This article compares two forms of crowdfunding: entrepreneurs solicit individuals either to pre-order the product or to advance a fixed amount of money in exchange for a share of future profits (or equity). In either case, it is assumed that “crowdfunders" enjoy “community benefits" that increase their utility. Using a unified model, it is showed that the entrepreneur prefers pre-ordering if the initial capital requirement is relatively small compared with market size and prefers profit sharing otherwise. These conclusions have implications for managerial decisions in the early development stage of firms, when the entrepreneur needs to build a community of individuals with whom he or she must interact. This study also offer extensions on the impact of quality uncertainty and information asymmetry.
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