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https://ssrn.com/abstract=1836873
 
 

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Crowdfunding: Tapping the Right Crowd


Paul Belleflamme


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

Thomas Lambert


Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Armin Schwienbacher


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: November 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: https://ssrn.com/abstract=1836873 or http://dx.doi.org/10.2139/ssrn.1836873

Contact Information

Paul Belleflamme (Contact Author)
GREQAM ( email )
Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France
HOME PAGE: http://www.paulbelleflamme.com
CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )
34 Voie du Roman Pays
POBox L1.03.01
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
Rotterdam School of Management, Erasmus University ( email )
P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
HOME PAGE: http://www.sites.google.com/site/lambertthom
Erasmus Research Institute of Management (ERIM) ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands

Armin Schwienbacher
SKEMA Business School ( email )
Lille
France
Feedback to SSRN


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