Crowdfunding: Definition And Business Model

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Definition and Business Model
According to Mollick (2014) crowdfunding is a relatively new way of funding for entrepreneurs and start-ups developed from the previous concepts of crowdsourcing and micro finance. Schwienbacher & Larralde (2010) defined crowdfunding as ‘’an open call, essentially through the Internet, for the provision of financial resources and/or voting rights in order to support initiatives for specific purposes’’. Finally the Oxford Dictionary’s (2014) definition of crowdfunding is “The practice of funding a project or venture by raising many small amounts of money from a large number of people”.
Crowdfunding embraces a wide range of potential financing needs. In some occasions, crowdfunded projects seek to raise
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According to their structural form they can be categorized as donation, lending, equity and reward based crowdfunding. The first form of crowdfunding that was developed was the donation based crowdfunding. The first crowdfunding platform was created back in 2003 in the US and was called ArtistShare (Freedman & Nutting, 2015) .The concept of crowdfunding gained significant ground after the 2008 financial crisis when it became increasingly difficult for seed enterprises to receive funding. Consequently in the upcoming years many crowdfunding platforms were founded, with some of the most well-known global platforms being Kickstarter (2009), Indiegogo (2008), Crowdfunder (2011) and Rocket Hub (2009). Additionally new and more complex crowdfunding types were developed and we will briefly provide a description of…show more content…
Moreover, Belleflamme, Lambert and Schwienbacher (2012) explain that equity crowdfunding differentiates from other types because of its unique funding process. Entrepreneurs make an open request for funding and investors decide whether to back the project according to the info that is available to them. Also the crowdfunding platform plays an active role in the settlement of the transaction by providing a standardized contract and making sure that the payment procedure functions smoothly. Finally, Belleflamme, Lambert and Schwienbacher (2012) note that individual contributions in equity crowdfunding campaigns are much smaller than VC or business angels investments. To sum up, we believe that the most inclusive definition of equity crowdfunding is provided by Ahlers et al

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