal of this article is to give a narrative overview of how crowdfunding has evolved, along with trends, challenges, and potential effects on African communities. Despite recent advancements in the usage of mobile technology on the continent, the growth of crowdfunding based on internet platforms has been quite gradual. According to research, the success of crowdsourcing initiatives in Africa depends on a hybrid strategy that involves the "offline" network of backers. The majority of research concluded that the biggest barriers to the growth of crowdfunding in Africa were a lack of knowledge and trust in public institutions, lax laws protecting the rights of backers and ensuring transparency, as well as technology (internet connection). Also mentioned was the possibility that significant cultural aspects of offline crowdfunding, if taken into consideration, would make it easier for African business owners to adopt the practice. It has lagged behind other continents in the use of crowdfunding to raise money for small businesses or individuals, which could also help with financial inclusion in Africa, either directly for individuals or by sponsoring small enterprises. It is necessary to have a regulatory framework that promotes technological advancement while also reducing crime and fraud. Additionally, establishing platforms based on continents and creating synergies with existing financial actors would raise awareness, boost confidence, and whet interest in using them.
... Moreover, unlike ECF and LCF models, the absence of regulation for both DCF and RCF brings the potential for fraud and malpractice. For this, regulating both DCF and RCF by governance mechanism with reporting requirements is needed in order to keep track of the fund and to provide timely information [49]. ...
This study aims to explore current financial management practices covering governance and financial operation aspects in Islamic donation-based crowdfunding (DCF) in Malaysia. A series of interviews with six Islamic DCF platforms in Malaysia were conducted. For reporting purposes, this study employed a single-case study approach. The interview was conducted and completed at the end of August 2022 via an online approach through Google Meet. The findings highlight the governance background in terms of legal establishment as well as monitoring the function of Islamic DCFs in Malaysia. In addition, for financial operation, several findings related to the funding management process model, income generation, financial sustainability and financial disclosure of Islamic DCFs in Malaysia were discussed. This study is among the pioneer studies that explore financial management practices in Islamic DCF platforms in Malaysia. The study findings and recommendations are useful for Islamic DCF platforms as well as related parties like regulators, funders, potential project managers and the public in general to understand financial management practices in Islamic DCF platforms in Malaysia.
... Oculus was funded through Kickstarter which is among the leading crowdfunding platforms. The resultant capital was tenfold higher than the target investment [149]. Islamic finance can highly benefit from this because it satisfies the basic principle of sharia-compliant banking. ...
... Crowdfunding is a method for raising funds for projects and ventures that disrupts traditional financing mechanisms, calling for the financial support of online communities leaving banks and traditional financing entities outside the transaction. Though collecting small donations from the "crowd" is nothing new, the birth of modern crowdfunding is related to the launches of several crowdfunding platforms at the beginning of this century, such as ArtistShare (2003), Indiegogo (2008), and Kickstarter (2009) (Zhao et al. 2019). Different models of crowdfunding have emerged over the last fifteen years (Giudici et al. 2012;Harrison 2013;Battisti et al. 2020); among them, the main ones are donation-based, reward-based, lending-based, royalty-based, civic crowdfunding, and equity-based crowdfunding (Adhikary et al. 2018). ...
This study seeks to address a research gap about the role of participatory governance as a success factor in successful equity crowdfunding (ECF) campaigns in the cultural heritage sector. The research stems from calls coming from both equity crowdfunding and cultural heritage research. Concerning equity crowdfunding research, academics have pointed out the need for more research on specific economic sectors and topics related to governance. Concerning cultural heritage and equity crowdfunding, our investigation is in line both with the calls for differentiation of funding schemes that could increase the financial resilience of cultural heritage organizations and with the academic and policy debate on the need to promote engagement and participation, also through participatory governance. Via QCA (Qualitative Comparative Analysis), this research investigates the peculiarities and success factors of equity crowdfunding for cultural heritage, with a special focus on participatory governance. The results indicate that ECF campaigns in this field can raise more funds than the targeted ones if they propose participatory governance schemes and enhance emotional and cultural heritage-related signals, thus differentiating ECF in cultural heritage from ECF in other sectors.
Blockchain-based crowdfunding is a form of crowdfunding that uses blockchain technology to facilitate the fundraising process. Blockchain technology provides a decentralized, transparent, and secure platform for crowdfunding by allowing the creation of smart contracts and the issuance of digital tokens. However, Blockchain-based crowdfunding systems suffer from a few security issues, such as the possibility of fraud, risk assessment, smart contracts bugs, and cyber-attacks. This paper proposes integrating artificial intelligence models to prevent smart contract vulnerabilities and anomaly detection. Thus, we will deploy Graph Neural Networks models to protect Blockchain-based crowdfunding platforms from smart contracts-based attacks such as reentrancy and infinite loop attacks. Then, we will use a machine learning model for anomaly detection and prevent attacks such as advanced persistent threats, malware, and distributed denial of service attacks. An experimental study is conducted in a real crowdfunding platform to prove the feasibility of our framework and to draw lessons from the real-life implementation of such models. Our results show that our approach can accurately identify both normal and abnormal traffic and classify correctly specific types of attacks. We also evaluate the performance of our framework using various evaluation metrics to ensure its effectiveness in detecting anomalies.
This paper studies whether, in the consumer credit market, peer-to-peer (P2P) lending platforms serve as substitutes for banks or instead as complements. I develop a conceptual framework and derive testable predictions to distinguish between these two possibilities. Using a regulatory change as an exogenous shock to bank credit supply, I find that P2P lending is a substitute for bank lending in terms of serving infra-marginal bank borrowers yet complements bank lending with respect to small loans. These results indicate that the credit expansion resulting from P2P lending likely occurs only among borrowers who already have access to bank credit.
Received June 1, 2017; editorial decision September 15, 2018 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Crowdfunding recently emerged as an alternative funding channel for entrepreneurs. We use pledge-level data from Startnext, the biggest German platform, to gain insights on funding dynamics and pledgers’ motivations. We find that the majority of projects that eventually succeed are not on a successful track at 75% of their funding period. These late successes are boosted by information cascades during the final 25% of the funding duration. We conclude – in contrast with earlier literature – that project success is only partially path-dependent. While early pledges do anticipate project success, a lack of them does not necessarily mean that projects will fail. Interviews and questionnaire responses indicate that projects’ communication efforts play a role in making severely under track projects succeed eventually. Moreover, our dataset uniquely allows us to quantify the extent of self funding. Self pledges account for about 10% of all initial pledges and 9% of all pledges that secure funding. Nonetheless, the late surges at severely under track projects are mostly driven by external funders. Furthermore, we find no evidence of subsequent herding triggered by self pledges.
Purpose
The purpose of this paper is to provide empirical evidence on the motivation of supporters to contribute resources to reward-based crowdfunding campaigns.
Design/methodology/approach
The paper reports results from a survey combining open and closed questions, addressing supporters of reward-based crowdfunding campaigns in the field of video game development. Publicly available data from a large crowdfunding website complements the approach.
Findings
Two groups of supporters emerge from the data: one group derives motivation almost exclusively from a purchasing motive, the other group displays the purchasing motive alongside an altruistic and involvement motive. There is little indication that social acknowledgement plays a role for supporter motivation. Supporters rely on the evaluation of previous activities of an entrepreneur to judge trustworthiness.
Originality/value
The manuscript offers empirical insights into the previously scarcely researched question why supporters contribute to reward-based crowdfunding. These insights inform research on reward-based crowdfunding and help entrepreneurs considering reward-based crowdfunding as a way to fund entrepreneurial activities.
An important barrier to commercializing innovations is the availability of early-stage funding. Given the difficulties that new ventures face in attracting financing from angel investors, banks and venture capital funds, some entrepreneurs are tapping into large, online communities of consumer-investors. Called “crowdfunding,” this relatively new form of informal venture financing allows entrepreneurs to directly appeal to the general public (i.e., the “crowd”) for help in getting their innovative ideas off the ground. Due to the rapidly growing interest in this online form of venture financing, academic research is beginning to explore the drivers behind successfully crowdfunded projects. In this chapter, we summarize the key findings from the empirical crowdfunding literature organized by the four types of crowdfunding platforms.
Crowdfunding is an emerging phenomenon that has attracted significant interest from scholars and
practitioners alike, mainly due to its appeal as an alternative source of funding. As crowdfunding has
grown exponentially, so have the associated challenges and opportunities. In this conceptual paper, we
define crowdfunding and discuss its characteristics, related terminologies, and key elements. We also
propose a typology for crowdfunding and indicate the ethical issues associated with it. We conclude
this study by presenting the implications for scholars and practitioners, as well as a suggested roadmap
for future research. We believe this paper clarifies many of the issues related to crowdfunding. It also
aims to inspire a scholarly debate and further develop the theoretical foundations of the crowdfunding
literature. This may also prompt practitioners to take note of the emerging concerns as the
crowdfunding phenomenon transforms from a marginal to a mainstream discipline.
This paper uses a randomized field experiment to identify which start-up characteristics are most important to investors in early-stage firms. The experiment randomizes investors’ information sets of fund-raising start-ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. We provide evidence that the team is not merely a signal of quality, and that investing based on team information is a rational strategy. Together, our results indicate that information about human assets is causally important for the funding of early-stage firms and hence for entrepreneurial success.