This paper examines the role of experts in an online crowdfunding market. We find that while early investors have a significant influence on later investors, not all early investors are equally influential. Specifically, we find that among the early investors, two categories of experts have a significant influence on the later investors - the crowd. Our findings show that the majority of investors in this market — the crowd — although inexperienced, are rather sophisticated in their ability to identify and exploit nuanced differences in the informational content of the investments made by these different experts. In examining the ex-post performance of apps, we find that successful funding in the market is positively associated with ex-post app sales and that the quality signals provided by the experts’ investment choices are indeed credible. Contrary to popular perceptions of crowdfunding markets as means for democratizing expertise and as substitutes for traditional expert-dominated mechanisms, our findings indicate that despite the freedom of choice provided by these crowd-based markets, the crowd’s decisions are highly influenced by experts participating in these markets.
Until crowdfunding phenomena emerged, our funding mechanisms scarcely recognized the social power of crowds which form affinities around any kind of mission. Crowdfunding is a natural systemic response to fill this gap, and an expression of our collective human will. It is changing not only the way that we fund efforts, but the way we interact and support them. Never before has there been such potential to bridge the collective creative and productive capacity with capital and other resources which are required to translate that capacity into social and economic activities. This is a deep and broad look at the history of finance that got us here, the zeitgeist of crowdfunding and its associated social networking & group dynamics, and a visionary look into the future and greater empowerment of crowdfunding.
Social networks and the law: crowdfunding or fraudfunding? Social networks and the Securities Laws—Why the specially tailored exemption must be conditioned on meaningful disclosure
Crowdfunding can be used to finance small business enterprises, which, in contrast to other crowdfunding efforts, is a highly regulated activity by virtue of the securities laws. Securities laws are designed to provide investor protection. This article provides an overview of the applicable securities laws and evaluates the various proposals and the enacted JOBS Act which purportedly provides a workable exemption for crowdfunding that would not unduly compromise investor protection. The article examines the proposals and ensuing legislation and concludes that the only appropriate exemption for crowdfunding is one conditioned on meaningful disclosures about the company and the terms of the offering.
An extensive literature in economics and finance has documented “home bias,” the tendency that transactions are more likely to occur between parties in the same geographical area, rather than outside. Using data from a large online crowdfunding marketplace and employing a quasi-experimental design, the study finds evidence that home bias still exists in this virtual marketplace for financial products. More importantly, it finds that economic reasons do not fully explain home bias, and that emotions toward one’s home state play an important role. As crowdfunding becomes an alternative and appealing channel for financing, a better understanding of home bias in this new context provides important managerial, practical, and policy implications.
To gain insights into the effects of social networks in crowdfunding, authors analyze the hidden connections between the fundraising results of projects on crowdfunding websites and the corresponding promotion campaigns in social media. Their analysis considers the dynamics of crowdfunding from two aspects: how fundraising activities and promotional activities on social media simultaneously evolve over time, and how the promotion campaigns influence the final outcomes. From their investigation, they identify a number of important principles that provide a useful guide for devising effective campaigns. They then show that these discoveries can help predict several important quantities, including overall popularity and the success rate of the project. Finally, they show how to use these discoveries to help design crowdfunding sites.
Crowdfunding is powerful because it transcends finance; the mechanism is a vehicle for marketing, innovation, market validation, sales, and intrapreneurship—functions that are essential to the survival of all businesses, large or small. While crowdfunding was originally seen as a mechanism for entrepreneurs to raise capital for startups, authors are now seeing how it can be used by multinational companies to transform their operations. This book—the first to tackle the subject—shows how innovative global corporations have started to use crowdfunding, and how your business might also benefit.
In this paper authors explore the factors which lead to successfully funding a crowdfunding project. They study a corpus of 45K crowdfunded projects, analyzing 9M phrases and 59 other variables commonly present on crowdfunding sites. The language used in the project has surprising predictive power— accounting for 58.56% of the variance around successful funding. A closer look at the phrases shows they exhibit general persuasion principles. For example, also receive two reflects the principle of Reciprocity and is one of the top predictors of successful funding. They conclude this paper by announcing the release of the predictive phrases along with the control variables as a public dataset.
In this document it is conducted a follow-up survey of large design, technology, and video games projects that attempted to raise money using crowdfunding before mid-2012. It is found that reward-based crowdfunding appears to be able to lead to and support traditional entrepreneurship. A very high percentage (over 90%) of successful projects remained ongoing ventures 1-4 years after their campaign. It is found that 32% of all these reported yearly revenues of over $100,000 a year since the Kickstarter campaign, and added an average of 2.2 employees per successful project. The survey also suggested that crowdfunding provided many potential benefits beyond the crowdfunded money itself to successful creators; including helping provide access to customers, press, employees, and outside funders. Consistent with other research, many projects were delayed for a variety of reasons, and 37% went over budget. It is also analyzed the factors that lead to longer-term crowdfunding success.
Author examines 2.101 crowdfunded projects that match characteristics of more traditional Venture Capitalists (VCs)-backed seed ventures. Despite the radical differences in selection environments, he finds that entrepreneurial quality is assessed in similar ways by both VCs and crowdfunders, but that crowdfunding alleviates some of geographic and gender biases associated with the way that VCs look for signals of quality.
Drawing on a dataset of over 48,500 projects with combined funding over $237 M, this paper offers a description of the underlying dynamics of success and failure among crowdfunded ventures. It suggests that personal networks and underlying project quality are associated with the success of crowdfunding efforts, and that geography is related to both the type of projects proposed and successful fundraising. Finally, it shows that the vast majority of founders seem to fulfill their obligations to funders, but that over 75% deliver products later than expected, with the degree of delay predicted by the level and amount of funding a project receives. These results offer insight into the emerging phenomenon of crowdfunding, and also shed light more generally on the ways that the actions of founders may affect their ability to receive entrepreneurial financing.
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