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Crowdfunding: an introduction

DEFINITION, HISTORY AND SCALE

Crowdfunding can be defined as ‘efforts by individual entrepreneurs or groups to fund their ventures by drawing small contributions from large groups of individuals over the internet without using standard financial intermediaries’ (Mollick, 2014), or ‘open calls, mostly through the Internet, for the provision of financial resources either in the form of donation or in exchange for the future product or some form of reward to support initiatives for specific purposes’ (Belleflamme et al., 2014).

Crowdfunding emerged as part of a recent movement where the general public, or ‘the crowd’, is invited to participate in the process of value creation traditionally conducted within more closed systems. Whereas crowdsourcing, its close relative, focuses on how the crowd may take an active part in a company’s innovation process (Bughin et al., 2012; Ghezzi et al., 2018), crowdfunding provides a mechanism through which the general public can financially support nascent ideas and entrepreneurs, a role traditionally reserved to a select few, such as accredited equity investors and bankers. In this sense, crowdfunding has led to a more distributed or collective nature of entrepreneurial finance and created new classes of investors, such as ‘customer investors’ (Aldrich, 2014). This allows entrepreneurs to engage with a greater number, and a more diverse set, of backers and investors all over the world (Nambisan, 2017). Some see crowdfunding ‘democratizing’ access to entrepreneurial finance for underrepresented minorities and entrepreneurs hailing from unfavourable geographic locations (Agrawal et al., 2011; Greenberg and Mollick, 2017).

As a phenomenon, crowdfunding has a long history in the areas of art, charity and political campaigns (Kuppuswamy and Bayus, 2018; Ordanini et al., 2011). Famous projects that were funded by small contributions from a large number of donors include the Statue of Liberty, some of Mozart’s piano concertos, and the translation of Homer’s Iliad from Greek to English (Kuppuswamy and Bayus, 2018; Short et al., 2017).

The recent surge in crowdfunding activities draws from the emergence of Internet and particularly Web 2.0 facilitating interaction between users...