Crowdfunding and Entrepreneurial Finance

Citation

Marina Solesvik (2016), "Crowdfunding and Entrepreneurial Finance", International Journal of Entrepreneurial Behavior & Research, Vol. 22 No. 1, pp. 175-177. https://doi.org/10.1108/IJEBR-09-2015-0206

Crowdfunding is an interesting phenomenon of our days. Crowdfunding is a relatively new notion that was introduced in 2006 (Lawton and Marom, 2010). There are many definitions of crowdfunding cited in the book under review. One of them defines crowdfunding as “tapping a large, dispersed audience dubbed as “the crowd”, for small pledges that can sum up to incredible amounts due to the sheer numbers of participants” (Lehner and Nicholls, 2016, p. 106).

The successful development of ICT allows gathering money for ventures nationally and internationally. A number of crowdfunding platforms (Kickstarter, Prosper, MyMajorCompany and others) make the process easy. Crowdfunding is becoming more and more popular and widespread. For example, one of my friends collected donations for the creativity skill developing programme for refugee children at her private kindergarten. Another Facebook friend collected a start-up capital for his dream venture over just five days. His target was 60 days. Now he has resigned from his position as chief marketing officer and offers tailor-made guided tours in London. Those people who gave him money got a ticket for a guided tour. In other words, crowdfunding is a reality that changes people’s lives.

The book, edited by Richard Harrison (2016), is an excellent and timely work. It is written mainly for academic readership but can also be used by entrepreneurs looking for new sources of venture finance. After the global financial crisis of 2008, many nascent entrepreneurs faced difficulties in obtaining venture capital from the banks and private investors (Harrison, 2016). Crowdfunding appeared as a new source of venture finance. Surprisingly, crowdfunding is popular in some western countries but still unknown for entrepreneurs in some emerging economies. In my opinion, the book is a good combination of theoretical papers offering a brief overview of previous research on crowdfunding and empirical articles, mainly quantitative, surveying various aspects of crowdfunding. Thus, this book should be of great interest to busy scholars and entrepreneurs in different parts of the world.

The book comprises seven chapters. Chapter 1 is an introduction to the anthology. It is written by Professor Harrison, who is an expert in the area of entrepreneurial finance and a founding co-editor of Venture Capital: An International Journal of Entrepreneurial Finance. This chapter analyses the main reasons for the development of crowdfunding. The role of the so-called 5Fs (family, founders, friends, fans and fools) investors as the sources of new venture funding decreased after the financial crisis. Nascent entrepreneurs were forced to be creative and look for new sources of funding. Crowdfunding became one of them. The chapter briefly presents five central models of crowdfunding: the donation model, the reward model, the pre-purchase model, the lending model or the peer-to-peer model and the equity model.

Chapters 2 (Lehner, 2016) and 6 (Lehner and Nicholls, 2016) are related to crowdfunding of social ventures. In Chapter 2 the author first makes a detailed analysis of the previous literature on crowdfunding. Then, the author analyses crowdfunding in the light of social entrepreneurship and proposes a schema for crowdfunding. Opportunity recognition has a central position in the schema. The chapter terminates with the analysis of the eight areas for future research into crowdfunding. In Chapter 6, the ideas related to crowdfunding for social ventures are further developed. The paper presents a case study considering the role, needs and desires of different actors involved in the crowdfunding of social ventures (social entrepreneurs, government, donors, social banks and individuals giving money to social projects).

Chapter 3 is related to individual crowdfunding practices (Belleflamme et al., 2016). This quantitative study is based on a hand-collected data set. The main finding of this study is that nonprofit ventures are more successful in generating financial support through crowdfunding than commercial ventures.

Chapter 4 presents a conceptualized investment model for crowdfunding (Tomczak and Brem, 2016). The model is well developed and described in detail. The authors also point to an important area of future research for scholars and future work for policymakers, i.e. identifying the essential legal aspects of crowdfunding.

Chapter 5 is a quantitative study (Frydrych et al., 2016). The paper analyses hand-collected data from 421 crowdfunding projects related to cultural entrepreneurship. There were 227 successful projects, 177 unsuccessful projects and 17 projects that were closed in the sample. The chapter presents several interesting findings. First, successful projects aimed to collect smaller amounts of money than unsuccessful ones (USD 9,415 vs USD 32,002, respectively). Second, projects owned and managed by women had a higher success rate than projects managed by males (68.8 per cent vs 45.8 per cent). This is a significant finding and has strong implications for female entrepreneurs. Since female entrepreneurs are traditionally more careful with the commercial loans and their ventures have lower levels of start-up capital (Iakovleva et al., 2013), crowdfunding should be seriously considered by female entrepreneurs who have not tried to fund their ventures with the help of this alternative manner of raising capital.

Finally, Chapter 7, written by Cumming and Johan (2016) addresses regulatory issues related to crowdfunding in Canada. The authors, drawing on the race-to-the-bottom/race-to-the top debate, surveyed 144 potential investors, entrepreneurs, portals and service providers. The study presents interesting findings and describes conditions under which participants of the crowdfunding market would place capital in a venture.

In conclusion, this is an exciting and concise book (142pp.) that presents a substantial overview of the previous literature on crowdfunding and fresh insights and empirical findings that should be interesting for entrepreneurship scholars, practitioners and policymakers. The major weakness of the book is that it is, by and large, based on quantitative research. Incorporating qualitative studies into the book could provide rich and deeper insights into crowdfunding. A number of books on crowdsourcing have been published recently. A comparable book is edited by Brüntje and Gajda (2015). It comprises 17 chapters. However, it is limited to a European context.