Crowdfunding is often considered to be a more prosocial than traditional means of financing. In order to analyze and validate this assumption, we explore the social mechanisms of reward-based crowdfunding present in four illustrative campaigns. We propose a typology of the tools, mechanisms, and organizational methods used in these fundraising initiatives and show how entrepreneurs can use a combination of rules, communication, and the stated philosophy or purpose of their venture not only to succeed but also sometimes to engage in free-riding behavior.
Crowdfunding (CF) models vary. All, however, include “an open call, mostly through the Internet, for the provision of financial resources either in form of donation or in exchange for the future product or some form of reward and/or voting rights”. This definition clearly describes the core specificities of CF, namely its main goal, funding, its main means, a group of individual funders accessed via the Internet, and the promise of rewards. Most definitions of this practice in the academic literature focus on the funding aspect and indicate that CF is still relatively unregulated except by specialized platforms hosting the campaigns that act as intermediaries and impose rules while guaranteeing a certain amount of rigor to potential investors. Interestingly, a wide variety of forms of CF and reasons for using it exist. We will focus here on non-equity CF, as equity CF tends to be more classically regulated since it involves the emission of securities. Building awareness of the project among prospective customers and venture capitalists, particularly if the campaign is successful, can be the principal reason. But not all campaigns happen on platforms; The project bearer can also organize the campaign independent of a platform. This is the case of many videogame projects, such as Minecraft. As CF is a form of crowdsourcing, the essential resource is always the support of a community and to ensure this, campaigns tend to exhibit isomorphism in their use of similar means to engage the community in question…
- Crowdfunding, or the empowerment of founders vs. funders
- Four stories of crowdfunding
- Consequences and mechanisms at play
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