Some Simple Economics of Crowdfunding

By Ajay Agrawal, Christian Catalini, Avi Goldfarb. Innovation Policy and the Economy, 2014

1,052 citations recorded by the source corpus.

It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized since these types of funding decisions are usually predicated on personal relationships and due diligence requiring face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding—raising capital from many people through an online platform—which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the United States, we provide a preliminary exploration of its underlying economics. We highlight the extent to which economic theory, in particular transaction costs, reputation, and market design, can explain the rise of nonequity crowdfunding and offer a framework for speculating on how equity-based crowdfunding may unfold. We conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation.

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/1a6128314afae6ee8a0e20000dfb460a0b294bed

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Citations in the corpus

The evolution of equity crowdfunding: Insights from co-investments of angels and the crowd (2019, background): “campaigns are close to reaching their funding goal (Agrawal et al., 2014).”
Information Cascades among Investors in Equity Crowdfunding (2015, neutral): “While crowdfunders are typically depicted as amateur investors with limited experience in evaluating investment opportunities (Agrawal et al., 2013; Belleflamme et al., 2014), we find that 88% of the public profile investors in our sample have entrepreneurial and start-up–related skills, and 44%…”
The power of positivity? The influence of positive psychological capital language on crowdfunding performance (2018, background): “, 2017; Devaraj and Patel, 2016), are important to crowdfunding performance, costly signals are likely rarer than in traditional funding contexts given that ventures are in the earliest stages of formation and that crowdfunding appeals are presented online (Agrawal et al., 2014).”
Internal Social Capital and the Attraction of Early Contributions in Crowdfunding (2015, background): “One major source of uncertainty relates to the quality of a project and its real chance of success (Agrawal et al., 2014).”
Some simple economics of the blockchain (2016, background): “Interestingly, whereas crowdfunding so far as relied on online aggregators like Kickstarter or AngelList to select and screen projects (Agrawal et al., 2014), each cryptocurrency can act as its own crowdfunding platform, matching computing time and resources to a shared objective, ethos or vision…”
The evolution and adoption of equity crowdfunding: entrepreneur and investor entry into a new market (2018, background): “In asking this question, we try to address a critique that ECF brings large numbers of ill-informed and inexperienced investors into the market (Agrawal et al. 2013; Belleflame et al. 2014).”
Three provocations for civic crowdfunding (2014, background): “Agrawal et al. (2013) observe that the distribution of funding among crowdfunding projects bears striking resemblances to existing venture capital funding flows, while Kuppuswamy and Bayus (2013) suggest that within campaigns, donor behavior exhibits trends such as ‘herding’ (the tendency of donors ”
Does the Possibility to Make Equity Investments in Crowdfunding Projects Crowd Out Reward–Based Investments? (2015, background): “According to a recent overview, Agrawal et al. (2013) reported that some of the main characteristics of such platforms (pertaining mostly to the reward-based ones) are that the big numbers in terms of turnover come mostly from a few bigger players, such that 1% of the projects account for 36% of…”
The Needs-Affordances-Features Perspective for the Use of Social Media (2018, neutral): “On crowdfunding (more broadly crowdsourcing) platforms, the primary goal of projectors is to obtain the needed funds and the primary goal of backers is to obtain expected returns, both of which are economic-oriented rather than identity-related goals (Agrawal et al. 2014; Kleemann et al. 2008).”