Introduction

Who is best suited to finance innovation is a long debated issue in both academia and policymaking. Usually, large corporates (Schumpeter 1943), venture capital (Gompers and Lerner 2001), and the State (Mazzucato 2013) are pointed to as likely candidates, but a new one has recently emerged: the crowd. The collective efforts of individuals who network and pool their money via the Internet to support innovative projects – namely, crowdfunding – is in fact becoming a potentially disruptive channel to raise capital for new ventures.

Early-stage financing is of fundamental importance to make new projects and ventures succeed (Gompers and Lerner 2004; Gorman and Sahlman 1989; Kortum and Lerner 2000) and to foster innovation in the economy (Cosh, Cumming, and Hughes 2009). Since large corporations often feel pressure to preserve existing markets rather than introduce disruptive products, innovators tend to work in small new companies and these need financing to fund their ideas (Riedl 2013). However, because of its riskier nature, the supply of this type of financing is often insufficient compared to the demand from entrepreneurs. Such capital shortage for young entrepreneurial companies is usually referred to as “equity gap.”¹ In fact, because of their lack of collateral, limited cash flows, and absence of past track record, start-ups obtain bank financing with more difficulty than larger and more mature firms (Ang 1991; Berger and Udell 1995; Chittenden, Hall, and Hutchinson 1996; Carpenter and Petersen 2002; Cassar 2004; Schwienbacher and Larralde 2010).

Despite the availability of funds from angel investors and venture capitalists, the equity gap seems far from being closed. In most cases, entrepreneurial initiatives that require small amounts of funding mainly rely on friends and family (Ang 1991; Agrawal, Catalini, and Goldfarb 2010) or own savings (Paul, Whittam, and Wyper 2007). In this scenario and thanks to the evolution of the Web 2.0 technologies (Agrawal et al. 2010), crowdfunding platforms have emerged as an innovative channel to raise capital for new ventures.

What is Crowdfunding?

Schwienbacher and Larralde (2010)² were among the first to study crowdfunding: they defined it as “an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes.” Crowdfunding allows initiatives of cultural, social, or for-profit nature – which are advertised on the Internet by individuals or group of individuals in search of financial support (Mollick 2013) – to gather financial resources from a large pool of small-scale investors rather than a very small group of sophisticated ones (Belleflamme, Lambert, and Schwienbacher 2014; Riedl 2013). Proposed projects range from one-time events such as parties, holidays, weddings,³ to the starting of new ventures. More precisely, the Massolution (2013) report states that in 2012 “Social Causes” were the most active (close to 30% of all crowdfunding activity), followed by “Business & Entrepreneurship” (16.9%), “Films & Performing Arts” (11.9%), “Music & Recording Arts” (7.5%), “Energy & Environment” (5.9%). Of course, crowdfunding campaigns do not necessarily aim at financing innovative products or services: in many cases they are a mere channel for “standard” private or public fundraising purposes without any innovation-related purposes or features (i.e., financing of parties, events, or donating to charities). Nevertheless, the labeling currently used by analysts and by platforms themselves to classify crowdfunding activities fails to fully capture the innovative content of many campaigns. For example, in the above-mentioned Massolution report, projects with an innovative content are not just among the ones in the “Business & Entrepreneurship” area but highly innovative (even high-tech) elements can be found in projects presented in each of the listed categories. We will later present, for example, the case of Kite, a successfully crowdfunded project which has lead to the realization of an innovative mosquito-blocking patch. Kite was a “social cause” project which has involved advanced research from the University of California delivering a product for undeveloped countries which may potentially be commercialized in the developed ones as well. More importantly, if we assume a broader definition of innovation which encompasses “soft” innovation – namely, all the innovative activities that “primarily impact upon sensory perception and aesthetic appeal” (see the contribution by Paul Stoneman in this volume, Chapter 4) – a certain number of “artistic” projects financed via crowdfunding are “innovative” even when they have no apparent commercial intent. Therefore, current data and analyses do underestimate the potential direct and indirect contribution of crowdfunding to innovation in the economy.

To better understand how crowdfunding works, let’s consider the Gerber, Hui, and Kuo (2013) description of the five steps (see Figure 12.1) that typically accompany the launch of a crowdfunding campaign:

1. Crowdfounders prepare the campaign material which requires setting up the project profile, which includes a title, video, description of planned use of funds, funding goal, campaign duration, and reward descriptions. Creators complete these requests online and wait for the approval of the platform. Once approval is received, the project is presented on the platform website in a pre-formatted page where visitors can choose to donate;
2. Crowdfounders test their campaign material by soliciting feedback on their video and campaign description and engage their audience in deciding their preferred design direction;
3. Crowdfounders publicize the project and reach out to potential supporters via the crowdfunding platform itself, email, online social media, offline communication technologies and in-person requests;
4. Once the campaign is over, they produce and deliver their promised rewards which range from the new crowdfunded product to receiving a simple “thank you” email from the founders;
5. Finally, the fifth stage sees many creators contributing back to the community by providing advice and funding other projects.

Crowdfunding projects differ in terms of requested investment amount and kind of compensation promised to investors. One-time events usually require a lower amount of financing, at times even less than $100,⁴ and are either donation-based or offer some kind of reward (e.g., a gadget) upon contribution. The magnitude of funding implied by new business projects, instead, more likely resembles the one made by business angels and venture capitalists in the seed/early stage and investors are typically offered either rewards (e.g., the product which is going to be developed by the crowdfounder if the fundraising campaign is successful)⁵ or equity shares.⁶ Other platforms are instead based on pure donations, some others allow for lending money peer-to-peer.

At this point, it might be worth citing some of the most successful campaigns, with the double aim of helping the reader better picture what type of projects can be carried out on crowdfunding platforms and give a flavor of the potential economic and also social benefits that can be achieved through the realization of these projects.

A very interesting initiative started in 2013 is the “+Pool” New York-based project which managed to raise about $270,000 on Kickstarter, receiving contributions by about 5,000 people. The aim is to build a filtered, floating swimming pool in the middle of the river, allowing New Yorkers to swim in clean river water. The team is now hard at work developing the full water-cleansing assembly and finding the best structural, mechanical, electrical, and filtration systems. This is a fascinating idea on several grounds: it is innovative, it is social, it is scalable. It is innovative because it positions itself in the group of the new environmental-improving technologies which can be both beneficial for society and for the success of a new for-profit venture; it is social because the public good nature of the river brings benefits to all New York citizens and can give the impulse to further projects to be started in this direction; it is scalable because reproducible in any other country in the world. Another project running on the same lines is the “Kite” project: Kite Patch is an innovative, powerful approach to protecting humans from mosquitoes using a small, colorful sticker made of non-toxic compounds that block mosquitoes’ ability to track humans for up to 48 hours. The idea was launched on Indiegogo, on the most famous US crowdfunding platform together with Kickstarter, by a team from the University of California and was support by the Bill and Melinda Gates Foundation and National Institutes of Health. Since exceeding its funding goal (it achieved a fundraising of about $550,000 with the support of an impressive 11,000 backers), the founders entered a partnership with Pilgrim Africa with the aim to distribute the patch to people living in Uganda, a country heavily affected by mosquito-borne illnesses.⁷

Among the most successful technological products we recall the Pebble Watch developed by Pebble Technology and released in 2013. It was funded via the crowdfunding platform Kickstarter. Initially designed as a watch that could display messages received on one’s smartphone, several features were added later on such as the possibility to download dedicated apps ranging from music control (useful while driving, running, or across the room), sports management (checks your pace, calories burnt, etc.), game-playing. The Pebble watch, which has been in the top of the most-funded crowdfunding projects ranking for quite a long time, has been so much appreciated by the public ($10 million funding received from almost 70,000 backers), that Samsung has launched a competitor product soon after the crowdfunded smart-watch’s release. But there are many other intriguing projects of this kind. For instance, Health (2013) names the following: Structure Sensor, a device that runs an iPad or Android tablet into a mobile 3D scanner which, with 25 days left before the funding period runs out, was able to raise more than $870,000; the life-logging camera Narrative, a one-inch square camera, that snaps and stores a five megapixel photo every 30 seconds, which raised more than $550,000 and later on received $3 million from San Francisco-based True Ventures; Fuel3D, a handheld 3D scanning system capable of capturing high-resolution images which was originally developed at Oxford University for use in a 3D medical imaging system and managed to raise $325,000, well above the initial goal of $75,000.

Even from this very brief overview of crowdfunding, it is possible to glance at the potential benefits of such a new and revolutionary form of financing, especially for the funding of new business ventures. So far we have focused strictly on the crowdfunding convenience for entrepreneurs (or willing entrepreneurs), in the subsequent sections we will discuss crowdfunding convenience from the investors’ point of view.

Crowdfunding Numbers at a Glance

Crowdfunding now encompasses about 450 platforms in the world and is growing at a very rapid pace: $1.5 billion of capital was raised in 2011, 2.7 billion in 2012 (more than 1 million projects were funded), and an expected 5.1 billion will be raised in 2013 (Massolution 2012, 2013). To appreciate the importance of crowdfunding as a source of financing for entrepreneurial endeavors, in 2012, according to the National Venture Capital Association (NVCA) total seed financings provided by US venture capital investors amounted to more than $752 million.

In 2012, Massolution reports that Donation and Reward-based crowdfunding platforms counted for $1.4 billion in volumes (an 85% increase from 2011), Lending-based ones for $1.4 billion (a 111% increase), while Equity-based ones still account for only a small share equal to $116 million (a 30% increase). Although crowdfunding offers a growing number of countries opportunities to use this innovative vehicle of financing, North America and Europe so far count for most of the share of total crowdfunding volumes. Precisely, in 2012 crowdfunding volumes were about $1.6 billion (a 105% increase from the year earlier) in North America and $945 million (a 65% increase) in Europe (Massolution 2013). In terms of number of platforms (see Table 12.1), the 2013 data show (expectedly) a predominance of the United States followed by Europe. However, the phenomenon does not appear to be a Western one: platforms have been launched in a number of emerging and even undeveloped countries. Given the rapid and somewhat disorderly growth of crowdfunding, data about platforms and campaigns are not fully reliable and outdate quickly, but the evidence seems to point toward an increasing number of crowdfunding projects (posted either on local or foreign platforms) from disadvantaged countries. In this sense, crowdfunding appears as a truly global infrastructure for innovation financing.

In 2011, Kickstarter appears to have provided about 10% of all angel funding for that year (Greenwald 2012). Moreover, a survey conducted by the credit agency Experian in 2012 reports that more than two-thirds of SMEs are unaware of crowdfunding, a signal of the potential development this new means of financing can yet achieve. Besides, although the reward-based platforms (such as Eppela, Ulule, Starteed, Indiegogo, and Kickstarter) are currently the most widespread, equity-based ones (such as Assob, Seedrs, and GrowVc) are rapidly growing in importance (Massolution 2012; Karabell 2013) and are attracting a great deal of attention in media and among policymakers, especially after crowdfunding was included by President Obama in the JOBS Act of 2012.

An interesting analysis of the growing attention that crowdfunding has been receiving is performed by McGlashan and Voelker (2013) which show how Google searches for the term Kickstarter began to ramp-up in 2010 and surpassed small business loan searches in 2010, venture capital searches in 2011, and entrepreneur searches in 2012. To date, Kickstarter is in fact the most famous and successful global crowdfunding platform, having raised about $1 billion since its launch in 2009 by funding about 54,000 projects. As such, Kickstarter statistics give useful indications about crowdfunding structure and development: Figure 12.2 shows the funds raised per category of project. Overall the success rate of the posted projects is 43.8%. In particular, out of the 3416 strictly technology projects launched 35% have been successfully funded, as reported in Figure 12.3.

Most successfully funded projects on Kickstarter raise less than $10,000, but a growing number have reached six and even seven figures (see Table 12.2). Interestingly technology and gaming are the leading categories in raising more than $100,000, therefore even though less successful in general compared to other categories technology has raised relatively high amounts of money on certain successful projects. This evidence suggests that crowdfunding allows technology entrepreneurs to raise significant amounts of capital that typically is obtained by professional investors (i.e., Venture Capital and Angels).

Cordova, Dolci, and Gianfrate (2013) compiled a dataset containing 1127 cases of technology projects on four different crowdfunding platforms (Kickstarter, Ulule, Eppela, Indiegogo): the data show that, similar to the results reported in Mollick (2014), failures – namely, projects unable to gather the requested money amount – “happen by large amounts, successes by small amounts.” On average, failed products miss their fundraising goal by 82%; on the other hand, successful ones obtain only 13% more than their financing target. In the remaining sections of this chapter, we will specifically focus on technological crowdfunding projects, as they are the ones most likely to turn into full-fledged innovative firms.

The Advantages of Crowdfunding

Crowdfunding platforms give the possibility to every person who owns a potentially valuable idea to test its market value. This implies more innovation is possibly brought into the open (and not necessarily just in strictly technology products) with the potential of being or becoming the new “frontier.” This is especially true due to the fact that crowdfunding projects can be launched with very little upfront costs. There is no need to prepare revenue forecasts for professional investors, to come out with a precise request of financing (given the crowd will eventually decide how much the initiative is worthwhile in terms of fundraising), to set up the legal structure of a new venture, to make upfront investments for product testing. Any would-be entrepreneur just needs to have an idea, to think about a way to present it, and to be willing to transform it into reality.

Another very intriguing aspect of crowdfunding (because it is on the Internet) is that these platforms allow many entrepreneurs to come together at the same place. Belonging to such a community can produce very positive spillovers for its members: the possibility for new crowdfounders to contact those who have successfully concluded a campaign in order to receive feedback and advice on their project and even obtain referrals;⁸ the chance for crowdfounders to enter partnerships among each other as they match complementary skills, expertise, products/services; even the mere exchange of ideas that arise from watching others’ projects can be of extreme value as sequential projects may arise.

Benefits also accrue to crowdfounders’ supporters as they have access to lots of information, from the product/service to the history and character of the entrepreneur; besides, information is constantly produced and revealed on a dynamic basis as questions can be asked by investors through comments and answered back by the founders through updates. In this sense, the format of crowdfunding platforms (i.e., their informative character) helps reduce asymmetric information between investors and founders, eventually leading to the financing of the most valuable projects (more efficient resources allocation). The advantages of crowdfunding are not limited to those above, and there are clear limitations as well. In the next section, we will walk the reader through the main findings that the empirical research on crowdfunding has highlighted to date.

The Early Evidence on Crowdfunding

By referring to crowdfunding as an open call on the Internet, Schwienbacher and Larralde (2010) importantly made many authors see crowdsourcing, the outsourcing of a given task to a large group of people, in the form of an open call (Howe 2006), as the antecedent to crowdfunding (Dell 2008; Howe 2008; Kleemann et al. 2008; Belleflamme, Lambert, and Schwienbacher 2010; Rubinton 2011; Poetz and Schreier 2012); the only difference between the two being that instead of pooling labor resources, crowdfunding pools another factor of production: capital (Harms 2007).

The open call takes place on online platforms which provide the way for crowdfounders and investors to connect without standard financial intermediaries (Mollick 2013). In this direct interaction with crowdfounders, such that potential investors can see the level of support from other project backers, authors suggested that social information could have a role in the ultimate success of a crowdfunded project (Kuppuswamy and Bayus 2013).

Another early-acknowledged feature of this new financing phenomenon is that crowdfunding platforms, which provide all the means for investment transactions to take place – legal groundwork, pre-selection, the ability to process financial transactions, and so on (Ahlers et al. 2012)⁹ – not only have the potential to help crowdfounders (the entrepreneurs) satisfy their financing needs, which makes crowdfunding alike micro and social finance (Harms 2007), but also to test new products and run new marketing campaigns (Lambert and Schwienbacher 2010; Mollick 2013). In this sense, crowdfunding draws inspiration from social networking, where consumers actively participate in online communities to share information and provide suggestions about new initiatives and/or brands (Ordanini et al. 2011). Moreover, when crowdfunding is used as a mean to demonstrate demand for a proposed product, successful initiatives become a signal to venture capitalists of a potential good long-term investment, possibly leading to additional future financing for crowdfounders (Mollick 2013).

From the very early attempts to define and draw the boundaries of it, research on crowdfunding has developed very quickly, either from a qualitative and quantitative point of view. Mainly focusing on reward-based crowdfunding, three main streams of literature have emerged: one, focusing on the crowdfounders’ side, is centered on the reasons behind their decision to use crowdfunding platforms; the second investigates the reasons that motivate investors to support crowdfunders; finally the third looks at the determinants of projects’ success and the challenges crowdfounders face in managing their initiatives. We will analyze each of these next, while leaving the more challenging analysis of the future of equity crowdfunding for later on in the chapter.

Policy Implications

Despite the previously mentioned limitations, to date these appear to be outweighed by the benefits of crowdfunding, which seems positioned to play a relevant role in the financing chain of new ventures. This is also why policymakers (i.e., the Obama administration, the European Commission) have started to support crowdfunding enablers. In fact, legislators’ assumption is that, similar to more traditional forms of capital investments in SMEs (angel investing and venture capitalist funds), these platforms are likely to lead to the funding of highly innovative ventures,¹⁸ potentially making crowdfunding a relevant contributor to innovation, employment, and ultimately economic growth.

Especially when comparing crowdfunding to VC investing, one can see the potential of further developing the former. Mollick (2014) shows two main findings. Firstly, signals of quality that are used by VCs to evaluate the potential of new ventures are also used by crowdfunders (e.g., studying the background of founders, the degree of care that is put in the preparation of the project pitch, endorsements from and alliances with relevant third parties), despite possible differences in terms of expertise in evaluating projects and the connection to Internet networks specifically designed to identify and nurture start-ups (such as connections to angel investors and seed incubators). Following Mollick, these finding are a very important signal for policymakers in that they suggest that crowdfunding has the ability to distinguish quality potential projects from less promising ones. Secondly, as Cordova et al. (2013) pointed out, the fact that crowdfunding investment is less geographically concentrated implies that the original problem of whether an institutionalized selection process is biased in a way that prevents some subset of valuable technologies and promising firms from achieving success (Ferrary and Granovetter 2009), as it tends to be geographically constrained, is relaxed. In other words, even projects which are launched in more remote or less economically vibrant areas have the chance to be financed, limiting the potential drag on the incentive to start entrepreneurial initiatives imposed by regional disparities in entrepreneurial opportunities. This may happen within the same country when projects launched in less developed urban/rural areas get funded by investors located in more advantaged areas. Interestingly, crowdfunding may allow projects launched in emerging markets or undeveloped countries to raise money from the developed countries, thus resulting in a genuinely global innovation financing tool.

Interestingly, crowdfunding appears to have the potential to be a substitute and complementary means of financing to VC investing at the same time, and this should be beneficial for the level of financing of start-ups. There are in fact cases in which projects were not accepted by venture capitalists but then obtained a great success in crowdfunding platforms (an instance in which VC and crowdfunding appear to be substitutes, i.e., crowdfunding platforms capture part of the demand for financing which is not satisfied by the VC industry, the banking sector, and quotation in alternative markets).¹⁹ Similarly, it is reasonable to expect instances in which the success obtained by some crowdfunding projects would later on allow crowdfounders to receive additional rounds of financing from VCs. The success of the initiative would in fact convey to VC investors the message that the firm is either selling a service and/or product which is liked by the market and that the firm is able to successfully carry on all of the necessary planning, marketing, and communications activities which are fundamental for start-ups to be successful. In other words, crowdfunding and VC funding are not mutually exclusive. In this regard, do you remember the description of the Pebble Watch given earlier? Well, that is a good example of what we mean by “not mutually exclusive” means of financing. With his revolutionary watch, Eric Migicovsky was embraced by Y Combinator, a quite prestigious business incubator in the United States. Once he completed the program, he was able to raise up to $375,000 from four angel investors, including Paul Buchheit, a partner at Y Combinator, and Tim Draper of venture capital firm Draper Fisher Jurvetson. Nevertheless, despite the very promising beginning, Migicovsky couldn’t raise any more money from traditional investors. For this reason, the company requested crowdfunding in April 2012. Today Pebble has become the third most highly crowd-funded project to date with $10,266,844 pledged by 68,928 people.²⁰

But can equity investment represent the new frontier for crowdfunding, such to make this revolutionary form of early-stage financing truly comparable in scale to venture capital funding, or even go beyond the latter by overcoming its geographical restrictions? First of all, it makes sense to explain why such an evolution would be desirable. As Miglietta et al. (2013) point out, equity-based crowdfunding has the potential to become an element of economic policy capable of strengthening the competitiveness of a country through the creation of new high-quality jobs, a more efficient allocation of capital, directly flowing to the development of the real economy and to companies which face a higher equity gap (OECD 2006). This is because more entrepreneurial ventures could be financed and funds would be more directly channeled to the real economy than having to pass through the banking sector. In addition crowdfunding may especially be important for start-up financing in countries which are highly dependent on financing from the banking sector, such as Italy, especially in a historical moment where banks are under severe stress and lending is contained (especially toward new enterprises, where risk connected to the absence of collateral and the need for more stable and prolonged financing is higher). Finally, equity crowdfunding platforms could be very important in providing consulting support to new initiatives. For instance, the new legislations on equity crowdfunding approved by the Italian Financial Market Authority (the first full-fledged equity crowdfunding regulation in Europe), has provided that crowdfunding platform operators can provide strategic and operational advice to start-ups, an activity similar to that played by incubators.²¹ Start-ups making use of these consulting activities will therefore be able to further signal their ability to succeed through earlier stages of their development to the market.

As to whether such a development for crowdfunding is possible, it is harder to give a definitive answer. On the one hand, if we analyze the high innovative caliber of technology crowdfunding projects, we would tend to say that investing in such projects could have appealing expected returns. Jeffries (2013) has indeed put in evidence that most of the successful consumer electronics products launched in 2013 have been funded on crowdfunding platforms, including 3D printers and electronic watches. In more general terms, because projects presented on crowdfunding platforms often arise from consumers who, unable to find the supply of specific products in the market, initiate their own project with the aim of satisfying that need, crowdfunding ventures can be very intriguing investments as they fill in gaps in the ability of the market to satisfy particular demands.

On the other hand, there are challenges that may not be easy to overcome. First, it is not clear yet what would be the incentive for institutional investors to channel funds to start-ups on crowdfunding platforms. More precisely, while it is clear how crowdfunding platforms can represent a way for institutional investors to scan several new business ventures, yet, once the investor has individuated a viable business to invest in, they would be both better off by engaging directly in the equity transaction. This is because they would avoid paying commissions to the platform, not to mention that the institutional investor might be better off making a specific investment contract with the firm owners. At this point either the start-up leaves the platform and it is entirely financed by the institutional investor or it receives some investment outside of the platform but remains on it to gather additional funds. In either case, the platform manager is worse off as it loses clients and/or profits. Of course, the platform will undertake some legal expedients in order to avoid such moral hazard behavior, but complete contacts (such that the platform is always protected from misbehavior) are hard to define. This may discourage over time, as the initial excitement leaves room for considerations on whether it is profitable to open a platform, and the opening and success of equity-based platforms. In addition, the main reason why VC funds are geographically proximate to start-ups is that they give great value to the face-to-face assessment of start-up teams before making their investment, and to the monitoring of the business operations overtime, once the investment has been made. In this sense, crowdfunding platforms offer no solution to such a problem. For this reason, Vass (2013) has proposed to add Internet webinars to crowdfunding projects or to consider an event registration calendar and event management function. Nevertheless, it is hard to expect that even in the presence of these functions, the role that trust plays for such investment decisions to take place would be solved. Notice additionally that the reason why most of the time venture capitalists are mentioned as an example of institutional investor is that they resemble more the institutions which are likely to engage in such a risky investment as start-up equity financing. Therefore, if venture capital has the aforementioned disincentive to go through crowdfunding platforms, even more stricter conditions would apply to pension funds and insurance companies, which are by far less accustomed to this asset class, have less expertise in evaluating such projects, and less time to spend in screening crowdfunding platforms.²²

The Future of Crowdfunding

Initially perceived as a threat by venture capitalists, crowdfunding is likely to become more and more a tool for them to scout and test potential innovative projects to invest in. Also established corporates are likely to search for ways to integrate crowdfunding mechanisms in the launch and development of new products. In fact, the ability to pre-test innovative products/services, gathering collaborative feedback from potential clients willing to invest in the new commercial endeavor, could prove a powerful marketing tool for many companies. States and governmental entities seeking to promote innovation and entrepreneurship may as well eventually exploit crowdfunding schemes to screen for promising entrepreneurial ventures worth being supported via subsidies, tax incentives, or bureaucratic/compliance facilitations. Against the backdrop of this financing revolution, the limitations of crowdfunding are emerging clearly as well. Crowdfunding seems not appropriate for projects easy to be replicated by competitors. Paradoxically, the publicity of innovative ideas posted on open platforms is at the same time the main strength and weakness of crowdfunding. Along this line, the financial disintermediation implied by crowdfunding will not be unbounded. Professional venture capital typically based on face-to-face relationships and on strong legal/managerial/financial support will remain mostly unchallenged in cases of very complex projects or of initiatives needing a certain degree of secrecy in their initial stages. All those scenarios open up interesting research and policy questions, including whether and to what extent crowdfunding will displace angels, venture capital, and other conventional innovation financing sources. Also, since crowdfunding may not fully finance a new venture over time, its impact and signaling effect on subsequent (possibly conventional) financing should be explored.

On the other hand, the regulation and the competition among crowdfunding platforms (and among projects themselves) are going to shape the scope of this new phenomenon. New solutions and new actors (i.e., specialized investors and financial vehicles investing in crowdfunding projects) are likely to emerge as a response to the apparent flood of new projects inundating the existing and forthcoming platforms. Research questions in this area are likely to touch upon the mechanisms to minimize fraud, the differences in crowdfunding platforms affecting the type and nature of projects being proposed, and the extent to which regulation and governance influence the utility and outcomes associated with crowdfunding. So far the scholarly evidence has mostly focused on reward-based crowdfunding. If (as most expect) equity-based crowdfunding booms, the research and policy questions are likely to focus on how it will influence the rate, geography, and direction of global innovation, and to what extent it will increase the number and types of innovations that are actually funded.

Only time will provide an answer about to what extent crowdfunding will actually substitute or complement the existing innovation financing tools and channels. Nevertheless, the crowd can clearly contribute a considerable amount of funds to valuable ideas as it is motivated, not just by tangible rewards, but also by the desire to contribute to the birth of new ventures, feeling involved in a vibrant entrepreneurial community. Therefore, crowdfunding is expected to play an important role in encouraging and spreading global entrepreneurial innovation.

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