Pure and Hybrid Crowds in Crowdfunding Markets

Abstract

This paper documents and compares two designs for crowdfunding markets, namely, pure crowds, where all crowd members participate as equals, and hybrid crowds, where crowd members are led by an expert investor. The hybrid design is rarely studied in the crowd funding literature, despite its large presence in equity crowdfunding. After reviewing the industry practice and relevant literature, we propose several factors that may favor the hybrid crowds over pure crowds. We further explore the question of how to manage and regulate the lead investors in hybrid crowds.

Keywords: crowdfunding, wisdom of crowds, crowd design, lead investor, syndicate