The State of Crowdfunding : A Review of Business Models and Platforms
62 pages
English
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The State of Crowdfunding : A Review of Business Models and Platforms

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62 pages
English

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The State of Crowdfunding:
A Review of Business Models and Platforms

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Publié par
Publié le 10 juillet 2013
Nombre de lectures 115
Langue English
Poids de l'ouvrage 3 Mo

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The State of Crowdfunding:
A Review of Business Models and Platforms
An Exploratory Study of the
Master Thesis
Sustainable Development Process of

Dutch Small and Medium-Sized
Enterprises



Master Thesis




Faculty of Economics and Business





























Author: Franciscus Alexander ter Kuile
Student No.: 5943736
Primary supervisor: Dr. Michel Avital
Secondary supervisor: Dr. Tsvi Vinig
Amsterdam. 14 November 2011 Author: Markward van der Mieden
Student No.: 5968682
Email: mail@markward.nl
Primary Advisor: René Bohnsack MLitt
Amsterdam, 14 October 2010
Preface

This thesis is written in order to conclude the Master Programme of Business Studies at the University
of Amsterdam. This thesis is written under supervision of Dr. Michel Avital. In this preface, I would
like to take opportunity to thank him for his time, advice and dedication that he gave to me throughout
the process of writing this thesis. Furthermore, I would like to thank my colleagues at the Dialogues
Incubator of the ABN AMRO Bank for their time and input on the topic of crowdfunding. Evenly, I
would like to thank the three experts for creating time in their agenda’s in order to let me interview
them. Additionally, I would like to thank all owners and managers of the crowdfunding platforms
participating in the survey, and of whom I received much e-mail with interesting insights. Finally, I
would like to thank my friends, my family and especially my girlfriend, who gave all the support that I
needed in the process of writing this thesis.
Abstract

Crowdfunding is a development that recently caught a lot of attention. Over the last years, many
crowdfunding platforms have been established and often proved to be successful in raising money.
Crowdfunding happens through means of an open call to a large group of people – “the crowd” – in
order to fund initiatives with a specific purpose. This phenomenon has been highlighted in the media as
a new form of fund raising that has the potential to lead to revolutionary business models. On the basis
of its increased efficiency, it is claimed that crowdfunding may even lead to a paradigm shift in the
established ways of present-day funding.
Even so, crowdfunding remains a topic on which academic research is, to present date, very
limited. The result is that the concept of crowdfunding is not well defined, which leaves much room for
discussion. Furthermore, the scale on which crowdfunding takes place is to a large extent still unknown.
This thesis is of an exploratory and descriptive nature, in order to bring more insight to the phenomenon
of crowdfunding. The aim of this research is therefore to create better understanding on crowdfunding.
This thesis will discuss the conceptualizations of crowdfunding. Although the opinions of
experts deviate, one has to conclude that crowdfunding and the means through which it takes place –
the Internet – are without doubt interrelated. Predominantly, crowdfunding happens via crowdfunding
platforms that serve as an intermediary between the funder and the person or organization looking for
funding. Donating, pre-financing, lending and investing are the four funding forms or underlying
business models by which the crowdfunding platforms can be subdivided. This subdivision corresponds
to the sociological motivation of people to fund or to invest. On the one end of the spectrum, one may
be willing to fund on the basis of pure economical reasons, while one may wish to do so, on the other
end, on more altruistic reasons such as donating.
A survey among various crowdfunding platforms was held, in order to gain better insight in the
crowdfunding market and its predominant way of funding. The survey outcomes showed that
crowdfunding platforms are generally used to fund enterprises as well as cultural and creative projects.
Moreover, the results showed a hedonistic and economic reasoning constitutes the predominant motive
for people to engage in crowdfunding.
Tableofcontents

1.Introduction......................................................................................................................3
1.1AcademicRelevance................................3
1.2ManagerialRelevance...................................................4
1.3ThesisOutline...................................................................4
2.Literaturereview..............................................................................5
2.1Introduction......5
2.1.1Web2.0.............................................................................6
2.1.2SocialNetworks............................................................................................7
2.2.3WisdomoftheCrowds...............................................7
2.2.4Crowdsourcing..............................................................................................8
2.3Crowdfunding...............................................................10
2.3.1CrowdfundingPlatforms.......................................................................................................12
2.3.2FormsofCrowdfunding.........12
2.4MotivationofInvesting.............................................16
2.5Conclusion......................................................................................................................................17
3.Methodology..................................................21
3.1Introduction...21
3.2ResearchQuestions....................................................................................................................21
3.3ResearchDefinition22
3.4ResearchStrategy........................................................22
3.5ResearchDesign...........................................................................................................................22
3.6ResearchPopulationandSampleselection.....................................24
3.7DataCollection..............................................................24
3.7.1Phase1:Casestudy..................................................................................................................................................24
3.7.2Phase2:Expertinterviews...................................................................................................25
3.7.3Phase3:Survey..........................27
3.8DataAnalysis.................................................................28
4.Results............................................................................................30
4.1QualitativeResults......................................................................................................................30
4.1.1CaseStudyAnalysis..................................................................................................................30
4.1.2:ResultsExpertInterviewAnalysis....................36
4.2QuantitativeResults...................................................40
4.2.1:SurveyResults..........................................................................................................................40
5.Discussion.......................................................46
5.1TheCrowdfundingConcept....................................................................................................................................46
5.2TheCrowdfundingPlatforms.................................................................47
5.3TheMotivationforCrowdfunding........................................................................................48
5.5Limitations......................................51
5.5.1QualitativeData................................................................51
5.5.2QuantitativeData.....................................................................................51
5.6SuggestionsforFutureResearch..........................52
6.Conclusion......................................................................................................................53
References..............................................55
IndexofFigures

Figure 1: Placement of crowdfunding ........................................................................................................ 5
Figure 2: Google search statistics ............. 12
Figure 3: Forms of crowdfunding ............ 15
Figure 4: Research process ....................................................................................................................... 23
Figure 5: Conceptual matrix of funding forms ......................... 29
Figure 6: Crowdfunding process .............. 31
Figure 7: Crowdfunding platforms segmented into their business model ............... 33
Figure 8: Number of crowdfunding platforms founded P/A .................................................................... 40
Figure 9: Distribution of funding forms ....................................................... 41
Figure 10: Distribution of reward types 41
Figure 11: Crowdfunding platforms orientation ........... 42
Figure 12: Crowdfunding platforms purpose ................................................................ 42
Figure 13: Crowdfunding forms in space of total amount raised and motive .......... 50


IndexofTables

Table 1: Types of finance investors grouped in Debt and Equity Schwienbacher (2010). ...................... 13
Table 2: Article's concept matrix. X indicates the additional discussed concepts. .................................. 20
Table 3: Case study results ....................................................................................................................... 35
Table 4: Expert interview results ............. 39
Table 5: Worldwide distribution of crowdfunding platforms. . 41
Table 6: Quantitative Results ................... 44


IndexofAppendices
Appendix 1: Case Studies ...................................................................... Error! Bookmark not defined.
Appendix 2: Interview Guide .. Error! Bookmark not defined.
Appendix 3: Interview Analysis .............................. Error! Bookmark not defined.
Appendix 4: Targeted crowdfunding platforms ...... Error! Bookmark not defined.
Appendix 5: Survey ................................................................................. Error! Bookmark not defined.
1.Introduction

Fast and global technological developments influence our daily lives. The upcoming of the Internet has
not only changed the way we communicate, but also the way in which we do business (Howe, 2006).
Due to the development of Web 2.0, Internet applications that make two-way collaborative
communication possible (Kleemann et al., 2008), people are able to easily connect with each other
around the world. Social media platforms, such as Facebook or Twitter, serve as a kind of mediator and
allow people to form online communities that share similar interests or knowledge (Mislove et al.,
2007). This ability for people to interact with each other has been crucial for the recent development of
of crowdfunding.
Crowdfunding is said to have originated from the broader concept of crowdsourcing
(Belleflamme et al., 2010). Crowdsourcing enables people and organizations to obtain ideas and
solutions for private or corporate activities from a crowd (Belleflamme et al., 2011). In the same fashion,
crowdfunding allows people and organizations to raise capital from a crowd. The concept of pooling
money by large group of people is not something new. However, the fact that such funding happens via
the Internet, places crowdfunding in a new spectrum. The Internet enables a global reach to attract
funding. As such, the established intermediaries are often cut out through crowdfunding, which
increases the efficiency (Het Financiële Dagblad, 2011).
Crowdfunding generally occurs through means of crowdfunding platforms. Such platforms
have proofed to be a successful manner of raising funds for companies as well as projects across
different industries (The Wall Street Journal, 2010). Due to the success of these crowdfunding platforms,
crowdfunding is seen as an innovative business model that works (The Walls Street Journal 2010).
Crowdfunding is thus seen as a viable and alternative way to raise funds.
1.1 AcademicRelevance
The term crowdfunding is used in many ways. One may understand it to be a ‘container’ term, which
comprehends a plethora of forms and characteristics in which crowdfunding may happen.
Crowdfunding gets much attention in the popular press. In contrast, crowdfunding is marked by limited
academic research. Peer-reviewed articles in high standard academic journals have, to date, not been
published. Due to this little academic research, it remains rather unknown what crowdfunding exactly is,
what its predominant drivers constitute of, and how the crowdfunding market actually looks like.
Furthermore, insights in how and in what way crowdfunding happens are lacking due to the newness of
the phenomenon.
This thesis conducts a research in a descriptive way as to bring insight to the concept of
crowdfunding. A comparative analysis of the different crowdfunding platforms is performed in order to
identify the platform’s differences and commonalities in regard to their characteristics as well as their
performance. An identification of the predominant funding form of crowdfunding platforms will outline
3 the incentive of people to engage in this new phenomenon. This research aims to position crowdfunding
in its specific context, whereby comparative dimensions may invoke interesting new insights. It may be
noted that this study should be followed up by future, and perhaps more extensive, academic research.

1.2ManagerialRelevance
From a managerial perspective, research into crowdfunding appears to be relevant. Obtaining capital to
finance business growth is an issue that entrepreneurs or managers face at different stages of a firm’s
management (Fluck et al., 1998). Additionally, obtaining funding via the established ways has become
increasingly difficult in the light of the current economical crisis. Such a crisis has lead to a deceleration
of financing in the private sector and caused external sources of finance to dry up (Dellariccia et al.,
2008). It is therefore not surprising that there has been a sharp decline in loan or credit line approvals to
1enterprises irrespective of the type of loan or type of enterprise . Likewise, the request for funding has
2increased significantly .
As mentioned, crowdfunding forms an alternative and innovative manner to raise capital. An
increased insight in this phenomenon will therefore enable managers to make better decisions whether
or not to use this way of funding. Furthermore, a comprehension of the different crowdfunding
platforms will enable managers to decide which form of crowdfunding to use in which particular case.

1.3ThesisOutline
The structure of this thesis is the following. The subsequent and second chapter will explain the concept
of crowdfunding and its origin. Hereby, the various crowdfunding platforms and forms of funding
related to crowdfunding will be examined, as well as the motivation of investment. The third chapter
will outline the methodology of this thesis. The research questions as well as the research strategy will
be noted. The research design will be described together with the population sample selection used.
Additionally, the manner in which the data has been collected and analysed will be clarified. The fourth
chapter will discuss the results of this research. In first instance, an analysis of the case study will be
presented. Subsequently, a review will be presented of the analysis that came forth of the interviews
held with the experts on crowdfunding. The fifth chapter will set out a discussion of the results, thereby
linking them to current available literature. Furthermore, the limitations of this research will be
discussed as well as recommendations for further research. The final and sixth chapter will present the
conclusions of this thesis.

1 http://www.ecb.eu/stats/pdf/blssurvey_201104.pdf
2
http://www.ecb.eu/stats/pdf/blssurvepdf
4 2.Literaturereview

2.1Introduction
In general one is able to state that the Internet caused an increase in efficiency. The Internet flattened,
for example, the playing field for small businesses by expanding their reach equally to that of
multinational firms (Lee et al., 2008). The Internet is a constantly and rapid changing environment that
underwent many stages of development. With the creation of so-called web 2.0 applications, people
from all over the world are able to connect and form communities that allow them to collaborate via the
Internet. Figure 1 is a representation of how one is able to place crowdfunding within eventually the
Internet.
Crowdfunding is closely related to crowdsourcing, a term first mentioned by Howe (2006) in
wired magazine. The following paragraphs will give a description of the online developments that laid
the foundation for crowdfunding. It illustrates the related fields of research as well as its origin in order
to be able to place crowdfunding within an academic context.
Additionally, the way in which and how crowdfunding happens is explained. Thirdly more macro
economic related literature will discuss the motivation of people to invest. Lastly the chapter will be
finalized with a small conclusion.


Figure 1: Placement of crowdfunding
5 2.1.1Web2.0
The development of the Internet dates back to the early 1960’s, were it began as static one-way sender-
receiver information providing platform (Leiner et al., 2009). More recently technological
developments made that the Internet evolved into a two-way collaborative platform (Lee et al., 2008).
This development lead to the possibility of creating applications that made it possible for users to
become actively involved and participate on the Internet. This development is what Tim O’reilly (2005)
first refers to as Web 2.0. O’reilly (2005) uses the term in order to distinguish between static and
collaborative web usage.
Web 2.0 is the general agreed term for Internet applications that makes two way collaborative
communications possible (Kleemann et al., 2008). It makes it possible for people to interact and
collaborate with each other in an environment that enables the users to generate and share content
(Kleemann et al., 2008). This online interaction can be viewed in the broadest possible way, ranging
from sharing of video, audio or written content to forming online communities or buying and reviewing
products online.
O’reilly (2007) explains that the success of Web 2.0 applications can be accounted to the access
of collective intelligence that is made possible through this online interaction. This online collaboration
is subject to current research since it reflects and makes it possible to measure sociological insights (Lee
et al., 2008).
Web 2.0 applications have been widely adopted by companies and commercialized in forms of
‘open innovation’ (Chesbrough, 2006). Lee et al. (2008) narrow down the characteristics of Web 2.0 by
openess, collaboration and participation. Collaboration is described in the way that all users of Web 2.0
platforms are both produceres as well as users. The example’s that Lee et al. (2008) give are blogs,
wikis and applications that make use of an application programming interface. Openess refers to the
way that people communicate and the trend to share idea’s. The Web 2.0 developments gave a boost to
open source platforms, open innovation and co-design (Lee et al., 2008). Lastly, participation refers to
the user genated content that is being created by anybody who is willing to participate.
Web 2.0 enables people to mobililze large audiences in order to get inputs of all sorts (Braet &
Spek, 2010).
6 2.1.2SocialNetworks
The characteristics of Web 2.0 have lead to the possibility to create online social networks. The
increasing popularity of these social networks make that these websites have grown to be among the
3largest on the Internet, with for example Facebook (over 500 million users) , Linkedin (over 130 million
4 5users) , Myspace (over 100 million users) . The difference between online social network sites and
“normal” websites is that the content on these social networks focuses on and around the users (Mislove
et al., 2007). Persons who are active on social networks are in the majority of cases able to create a
personal profile that enables them to place content of any kind. Most sites furthermore allow the users
to create communities that enable them to share similar interests or locate knowledge endorsed by other
users (Mislove et al., 2007).
Especially sharing knowledge and problem solving through these online communities have
been subject of research. Knowledge for organizations is often seen as private assets rather than a public
good since it enable organizations to maintain a competitive advantage over others (McLure Wasko &
Faraj, 2000). Employees are often found not willing to share knowledge within organizations
(Ardichvili, Page, & Wentling, 2003). Nevertheless knowledge-sharing activities are widely practiced
via online communities, a development that is still not well understood by researchers (Ardichvili et al.,
2003). McLure, Wasko and Faraj (2000) find that people that make use of these online social networks
in order to share their knowledge or deliver other contributions do this primarily because these people
feel it is “the right thing to do”. Furthermore, delivering contributions to these social networks delivers
a feeling of respect, keeps people up to date of the latest developments and allows access to knowledge
that would otherwise not have been available locally (McLure Wasko & Faraj, 2000).
The impact of these social networks and forming of online communities has increased the
online collaboration and facilitated greatly in collective and collaboratively working of people. This is
most probably caused due to the increased access to data that the Internet facilitates (Bonabeau, 2009).
These developments caused an increased discussion on whether large groups of people (crowds) know
more than a single individual, work more effectively or whether the collective prediction power of
people is higher than somebody alone.
2.2.3WisdomoftheCrowds
Surowiecki (2004) in his book; ‘The Wisdom of Crowds: Why the Many Are Smarter Than the Few and
How Collective Wisdom Shapes Business, Economies, Societies and Nations’ argues that given the
right circumstances groups are remarkably more intelligent, and often smarter than the smartest person
within the same group. According to his theory, in order to let the crowd outperform, the crowd needs to
comply too three conditions. The crowd needs to be independent, diverse and need to satisfy a
“particular kind of decentralization” (Surowiecki, 2004). Surowiecki (2004) uses several examples in

3
http://www.facebook.com/press/info.php?factsheet (visited March 15, 2011)
4 http://press.linkedin.com/about/ (visited March 15, 2011)
5
http://www.myspace.com/pressroom/fact-sheet/ (visited March 15, 2011)
7

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