Abstract

http://ssrn.com/abstract=1836873
 
 

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Crowdfunding: Tapping the Right Crowd


Paul Belleflamme


CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Thomas Lambert


UCLouvain; Université Lille Nord de France - SKEMA

Armin Schwienbacher


Univ. Lille Nord de France - SKEMA Business School

July 9, 2013

Journal of Business Venturing, 2014, 29(5), 585-609.

Abstract:     
With crowdfunding, an entrepreneur raises external financing from a large audience (the "crowd"), in which each individual provides a very small amount, instead of soliciting a small group of sophisticated investors. This article compares two forms of crowdfunding: entrepreneurs solicit individuals either to pre-order the product or to advance a fixed amount of money in exchange for a share of future profits (or equity). In either case, we assume that "crowdfunders" enjoy "community benefits" that increase their utility. Using a unified model, we show that the entrepreneur prefers pre-ordering if the initial capital requirement is relatively small compared with market size and prefers profit sharing otherwise. Our conclusions have implications for managerial decisions in the early development stage of firms, when the entrepreneur needs to build a community of individuals with whom he or she must interact. We also offer extensions on the impact of quality uncertainty and information asymmetry.

Number of Pages in PDF File: 45

Keywords: crowdfunding, pre-ordering, profit sharing

JEL Classification: G32, L11, L13, L15, L21

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Date posted: May 12, 2011 ; Last revised: July 2, 2014

Suggested Citation

Belleflamme, Paul and Lambert, Thomas and Schwienbacher, Armin, Crowdfunding: Tapping the Right Crowd (July 9, 2013). Journal of Business Venturing, 2014, 29(5), 585-609.. Available at SSRN: http://ssrn.com/abstract=1836873 or http://dx.doi.org/10.2139/ssrn.1836873

Contact Information

Paul Belleflamme (Contact Author)
CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, B-1348
Belgium
+32 10 47 82 91 (Phone)
+32 10 47 43 01 (Fax)
HOME PAGE: http://perso.uclouvain.be/paul.belleflamme/Site/Home.html
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Thomas Lambert
UCLouvain ( email )
1 place des Doyens
Louvain-la-Neuve, 1348
Belgium
HOME PAGE: http://sites.google.com/site/lambertthom
Université Lille Nord de France - SKEMA ( email )
Rue de Mulhouse, 2 BP 381
Lille Cédex, 59020
France
Armin Schwienbacher
Univ. Lille Nord de France - SKEMA Business School ( email )
Lille
France
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