Specialised civiccrowdfunding platforms (Citizinvestor, ioby, Spacehive) host civic projects exclusively. As a result, the platforms are capable of guiding creators through the specifics of civiccrowdfunding project set-up, and are familiar with civic project success factors. Also, civiccrowdfunding platforms can prioritise features that are particularly beneficial to civic projects, such as online coordination of volunteers. Existing work suggests that those grounded in a sense of community network adopt specific online protocols; for example, less tendency to engage in antagonistic comments threads than those who perceive interacting online with “strangers” . In response, civiccrowdfunding platforms might investigate how to accentuate a sense of community network online through specific features. General crowdfunding platforms hosting civic projects (e.g., Kickstarter, Thundafund) should also consider ways in which civic projects could be maximised for success. For example, Project B cited being profiled on the Kickstarter landing page as a success factor, as the project caught the attention of a new audience of platform “browsers”, leading to several international donations and a geographically dispersed support base. How general rewards-based platforms can funnel interest towards local projects is a valuable consideration alongside how civic platforms can widen their networks to maximise project success. Other considerations could include encouraging projects to be classified by various descriptors (e.g., arts and civic) and incorporating more non-financial participation options.
With the removal of government funding and the unlikelihood of commercial investment in PIEL, litigants will need to turn to novel ways of raising resources for their cause. The advent of social media (particularly Twitter and Facebook) has prompted new ways of connecting people to issues of public significance. In many areas of governance, including the environment, social media is being used not only to connect people with one another but to mobilise resources, launch campaigns and exert influence on both regulators and the regulatees. 57 One way civil society is beginning to mobilise resources via social media is through online crowdfunding platforms. In the next part of the article, I examine civiccrowdfunding, an emerging subset of crowdfunding. I explore the emerging literature and a case study to discuss whether civiccrowdfunding might provide a viable means of solving some of the access to justice issues of PIEL participants.
Crowdfunding is characterized by Internet platforms able to gather people beyond any geo- graphical barrier, for the ideas that are proposed and for the emotional and spontaneous participation of the crowdfunders. Other features to be ascribed to this phenomenon are defi- nitely “pliancy, referring to the fields of application that are various and heterogeneous (arts, culture, science, journalism, politics, philanthropic, business…), as well as the centrality of the information technology tool for what concerns the fundraising operations” . It is called civiccrowdfunding when the field of application extends to financing, with small or large capitals, public or social and cultural works, or environmental impact projects benefitting the citizens. Crowdfunding has its roots in the 700 Ireland, when Jonathan Swift, the author of “Gulliver’s travels,” established, in Dublin, the Irish Loan Funds, which granted microcredit to poor farmer families with the commitment to pay back on a weekly basis without interest. The applicant had to bring in two people who would serve as guarantors that, in case of lateness, would provide payment of the loan.
Crowdfunding is a model of fi nancing pro- jects through contributions generally from large groups of individuals and organizations, the crowd (Bellfl amme et al., 2013). It can be used to support a wide range of projects like artwork, fi lm production or product develop- ment. Recently, crowdfunding fi nancing mech- anisms have increasingly been used for pro- jects in the built environment. However, as Davies (2015) points out while crowdfunding studies are growing, they tend to focus on the dynamics of the fundraising projects and have not always distinguished between projects that provide a community service or a con- sumer product. The former fall more broadly into the domain of ‘civiccrowdfunding, which as a concept it still needs fl eshing out (ibid.). It has been broadly defi ned as ‘projects where citizens contribute to funding community- based projects ranging from physical structures to amenities’ (Stiver et al., 2015a; 2015b, p. 1) and ‘crowdfunded projects that provide ser- vices to communities’ and often involve ‘par- ticipation in collective activities’ and aim to produces services, spaces or goods that can be the accessed equally by members of the community (Davies, 2014; 2015, p. 343).
Social capital also relates to political activity. Both Putnam (2000) and Skocpol (2003) note a decline in political and public involvement among US citizens. Putnam’s (2000) research suggests strong linkages between social membership and civic engage- ment; decreases in the former impact on social lives of individuals, but can also affect government performance and the process of democracy. Although the online space might not replace the offline, Putnam (2000: 179) acknowledges that online relationships could foster deep connections through diversity and multiple points of connection. Civiccrowdfunding addresses these points, using the online space for varied groups and pro- jects, but also for the coordination of offline interaction. Civiccrowdfunding further aligns with evolving concepts of citizenship, “participatory civics” (Zuckerman, 2013a), and a participatory democracy model that encourages citizen involvement to sustain a strong democracy (Barber, 2003). Other fields relevant to civiccrowdfunding also embrace collaborative models, such as urban planning. The concept of participatory planning, characterized by shared public learning as well as shared public action, involves various community stakeholders for strategy as well as management of planning pro- cesses (Forester, 1999: 1). Participatory e-planning is a developing iteration of this con- cept, acknowledging the value of the online space for creation and collaboration over digital media content and the use of online tools (Saad-Sulonen, 2012). Online potential is reinforced through related ideas such as the “technology-mediated interaction” (Sanford and Rose, 2007: 408), driving e-participation, and digital democracy, a concept highlighting civic crowdfunding’s possible impact through recognizing that information and communication technology can influence the realization of modern democracy (Fuchs, 2006). These illustrations, demonstrating an existing familiarity with online ele- ments, as well as an interest in their continued use, suggest the potential for online civiccrowdfunding platforms to be well received.
In the article, The Ethics And Values of Crowdfunding, Davies Rodrigo described the pursuit of ethics in crowdfunding as a moral imperative to be civically minded and fair. 145 He presented three core ideas: Capacity, Engagement, and Accountability. These serve as the framework of accountable, fair, and civiccrowdfunding and should be incorporated during the campaign. The first core idea is Capacity, which ensures the project serves a need that is otherwise not being met, will build up capability in a community, and promote social equality. 146 The next value, Engagement, seeks the involvement of groups in the community that the project stands to affect. 147 This value ensures that the organizer has discussed the proposal with the community prior to the fundraiser and is working in cooperation not competition with any other organizations serving the community. Accountability is the third core idea. It involves reporting regularly to supporters and the wider community on the progress of the project, explaining successes and challenges, including time frame and budgetary
Policymakers concerned about stimulating small business and entrepreneurial growth need to better understand the dynamics of crowdfunding as a vehicle for that growth. The conventional wisdom is that raising cash through crowdfunding always benefits entrepreneurs. But that is not the complete picture. In reality, there are ways in which entrepreneurs, as well as VCs looking for new investments, may actually be left worse off after a successful crowdfunding campaign. This issue brief examines the potential pitfalls of a successful campaign. These include a moral hazard problem that comes into play when entrepreneurs explore both crowdfunding and venture capital investment, which can lead to a breakdown in negotiations between entrepreneurs and VCs, leaving the VC without a potentially lucrative project and the entrepreneur without the VC’s essential financial support, expertise, and guidance. While the brief focuses on reward-based crowdfunding platforms, the pitfalls described herein likely apply as well to peer-to-peer lending, real estate, and equity-crowdfunding platforms too.
The Article unfolds in three parts. Part I discusses the evolution of litiga- tion crowdfunding. It first explains the need that litigation funding models were developed to meet. Next, it shows how this need was met through tradi- tional financing methods, collectively known as third-party litigation funding; how technology enabled alternative finance methods to emerge and gather pace; and how these two global trends have combined to form a new subindus- try: civil litigation crowdfunding. Part I also presents possible legal obstacles to this development. Part II analyzes investment-based crowdfunding of claims and defenses, showing that they offer considerable benefits and only raise easi- ly manageable problems. Part III turns to non-investment-based models, assert- ing that crowdfunding process costs must be subject to professional vetting, and that crowdfunding outcome costs should be prohibited, at least under some circumstances.
To understand whether crowdfunding adds value to an economy, we need to compare it to other more conventional financing forms. The main outside sources of funding for startups in terms of volume—after personal credit, savings and contributions from friends and family—are venture capital, business angels, banks, and crowdfunding (from US data in descending order, see Fundable, 2013; similar in the EU, see European Startup Monitor, 2016). 12 In this section, we will contrast the major financing forms of venture capital, business angels, and banks with crowdfunding. All of these traditional financing forms have in common that a few large agents are providing the funds rather than a group of many of the eventual consumers of the good (the crowd, which behaves competitively). As this section shows, efficient investment is typically not achieved with these traditional forms, either because of strategic underprovision of funds to extract larger profits, or because the investors lack the combined knowledge of the consumers to predict the future demand for the new product. These two—market power and imperfect information—are the key frictions that crowdfunding might be able to overcome and improve welfare relative to the traditional startup financing forms.
The consolidation of crowdfunding may be said to be in 2008 when Indie- gogo has been created and then in 2009 Kickstarter has been established. Both services have the same idea: people can donate and financially support projects, ideas, products. Also, 2008 and 2009 are the years when micro lending has be- come very popular: lenders and borrowers started to communicate via Internet. Of course this is also the period of time when Facebook became very popular (and it has ousted MySpace). One of the biggest platforms is Kickstarter which is said to raise the highest number of money (44% of crowdfunding projects) [Wortham, 2012].
Other disciplines have been quicker to examine the rise of crowdfunding. Most of the academic attention given to crowdfunding comes from the fields of business, finance (Colombo et al., 2015; Belleflamme et al., 2014; Mollick, 2014) and law (Griffin, 2013; Schwartz, 2013; Bradford, 2012). This literature is predominantly focused on the motivations for crowdfunding, the determinants of success and the legal restrictions of equity-based crowdfunding. However, some spatial issues also feature strongly in this literature. One important debate in the business literature is focused on the extent to which crowdfunding functions to eliminate the importance of distance between investors and the projects or firms that receive funding. Focusing on Kickstarter, a large US-based platform which specializes in cultural projects, Mollick (2013) argues that geography is important in understanding crowdfunding in two ways. First, Mollick shows that crowdfunding results in an uneven distribution of funds to cultural projects around the US. Second, Mollick finds geographic patterns in the production of the cultural product itself. For example, that regional specialization (e.g. country music in Nashville, Tennessee) is reflected in the Kickstarter projects. Agrawal and his colleagues in the US have conducted one of the larger studies of the industry, exploring crowdfunding’s ability to eliminate the “friction of distance” between investors and small, early-stage artistic projects that successfully receive funding. Agrawal et al. (2011) followed musicians seeking funding to see if crowdfunding relaxes geographic constraints on fundraising. They found that, although funders of successful projects were geographically dispersed, local investors still played an important role – they invested relatively early (often having a personal connection with the artist-entrepreneur), which served to signify the quality of the project to other potential investors. Agrawal et al. conclude that crowdfunding does not remove, but does relax, geographic constraints among funders.
Initially, the vast majority of CFPs were donation-based, followed by lending-based and reward-based platforms. Since then the number of reward- based CFPs has grown strongly. As of 2014, the share of newly created platforms that are reward-based is 40 percent, followed by donation-based platforms and lending-based platforms (each around 20 percent in 2014). As regards funding volumes of di¤erent types of CFPs, lending-based crowd- funding dominates the industry, with 11.08 billion US$ collected in 2014 (i.e., 68.4% of the total amount collected worldwide); the other forms of crowdfunding follow at some distance (donation and reward-based with 3.26 billion US$, equity-based with 1.1 billion US$, hybrid forms with 487 million US$, and royalty-based with 273 million US$; see Massolution, 2015). It is important to note that the ranking of the the number of successful campaigns across crowdfunding models is quite di¤erent: the majority of campaigns are donation-based (about 60%), while investment-based campaigns represent a tiny minority (about a few percent of the total). For these two rankings to be compatible, we must have very di¤erent campaign volumes depending on the chosen crowdfunding model. Indeed, as reported by Massolution (2013), the average campaign size with equity-based crowdfunding (190,000 US$ in 2012) is more than 100 times larger than the average campaign size with donation-based crowdfunding (1,400 US$). This suggests that investment- based crowdfunding features very di¤erent kinds of campaigns than all the other crowdfunding models. A possible explanation is that …xed transaction costs which come with equity-based crowdfunding are relatively large.
Moreover one can now see cases where products offered by firms who used InDemand or AmazonLaunchpad and had crowdfunding experience previously seem to have a higher quality compared to firms that did not use either. For example the company Prynt, founded in 2014, raised more than $1.5 million from more than 9000 backers on Kickstarter before launching the The Prynt Case on Amazon Launchpad, with customers already purchasing enough cases and photo packs to print more than 120,000 instant photos. 5 Prior to launching their crowdfunding campaign, its founders had a good level of belief in the high potential of their product. After showing off their product in early 2016 at the Consumer Electronics Show in Las Vegas, Prynt had a couple of notable write-ups under their belt. “...a [Kickstarter] campaign requires a lot of anticipation and dedication...,” said Clément Perrot, CEO and Co-Founder of Prynt (Cunningham (2016)). He also said that before you hit the launch button, you have to be ready with updates, posts, pictures and images. Shortly after their crowdfunding campaign, an independent author covering innovations mentioned: ”...there are a whole slew of services that let you order prints right from your smartphone with incredible ease and equally incredible quality. There are even apps that channel the wind-and-click days of only getting one shot without any edits. However, compared to Prynt, those innovations start to look like novelty gimmicks.” (Cunningham (2016)). Furthermore it seems like on Amazon the ratings, prices and customer feedback of Prynt are relatively high, and higher for example than that those of
Block et al. (2018b) explained the factors that stand behind the emergence of crowdfunding. From the supply side, there is the economic and financial crisis; the subprime crisis of 2008 led to authorities tightening the regulations on the banking system by increasing the minimum capital requirement through Basel regulations. There is also the matter of regulation, where the high regulation leads to the emergence of entrepreneurial finance. Moreover, there are also government policies such as the JOB act on the U.S. that facilitates the IPO, and the technology development enables the emergence of new entrepreneurial finance. On the demand side, there is the product market; globalization and the internet development create “winner-take-all markets” as Facebook and Google, both of which operate in a quasi-monopolistic situation that developed the social networks which provide startups the access to non-financial resources. Lastly, there is the notion of disintermediation where borrowers and fund investors deal directly without the middle-man that reduces the agent problem.
Another dilemma is that equity crowdfunding proposes adverse selection. This is because this funding method provides very cheap capital and is available to everyone. Good entrepreneurs will try to raise capital traditional way and not go to crowdfunding sites. Good investors are not going to crowd fund because they have broad access to good entrepreneurs. Thus, equity crowdfunding sites will be left with entrepreneurs who couldn’t raise capital and investors who couldn’t get into deals.(Wald, 2013) or this reasons sceptics will say that funding becomes accessible to companies that would not have been funded in first place and when the time to scale up and meet professional investors will come they will most likely strive to get funding from them. (Bogost,2012). Adverse selection principle is strengthened by “Market for lemons” concept and Buzz sections described below.
Modern technology decentralizes, and eventually, it disintermediates–giving users inde- pendent access to previously private, and often analog, networks. Relationship Banking is such a network. We have discussed how and why crowdfunding is theoretically superior; it is more efficient, it is scalable, it offers price discrimination, it is ‘wiser’, it distributes risk and it democratizes access to capital markets. Moreover, we developed and simulated a model that gives us key insights into how certain variables affect the entire round of financing. With this understand we should consider the feasibility of crowdfunding on a larger scale.
Entrepreneurs often face difficulties in attracting external finance. Many ventures are unable to attract external capital due to failed efforts to convince investors, a lack of concrete specification what the capital is needed for, or the lack of enough large sums from investors in general (Lambert & Schwienbacher, 2010). Main reasons for the difficulties in raising external funding are a lack of internal cash flows and securities, asymmetric information and agency problems (Hall & Lerner, 2010; Block, et al., 2017). Crowdfunding is an emerging alternative way for entrepreneurs to raise funds. As new ventures often face difficulties in attracting external finance at their initial stage, crowdfunding appears to be a useful alternative form of financing the venture (Belleflamme, et al., 2010). Crowdfunding is an internet-based method of fundraising. In crowdfunding, the focus is gathering many small contributions from the crowd, referred to as backers in this report, over a fixed time period. Crowdfunding allows entrepreneurs, hereafter referred to as founders, to fund their concept or idea by attracting contributions from a relatively large number of investors, without the intervention of financial intermediaries. This often happens in return for future profits or equity. There are four different types of crowdfunding, which are loan-based crowdfunding, equity-based crowdfunding, reward-based crowdfunding, and donation-based crowdfunding, and they all have different rewards for backers. Moreover, the contributions of these different types have different forms. The chance of achieving a fundraising goal depends upon a successful outreach campaign, in which a larger crowd translates into more money raised (Wheat, et al., 2013; Mollick, 2014; Kuppuswamy & Bayus, 2015). Where in 2015 there were 42 AFM-registered (Authority Financial Markets) crowdfunding platforms in the Netherlands which together have funded 98 million euros, this number has increased to 49 AFM-registered platforms which funded 134.5 million euros in 2016 (Van der Beek & Van der Linden, 2017). In 2012, 14 million euros were financed with crowdfunding. In 2017, this amount added up to 223 million euros (Crowdfundingcijfers, 2018).
The research setting of this research is the online crowdfunding platform ‘Kickstarter’. Kickstarter is the internet-crowdfunding leader with 5,5 million users per month (team, 2015). This large number of users gives projects the possibility to be seen by the largest possible audience which increases the chance of funding. A disadvantage of this is that most of the funders on Kickstarter fund projects which are quite large and popular already. Also, the most often funded categories are in art and high tech, even though Kickstarter consists of 15 categories in total (Art, Comics, Crafts, Dance, Design, Fashion, Film, Food, Games, Journalism, Music, Photography, Publishing, Technology, Theater). When we have a somewhat smaller project, the chances of funding will be significantly smaller, and a different platform would be a better fit. Regarding rewards, Kickstarter has a non-financial reward policy. Initiators cannot pick the reward option of giving money to the funders, after the target is achieved. Only tangible rewards can be offered, which is a common option in the reward-based model (Belleflamme, 2012). Kickstarter makes use of the reward-based model, so this is where the focus is on in this thesis. Next to this, Kickstarter has an all or nothing strategy (Crowdunite, 2017). This means that when the target is achieved, the initiator will receive the funded amount, with a 5% commission for the platform (Zhou M. , Lu, Fan, & Wang, 2018). On the other hand, when the target is not achieved, no money will be received at all. This causes the trust to be easier for funders, than when the money will be received anyway.
Third and last, investors represent the crowd, who "[...] decide to financially support these projects, bearing a risk and expecting a certain payoff" (Ordanini et al., 2011, p. 5). These investors are in terms of indirect crowdfunding registered users with access to the project information (e.g. Baba et al., 2014). In case of interest, investors contribute a fixed amount via a bank or micopayment provider. The crowd, as a group of recipients of the task, usually stays anonymous regarding crowd and the fundraiser(s) (Poetz and Schreier, 2009; Wexler, 2011). Investors are intelligent, qualified persons (Howe, 2008). A necessary qualification in order to take part in crowdfunding as an investor is not determined: users and consumers (Kleeman et al., 2008), amateurs (Schenk and Guittard, 2011) or individuals, seeking for commitment (Grier, 2011; Heer and Bostok, 2010) are regarded as members of the crowd. The crowdwork can either be tournament-based or collaboration-based (Leimeister, 2012). The primary focus on the crowd needs to be the collaborative funding of the incentive instead of aiming to individually work on a solution (Howe, 2006a). For crowdsourcing in general, these social effects are comprised by terms such as "crowd wisdom" (Brabham, 2009, p. 248; see also Leimeister, 2012, p. 388) or "collaborative knowledge" (Pelzer et al., 2012, p. 20).