The EERN Blog

Engage with leading researchers, policy makers, and practitioners

Crowdfunding, Change and Co-Creation

Posted By

Entrepreneurship eco-systems are a topic of great interest for both academics and practitioners due to the benefits that entrepreneurship can provide; from empowering individuals to take control of their professional life to generating jobs and economic wealth. These eco-systems are diverse networks encompassing a wide variety of stakeholders including entrepreneurs at different stages of growth, support organisations (like business incubators) and finance providers. These actors and institutions help to shape the eco-system as they build and exchange forms of capital and the network is bonded by the array of relationships between them. These capital exchanges reach far beyond simply financial capital and include symbolic capital (such as conferring status, enhancing recognition and achievement of awards), social capital (such as access to resources held by personal contacts, privileged access to information and introductions to important contacts) and human capital (knowledge exchange, sharing experiences and providing key skills). These capital forms are critical as entrepreneurs often require many different resources to effectively exploit opportunities, and different forms of capital can be exchanged and leveraged to access crucial resources. New methods of developing different forms of capital are therefore naturally of interest.

The importance of the variety of capital forms, both financial and non-financial, are one of the reasons why crowdfunding has become popular with entrepreneurs. Crowdfunding campaigns involve fundraising towards a specific target and building a ‘crowd’ of supporters, potential customers and stakeholders who are very interested in the success of the project. This represents an influx of new social capital by adding new members to the entrepreneur’s networks and as interest and excitement from the crowd increases, entrepreneurs may also benefit from significant media coverage (signalling legitimacy as a form of symbolic capital) as well as comments, discussion and suggestions from a wide range of interested parties which demonstrates a form of human capital exchange. Entrepreneurs are also likely to develop their own skillset (human capital) by managing the crowdfunding process, from practicing oral and written pitching skills to implementing a marketing campaign to managing costs and production processes.

This opportunity to develop multiple forms of capital is one of the reasons why crowdfunding has recently become a hot topic for both the mass media and academic literature with compelling early evidence of high profile success stories, significant market growth rates and claims of democratic access to finance. Further, crowdfunding is often described as a disruptive force within the finance industry which could cause significant change within the entrepreneurial eco-system. As this new industry grows and changes, it is important that research (both industry and academic) explores the impact of crowdfunding in the long term to understand if, when and how it best serves the entrepreneurial eco-system.

Crowdfunding represents a form of alternative finance which has excited attention because the core principle is raising small contributions from a large ‘crowd’ of people rather than larger contributions from a small group of people, which represents a departure from traditional finance models where a select few make the final decision. Ordanini et al (2011; 2) provide a simple, and useful, working definition:

“crowdfunding, is a collective effort by people who network and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by other people or organizations.”

The modern term ‘crowdfunding’ represents online fundraising behaviour involving a large ‘crowd’, which often occurs on an intermediary crowdfunding platform, although the core behaviour has existed offline for centuries. For example, the pedestal for the Statue of Liberty was crowdfunded by the public in response to advertisements placed in local newspapers.

Crowdfunding can be grouped into four key models – these models are donation, rewards, equity and peer to peer crowdfunding – which differ according to the return that an individual can expect for their investment. Rewards crowdfunding models have been the source of much of the early hype around crowdfunding due to the significant early growth rates – 524% compound annual growth rate from 2009 to 2012 (World Bank, 2015). This model was much easier to implement as investors (a.k.a. backers) are offered perks or rewards in return for their money, rather than a financial return, which significantly lowers financial burdens for entrepreneurs and regulatory barriers for crowdfunding platforms. It also offers customers and fans a new way to engage with companies and gain early or exclusive access to new products, limited edition rewards as well as recognition of their support in the form of public messages, titles or certificates. These rewards help to build an emotional connection with backers which aims to create a loyal group of engaged customers and ambassadors.

Equity crowdfunding represents a much more difficult problem due to the need to balance protection for unsophisticated investors and open access to the public. Recent advances in legislation have permitted equity crowdfunding with certain restrictions, which significantly enhances the potential growth of this particular model. Nesta (2014) reports that equity crowdfunding models experienced the largest growth rates from 2012 to 2014, as compared to other crowdfunding and alternative finance models. The rise of different crowdfunding models, as well as the opportunity for hybrid models, are changing the ways in which the general public can inject finance into entrepreneurial eco-systems and raises questions about the future of the finance industry.

One of the crucial questions is whether crowdfunding is a truly disruptive force, uprooting traditional finance models, or whether it forms a complementary source of finance. A recent industry report estimates that global crowdfunding will surpass venture capitalist funding in 2016, growing to more than $34 billion (, 2015). Therefore crowdfunding is set to provide much needed finance to the entrepreneurial ecosystem, particularly for early stage entrepreneurs who do not have sufficient evidence of proof of concept and market demand to secure traditional finance. Further, entrepreneurial ecosystems tend to be centred in hotspots of activity such as Silicon Valley, New York or London, which creates barriers for those trying to build businesses elsewhere. Crowdfunding redresses this imbalance by creating global platforms to connect entrepreneurs with funds, customers and media attention from around the world, which could be an important step towards internationalisation and further growth. However, traditional finance models such as venture capitalists and business angels offer ‘smart’ money as they provide added value through their extensive knowledge and expertise, prestige and status within particular networks and access to other influential connections.

This is a key reason why crowdfunding models are not always presented as alternatives to traditional models – rather some argue that crowdfunding could provide the initial round of funds which allows the entrepreneur to create their first product and generate sales. This could act as a vehicle for future investment by demonstrating demand and allow the entrepreneur to develop their business further before reaching the next stage of growth where traditional investors serve a critical role. This complementarity is reinforced by the fact that as the crowdfunding industry has developed, traditional investors have started to incorporate crowdfunding models into their search strategies, which increases the funding available for entrepreneurs and enhances deal flow for investors. For example, SyndicateRoom offers equity crowdfunding led by a business angel and MicroVentures and Arena Ventures merge crowdfunding and venture capital. This demonstrates the significance of crowdfunding models and suggests that more traditional and institutional investors may move towards hybrid models – blending the expertise of sophisticated investors with the enthusiasm and feedback from the crowd. However, this trend may not be celebrated by the public, who buy into crowdfunding as innovative alternative models which serve entrepreneurs who are unable to gain finance elsewhere.

Crowdfunding has moved beyond the ‘entrepreneurial underdog’ stories however, reaching into traditional finance spheres as well as providing support for celebrities and large corporations. One of the leading rewards crowdfunding platforms, Indiegogo, recently announced the launch of their corporate offer which is designed to encourage big companies to become more nimble and innovative. Whilst this may be seen as controversial and pushing out the smaller projects, the growth of crowdfunding supporting a greater range of companies reflects trends within the entrepreneurship field. Entrepreneurship scholars study not only small businesses, but also corporate entrepreneurship, social entrepreneurship and the processes of opportunity identification and exploitation. Therefore, it is important to recognise all types of entrepreneurial activity and embrace the role of crowdfunding in not only providing finance, but also creating opportunities for co-creation, customer engagement and confidence in the business. As the core principle of crowdfunding is open access, significantly restricting participation would undermine the integrity of the model. Open access facilitates transparency and trust and as always, the power belongs in the hands of the crowd.

This is demonstrated very clearly by recent failures of crowdfunding projects, resulting in pressure from the crowd which prompted a high profile investigation into one project and intervention from the courts in another. Whilst failure may tinge the crowd’s passion with scepticism, a high level of scrutiny is likely to improve the quality of projects overall and provide entrepreneurs with invaluable opportunities for learning. The huge success of the ‘Coolest Cooler’ project which broke crowdfunding records is one clear example – the project initially failed on the Kickstarter platform and was redeveloped, subsequently raising more than $13 million. Further, crowdfunding failure may represent opportunities for deeper engagement with the entrepreneurial eco-system as entrepreneurs may start to develop insurance, consultancy or support companies for crowdfunding models.

Perhaps the answer to the question of disruption is that crowdfunding is a positive force in encouraging innovation and alternative business models, which is also reinforced by change and exciting new developments taking place more broadly within the finance industry, including the focus on community banking and digital currencies. This suggests that the finance providers are beginning to become much more creative in their thinking, reflecting the needs of the entrepreneurial eco-system. Opportunity abounds for crowdfunding collaboration involving a diverse range of stakeholders who can work together to co-create the future of finance.


Baeck, P., Collins, L. and Zhang, B. (2014) UNDERSTANDING ALTERNATIVE FINANCE: The UK Alternative Finance Industry Report 2014. Nesta. [pdf] Available: (2015) GLOBAL CROWDFUNDING MARKET TO REACH $34.4B IN 2015, PREDICTS MASSOLUTION’S 2015CF INDUSTRY REPORT. [pdf] Available:

Ordanini, A., Miceli, L., Pizzetti, M., and Parasuraman, A. (2011) Crowd-funding: transforming customers into investors through innovative service platforms. Journal of Service Management, 22(4), 443-470.

World Bank (2013) In: Crowdfund Insider (2013) It’s Here: The World Bank Report On Crowdfunding. [Online]. Available: [Accessed: 11/03/16].

Leave a Reply