Crowdfunding: A New Era of Democratized Entrepreneurship Paper

Dr. Sunil Wattal, Temple University
Published Date: 
10 May 2012

Crowd-funding has been defined as a collective effort by consumers who network and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by other people or organizations. Crowd-funded marketplaces, Internet platforms that support the crowd-funding process, have recently emerged as a viable new approach to sourcing capital to support innovative, entrepreneurial ideas and ventures. In these markets, any individual can propose a project, and interested others can contribute their funds to support it.

These markets typically come in one of four configurations: i) lending-based, ii) reward-based, iii) donation-based and iv) equity-based. Amongst these, lending- and donation-based platforms are the longest standing. Well-known examples of lending- and donation-based markets include (micro-finance), which was established in 2005, and (peer-to-peer lending), which was established in 2006. Recently, reward-based platforms have come to the fore. A prime example of this marketplace type is Kickstarter, which helped entrepreneurs to raise just under $100 million in 2011 and is set to raise triple that amount in 2012. Finally, equity-based platforms are virtually non-existent in the United States at the moment, due to legal restrictions that are currently undergoing changes. However, CrowdCube, founded in 2010 and based in the United Kingdom, is the best-known example of this crowd-funding format.

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