Communications of the Association for Information Systems

Volume 37 Paper

8-2015

A Conceptual Framework for Understanding Crowdfunding

Tanya Beaulieu
Utah State University, [email protected]

Suprateek Sarker
University of Virginia

Saonee Sarker
University of Virginia

Follow this and additional works at: https://aisel.aisnet.org/cais

Recommended Citation
Beaulieu, T., Sarker, S., & Sarker, S. (2015). A Conceptual Framework for Understanding Crowdfunding.
Communications of the Association for Information Systems, 37, pp-pp. https://doi.org/10.17705/
1CAIS.03701

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 C ommunications of the

A ssociation for
I nformation
S ystems

Research Paper ISSN: 1529-3181

A Conceptual Framework for Understanding

Crowdfunding
Tanya Y. Beaulieu
Department of Management Information Systems
Utah State University
Department of Management, Information Systems, and Entrepreneurship
Washington State University
[email protected]

Suprateek Sarker Saonee Sarker

McIntire School of Commerce McIntire School of Commerce
University of Virginia, USA University of Virginia, USA
Aalto University, Finland

Abstract:

Crowdfunding is a rapidly growing technology-enabled process that has the potential to disrupt the capital market
space. In order for this process to work efficiently, it is important to clarify the issues surrounding the phenomenon
from the founders’, the backers’, and the technology providers’ viewpoints. We begin with an ecosystem view to
understand the stakeholders and their roles in the crowdfunding process. We review the literature with a focus on how
current research fits into the overall crowdfunding phenomenon. Guided by typology and classification research
approaches, we identify six distinct crowdfunding business models: private equity, royalty, microfinance, peer-to-peer
lending, rewards, and donation. Based on identified roles and crowdfunding business models, we propose a
conceptual research framework. We conclude by showing how current research fits into our proposed framework and
offer suggestions for future research directions.

Keywords: Crowdfunding, Crowdfunding Models, Stakeholders, Typology, Research Framework, Literature Review,
Rewards Crowdfunding, Private Equity Crowdfunding, Royalty Crowdfunding, Microfinance Crowdfunding, Peer-to-
Peer Crowdfunding, Donation Crowdfunding.

The manuscript was received 06/13/2014 and was with the authors 5 months for 2 revisions.

Volume 37 Paper 1 pp. 1 – 31 July 2015

2 A Conceptual Framework for Understanding Crowdfunding

1 Introduction
Crowdfunding is a new technology-enabled innovative process that is changing the capital market space.
Internet-based applications, particularly those related to Web 2.0, have had a significant impact on sectors
of society such as education, business, and medicine (Alexander, 2006; Andriole, 2010; Giustini, 2006;
Lyytinen & Rose, 2003; Wagner & Majchrzak, 2007). However, until the advent of crowdfunding,
technology has had little influence on the capital markets in that entrepreneurs and small business were
restricted to seeking capital to meet their funding needs through traditional channels shrouded by
information asymmetry and personal networks (Shane & Cable, 2002). However, this left a large segment
of fund-seekers unserved by current practices. New innovations, such as crowdfunding, emerge in
response to these unfilled needs and gaps in services currently provided (Christensen, 2013).
The unfilled gap in the capital market place can best be understood by noting that typically, startup firms
use venture capitalists, angel investors, banks, and what O’Gorman and Terjesen (2006, p. 70) deem as
informal investing (i.e., “friends, family and foolhardy investors”) for raising funds. However, the capital
markets are still in many instances operating on rules and regulations established as a reaction to the
stock market crash in 1929. For example Rules 504, 505, and 506 under Regulation D of the Securities
1
Act of 1933 prohibits public advertising, and private offerings are limited to accredited investors , which
2
significantly reduces the number of individuals who can participate in private equity (Levin, Nowakowski,
& O’brien, 2013). In addition, the dot.com bust of the early 2000s along with the economic crisis beginning
in 2008 greatly constrained the capital markets, significantly reduced debt financing for small and medium-
sized businesses (“Capital remedy”, 2013), and curtailed venture capital (VC) financing by over 82 percent
between 2000 and 2009 (PricewaterhouseCoopers, 2010), which made access to funding the most critical
resource for entrepreneurs and businesses in the early stages of formation (Evans & Jovanovic, 1989).
And while evidence shows that VC funding levels have returned to 2007 levels, these sources are
investing much later in the business cycle; thus, start-up firms remain starved for cash (Bains, Wooder, &
Guzman, 2014).
Despite these funding difficulties, or perhaps because of these difficulties, a new process for obtaining
capital has emerged in response to the current ineffective institutionalized capital markets (Caldbeck,
2011). Known as crowdfunding, the concept involves using the Internet and the power of the crowd to
raise capital in an open and transparent manner. The crowdfunding phenomenon represents an ICT-
enabled solution to the constraints and limitations that have arisen from institutionalization and economic
pressures in the capital markets. Given the importance of entrepreneurs’ and small businesses’ role in a
strong economy (Acs & Armington, 2006; Audretsch, Keilbach, & Lehmann, 2006; Audretsch & Thurik
2001), understanding the use of technology to overcome many of the current financial constraints in the
capital markets is critical to a growing economy.
Given the newness of this funding source and the increasing reliance that entrepreneurs will likely have on
crowdfunding, we need to better understand this phenomenon. However, to date, little has been written
about it in a comprehensive, cohesive manner, and we sense that a certain amount of confusion
surrounding crowdfunding exists.
In Section 2, we overview crowdfunding fundamentals and discuss the ecosystem of participating actors.
In Section 3, we review the literature and identify areas of confusion or non-cohesion. In Section 4, we
develop a classification scheme of crowdfunding operating models, and, in Section 5, we richly describe
each model with an operational overview, in-depth profile, and notes on the impact of technology on each
model. In Section 6, we discuss all six models including the meaning of success and failure in
crowdfunding and the evolving nature of the phenomenon. In Section 7, we propose a research
framework and conclude by showing how current research fits into our proposed framework and offer
suggestions for future research directions.

1
Banks, trusts, and even individuals can qualify to be an accredited investor. For an individual to qualify, they must earn earns over
$200,000 per year ($300,000 if married) or have over $1 million in assets (excluding their home). For a full list of who qualifies as
an accredited investor see http://www.sec.gov/answers/accred.htm.
2
While illustrative of the institutionalization of the capital markets, and an impetus toward the formation of crowdfunding, it is noted
that the Jumpstart our Business (JOBS) Act of 2012 has repealed both of these regulations; however the actual laws are still being
formulated by the SEC, especially regarding the selling of private shares to non-accredited investors.

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2 Background
2.1 Crowdfunding Fundamentals
The term crowdfunding, first coined in a blog post by Michael Sullivan in 2006, has its roots in charitable
donations (Castelluccio, 2012), but it is now used to support projects as diverse as record albums, books,
ecology trips, scientific research (Aitamurto, 2011, Gaggioli, 2013), veteran’s causes (Brady, 2013), and
college tuition (“Start me up”, 2013). It has since been defined as:
The efforts by entrepreneurial individuals and groups—cultural, social, and for-profit—to fund
their ventures by drawing on relatively small contributions from a relatively large number of
individuals using the internet, without standard financial intermediaries (Mollick, 2014).
The concept and use of crowdfunding is evolving and is being used in increasingly creative ways.
Crowdfunding’s core elements, however, focus on technology, capital funding, and the power of the
crowd, which enable many small efforts to amass into a significant financial outcome. The crowdfunding
process relies heavily on technology, both in terms of the websites on which it takes place and the
technologies that provide social media connections that enable awareness about a project to spread.
Crowdfunding’s impact, represented by some statistics from Kickstarter.org, the world’s largest
crowdfunding site, gives some perspective. At the beginning of 2014, Kickstarter.com’s website reported
that pledged funds had topped $1 Billion USD from over 5.7 million backers (1.7 million repeat backers)
who have made over 14 million pledges. In 2012, 15 projects reached donations above $1 million dollars;
however, by March 2014, this number had grown to 58 projects topping $1 million. Massolution, a crowd-
sourcing and crowdfunding research center estimates that the crowdfunding market as a whole grew to
$5.1B in 2013 and expectations are that the market will continue its rapid growth (Massolution, 2013).
Crowdfunding typically occurs through a crowdfunding website of which many have emerged over the last
several years. The founder posts a description of their idea or project on such a website to expose their
idea to potential backers. Individuals discover projects through avenues such as social media or by
browsing a crowdfunding website. If the individual believes in the idea and would like to help make the
project possible, the individual can back the project by contributing money via the crowdfunding website.
Typically, the amount given by a backer is small relative to the overall funding needs. The idea behind
crowdfunding is that, if many individuals donate a small amount, large sums of money can be raised
quickly and efficiently. In addition to contributing monetarily, individuals can also help a project by
spreading awareness through social media about projects they support, which builds up a crowd of
interested parties willing to invest.

2.2 Crowdfunding Ecosystem

Understanding who the actors are in the crowdfunding space is important to understanding how
crowdfunding works. Different participants influence crowdfunding in diverse ways by creating an
ecosystem that determines the way the process functions and the practices that are enabled. A useful
way to understand the ecosystem is to identify the stakeholders and their respective influence on the
process. Traditionally, a stakeholder refers to "any group or individual who can affect or is affected by the
achievement of the organization's objectives" (Freeman, 1984, p. 46) and can be identified as those that
have power, legitimacy, and impart a sense of urgency in the organization (Mitchell, Agle, & Wood, 1997).
The purpose of stakeholder theory is to uncover the roles in an organization that go beyond a focus on
upper management and shareholders whose single stake is the mantra “increase shareholder value”. A
stakeholder approach has been used in contexts outside a profit-centered business to explore the roles
and interrelationships in contexts as diverse as e-government (Flak & Rose, 2005), healthcare (King,
2008) and cloud computing (Marston, Li, Bandyopadhyay, Zhang, & Ghalsasi, 2011). Stakeholders are
not isolated groups but act and interact with each other to create a dynamic environment (Laplume,
Sonpar, & Litz, 2008). Using a stakeholder approach, in Sections 2.2.1 to 2.2.5, we review the major
participants in the crowdfunding ecosystem including what each contributes to the system and what each
expects from the system.

2.2.1 Website Providers

Crowdfunding at its core is enabled through technology; therefore, website providers play a crucial and
central role in the crowdfunding phenomenon. They provide the technology backbone that allows founders

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to expose their project to a large number of potential backers. But the providers deliver more than a stage
for the project: they also facilitate communication between the founder and backers (both potential and
actual) through features such as a comment section, project update capabilities, and email exchanges.
Website providers aim to make the connection between founder and backer efficient (“Narrowing the
field”, 2013). Links to social websites such as Facebook and Twitter allow supporters to easily promote a
project in their social networks. Website providers have integrated third party payment processing
capabilities that provide privacy and assure backers of secure payment processing. Thus, website
providers may act as intermediaries, orchestrators, rule enforcers, and distribution channels (Ordanini,
Miceli, Pizzetti, & Parasuraman, 2011). The design of crowdfunding websites is still evolving and, in order
to provide a sufficient revenue stream, future iterations might address varying levels of service (e.g.,
basic, registered, and premium) to support increasing functionality and levels of technology (Braet, Spek,
& Pauwels, 2013).
Technology is often credited with providing transparency; however, in some crowdfunding contexts,
websites actually limit access to information, which constrains transparency. Different types of information
are privileged over others depending on the crowdfunding model. As such, technology provide
transparency but only for certain types of information and to certain stakeholders.
Crowdfunding website providers are a critical actor in the ecosystem because it is through these websites
that both a crowdfunding deal’s structure and legal requirements are enforced (Gelfond & Foti, 2012).
Although crowdfunding websites do not provide any guarantee that founders of funded projects will deliver
on their promises, providers have already shown a strong desire and may benefit the most from
preventing “crowdfraud” (Hamermesh & Tsoflias, 2013; Sigar, 2012).
Overall, the website providers’ role is to create and control the crowdfunding process and ensure its
smooth operation for both the founders and the backers. Website providers interface with all stakeholders
and are the hub of the ecosystem.

2.2.2 Founders
We use the term “founder” to represent those individuals who post their idea on a crowdfunding website to
receive funding. Individuals seeking funding come from a wide variety of backgrounds and have a wide
range of goals. A variety of terms have been used in the literature, such as “creator”, “borrower”,
“entrepreneur”, “firm”, “founder”, “owner”, and “start-up”. However, many of these labels are too narrow
and invariably leave out a portion of participants. For example, not all individuals seeking funding may
classify themselves an entrepreneur or have a goal of starting a business. Of terms currently in use, we
propose the term “founder”, defined as “a person who founds or establishes” (“Founder”, n.d.) to refer to
those who start communities, charitable organizations, and businesses. The comprehensiveness of its
meaning, and its current usage in the literature, lends credibility to the term.
The crowdfunding phenomenon is driven by founders’ unfulfilled need for capital. The founders’ role in the
crowdfunding ecosystem is to envision a product or project and then present their ideas clearly and
compellingly to would-be backers through the use of a crowdfunding website. During the campaign,
founders control access to information by being accessible and transparent. In addition to raising capital,
founders may use crowdfunding to test market an idea (Helmer, 2014), to gain exposure for future funding
(Dingman, 2013), to gain validation (Gerber, Hui, & Kuo, 2012), and to build relationships by fostering
open communication and collaboration with backers (Gerber et al., 2012).
Founders come to crowdfunding with a wide range of experience and can vary from firms with
credentialed teams (“On the side of the angels”, 2012) to individuals with little to no experience who are
just starting college (“Start me up”, 2013). Two aspects are important to consider: 1) business experience,
and 2) product experiences and skills. Founders with business experience have started previous
businesses or been involved in startup firms and have the advantage of a better understanding of what is
needed to take a business from concept to a running concern. The second type of experience is related to
the actual product or project itself. For example, an artist raising money on Sellaband.com may be an
accomplished musician, but may have little business experience in marketing or distributing their
produced album. The founders overall experience varies along these two dimensions: a founder may be
strong in both business and project expertise, may being strong in only one dimension, or may have little
experience or skill in either dimension.

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A founder is often an individual but may also be a team of individuals working together to fund and
complete the project. Teams can vary in capabilities as well: for instance, in some crowdfunding models,
there is a mixture of members with business and product experience.

2.2.3 Backers
Equally important to the crowdfunding ecosystem are the backers of crowdfunded projects. The role of the
backer goes beyond just contributing money: they also play a role in testing the market and providing
judgment toward what is a good idea and whether a concept is worth pursuing. Backers can contribute
monetarily and/or through the use of social media and their own personal networks by spreading the word
about a project. Because their role extends beyond a purely monetary one, we use the broader term,
“backer”, in favor of other terms such as “consumer”, “contributor”, “crowdfunder”, “funder”, “investors”,
and “lender”, all of which are currently in use in the literature.
There are numerous theories that may explain a backer’s motivation for contributing to a crowdfunding
campaign. For example, literature on altruism discusses warm glow giving (Andreoni, 1990); that is, the
positive feeling one gets from helping someone else, and there is evidence that in some crowdfunding
contexts altruism does exist (Burtch, Ghose, & Wattal, 2013a). Other motives might include egotistical
motivation; that is backers participate because they want to be part of the project (Gerber et al., 2012) or
may want others to recognize their participation. Early adoption may play a role, and evidence suggests
that some backers focus on the material return received in exchange (Gerber et al., 2012). Although
limited research has been conducted on backers’ motivations for contribution in the crowdfunding context,
in reality, it is most likely a combination of these factors. In exchange for their choices and contributions,
backers receive extrinsic rewards (e.g. a return on their investment, a copy of the product, etc.) and an
intrinsic reward (e.g., a “warm glow” or the feeling of being a part of something).
Backers’ demographics are also varied. According to Quantcast (n.d.), Kickstarter’s audience profile
reports that the typical visitor to their website is a Caucasian young adult male with no children, an income
under $50,000, and at least some college level education. However, these Kickstarter’s visitors’
demographic information is in sharp contrast to those crowdfunding projects where the founder is selling
an equity interest to high net-worth accredited backers and the typical contribution amount is often in the
3
tens of thousands .

2.2.4 Angel/VC Funds/Banks

We group this set of entities together as those who more traditionally fulfill the role of providing capital to
founders. Current practices dictate a small group of gate holders who, through algorithms, personal
networks, and back-room deals determine which founders will receive funding and which will not.
Competition is high for VC funds, and anecdotal evidence suggests that less than one in one hundred to
perhaps one in one thousand business plans presented to a VC are ever funded (Dos Santos, Patel, &
D'Souza, 2011; Lavinsky, 2011). Crowdfunding, on the other hand, is a new technology-enabled
innovation that significantly alters the institutionalized process of raising capital by founders and has been
referred to as the democratization of entrepreneurial funding.
The question remains open about what impact crowdfunding will have on this group of stakeholders: will
these traditional stakeholders be displaced or will they embrace crowdfunding? New entrants in a market
can have several impacts: they can provoke a more highly competitive marketplace in which margins are
reduced and consumers benefit. Alternatively, when demand for the product is strong, new entrants do not
reduce the market share of existing firms but instead enlarge the market (Rigby, Christensen, & Johnson,
2002). So far, the latter seems to be the case with crowdfunding. There are several reasons for this. First,
many projects are not appropriate for funding through traditional means because they have an unproven
track record, may not have the growth potential that VC firms or angel financing seek, may be more
artistic/less commercially focused, or because the funding is for a specific project as opposed to starting
or growing a business (Levin et al., 2013; Macht & Weatherston, 2014; Manchanda & Muralidharan,
2014). For these projects, traditional forms of financing were never an option and, thus, crowdfunding has
enlarged the market. Other instances show how traditional sources of financing may look to crowdfunding
as a value-added step through which a market can be identified. For example, a VC firm may be more

3
These demographics are subject to change once the regulations from the JOBS Act of 2012 are implemented and firms can offer
private shares to non-accredited investors.

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6 A Conceptual Framework for Understanding Crowdfunding

willing to back a company if they have successfully proven, through crowdfunding, that a market exists
(Burns, 2013).

Each arrow represents:

a: A founder posts their idea/project on a crowdfunding website.
b: The website provider provides space to describe the project and features such as the ability to post a video, communicate with
backers, tools to analyze traffic to the project page, and integration with third party payment processing systems to distribute funds
to founders.
c: Backers use the crowdfunding website to explore projects and decide whether to contribute.
d: The website providers allow communication between the backers and the founders and provide secure payment processing
system to collect the funds from the backers.
e: Founders will continue to use the traditional capital markets for some projects.
f: Traditional capital markets will turn to crowdfunding websites in some instances; for example, to validate whether a market exists
and explore different price points.
g: All crowdfunding activity occurs in the context of laws, regulations, and ethics.

Figure 1. Crowdfunding Ecosystem

2.2.5 Legal/Ethical
Regulations control the environment so it is safe and fair for all stakeholders. Due to crowdfunding’s global
reach, some unique situations can occur when founders are in one country, backers are in a different
country, and the website provider is in a third country. Researchers anticipate that the JOBS Act of 2012
will have a significant impact on equity crowdfunding in the United States (see Levin et al., 2013; Sigar,
2012; Williamson, 2013), which will allow public solicitation and the selling of securities to a broader
group. Beyond federal legislation, states laws and licensing may also regulate crowdfunding (Gelfond &
Foti, 2012). Washington State has gone so far as to initiate a consumer protection lawsuit against a
founder for failure to perform on promises made in a crowdfunding campaign (Masnick, 2014).
Nonetheless, some legal/ethical issues are not so easy to anticipate. For example, a successful
Kickstarter campaign to bioengineer plants that glow ended up distributing 600,000 seeds of the glowing
plants. The project created an outcry from environmental groups; as Arthur Caplan, a bioethicist at New
York University and an adviser to the Defense Advanced Research Projects Agency on synthetic biology,
noted: “What if someone decides it would be cute to light up a national forest?” (Cha, 2013). Prior to
crowdfunding, many legal and ethical issues would be addressed by VC firms as part of the vetting
process. Taking projects directly to the crowd may bypass an internal control, but it does allow for more
open debate, especially as it relates to ethical issues.
Figure 1 graphically represents the crowdfunding ecosystem with the relationships between stakeholders.

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3 Literature
Because of crowdsourcing’s newness, for our literature review, we looked broadly across all disciplines
(See the Appendix for details and descriptive statistics). We identified almost 700 papers relating to
crowdfunding, yet only a handful of empirically based studies have been published, which shows that
research has been slow to investigate this phenomenon. The breadth of crowdfunding research remains
mainly in the business discipline, with the highest concentration being in entrepreneurship and
management, followed by information systems and marketing in that order. Secondary data predominates,
followed by surveys. The ability to scrape websites to retrieve data is somewhat evident in the literature
(and may account for the high number of secondary data studies), but authors must take care not to
violate the terms and conditions of a specific crowdfunding website, which often expressly prohibit such
activity (Allen, Burk, & Davis, 2006). Table 1 summarizes the empirical papers we found by topic area.
Table 1. Empirical Literature by Topic Area

Topic Literature

Crowdfunding success Allison, Davis, Short, & Webb (2014), Belleflamme, Lambert, &
Schwienbacher (2014), Lin, Prabhala, & Viswanathan (2013),
Mollick (2014), Ward & Ramachandran (2010), Zvilichovsky, Inbar,
& Barzilay (2013)
Contribution behavior Agrawal, Catalini, & Goldfarb (2011), Burtch et al. (2013a), Burtch,
Ghose, & Wattal (2014), Gerber et al. (2012), Kuppuswamy &
Bayus (2013), Zhang & Liu (2012)
Crowdfunding design Cumming & Johan (2013), Ordanini et al. (2011)

Impact of crowdfunding Mutengezanwa, Gombarume, Njanike, & Charikinya (2011)

Privacy in crowdfunding Burtch, Ghose, & Wattal (2013b)

Venture capital financing Bains et al. (2014)

Viability of crowdfunding Braet et al. (2013), Ley & Weaven (2011)

Little in the way of confirmatory or contradicting results have been found, most likely due to the nascent
nature of the research stream. But what we did observe in the current literature is a lack of agreement or
in some cases absence of awareness of fundamental crowdfunding structures.
One specific area of general inconsistency concerned the various operating models prevalent in the
crowdfunding phenomenon. By operating model, we refer to the processes and procedures in place
governing the crowdfunding campaign that are set and enforced by the crowdfunding website provider.
For example, projects on circlueup.com support an operating model whereby the founder will give
backers’ an equity (i.e., ownership) interest in the business in exchange for the backer’s contribution.
Kickstarter.com uses a different operational model in that a founder gives a reward (i.e., incentive such as
a copy of the product or a project memento) in exchange for the backer’s contribution.
The studies describe a wide variety of crowdfunding models with disparate terminology. The following
terms and descriptions were used in the literature we analyzed to refer to various operational models:
“contribution”, “donation”, “equity”, “lending”, “loan”, “microfinance”, “patronage”, “peer-to-peer”, “pre-
ordering”, “reward”, models with high risk/return ratios, models with low/medium risk/return ratios, and
models with little or no risk. We further noted instances where the same crowdfunding model was referred
to by different names and instances where different operating models were referred to by the same name.
Beyond facilitating searching by using consistent keywords, having consistent names and meaning allows
for the ability to compare and contrast findings between different models. Currently, the inconsistent
nomenclature leads to confusion for researchers and readers alike.
In addition to inconsistent model names, we noted that papers acknowledged the various crowdfunding
models in one of three ways. First, papers were silent and perhaps unaware regarding the type of
crowdfunding being studied. This is problematic because, as we demonstrate below, there are
fundamental differences between models that need to be considered to fully understand the underlying

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processes taking place. Second, papers may have acknowledged specific models (despite using
inconsistent terminology), and, while some papers noted the existence of other models, there was little to
any discussion as to how the research fit into the chosen model, nor was there any explication of salient
model characteristics that might influence the findings. Finally, a very small minority of papers (e.g.,
Burtch et al., 2013a) were cognizant of which crowdfunding model was being studied and noted how their
findings fit into the structure of crowdfunding operational models as a whole. However, throughout all of
the literature, a comprehensive view of crowdfunding models is yet to be presented.
Understanding the underlying structure of a phenomenon is important because it impacts the
generalizability of findings and allows for useful insights that might otherwise be overlooked. This can
create a problem when readers (or perhaps the authors themselves) assume a level of generalizability
that may not exist. It can also have the danger of missing important insights into the inner dynamics of the
phenomenon when the distinctive attributes of a model are not considered.
In addition, because our literature review indicates a multi-disciplinary nature of the crowdfunding topic, a
common language and meaning is especially important to facilitate conversations between disciplines.
Thus, in this paper, we derive a classification scheme of crowdfunding models and provide a profile of
each model.

4 Deriving Crowdfunding Models

4.1 Classification, Typologies, and Systematics
Typologies and classification schemes can be used to structure complex heterogeneous phenomenon into
homogeneous concepts that can then be analyzed and compared (Doty & Glick, 1994). They are valuable
in finding uniformities on which explanations or predictions can be found or circumstances under which
hypothesis are expected to hold true (Mckelvey, 1975). Similarly, systematics takes a holistic approach to
a phenomenon and looks to “describe and understand differences and their origins, to explain [their]
relationships with surrounding environments, and to arrange types of phenomena into a meaningful order”
(Mckelvey, 1978, p. 1428). Theories of typologies and classification schemes originated in the biological
sciences as a way to group species into homogenous groups in order to study them. And so, while much
of science looks toward principles and theories that can unify and generalize (i.e., the science of
universals), a precursor to this is an understanding of the differences; that is, the science of differences
(Posey, Roberts, Lowry, Bennett, & Courtney, 2013). Without first understanding the differences, one
cannot theorize about the commonalities. Typologies and classification research is used to understand
and pursue the sciences of the differences.
Classification systems use a discrete set of rules to classify a given phenomenon into unique sets. Each
subsequent rule further divides the previous set using an additional rule. (Doty & Glick, 1994). Typologies,
on the other hand, are a theoretical abstraction of ideal types that represent unique sets in a phenomenon
and are made up of first-order constructs that are theoretically derived (Doty & Glick, 1994). Crowdfunding
is an emerging phenomenon and, as such, is still evolving. Our approach begins with an essentialist
4
philosophy based in fundamental agreements from practice and the literature . However, due to the
evolving nature of crowdfunding, our scheme also allows for new forms of crowdfunding to be classified
either in a defined model or for new models to spawn. In this sense, we take a hybrid classification
approach.

4.2 A Scheme of Crowdfunding Models

We begin our classification by first separating crowdfunding from more traditional means of financing.
Crowdfunding has been referred to as a process of disintermediation; that is, it removes the intermediation
between entrepreneurs and investors from banks and brokerage houses to the crowdfunding website
providers. Thus, our fist level in the scheme is the type of intermediation involved (traditional or
crowdfunding website).
Next, we draw on the crowdfunding literature to understand how crowdfunding models have been typically
described. Despite the confusion and inconsistent terminology, some common emerging themes center

4
Essentialism, rooted in Aristotles’s philosophy of “what it is to be”, proposes that things have sets of attributes that are essential to
their being; a class is defined by a small (essential) set of attributes that all members of the class must possess (Mckelvey, 1978;
Wilkins, n.d.).

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on what we call the “exchange”; that is, what the founder is willing to give up in “exchange” for capital.
Three general exchange rules are evident:
• Equity: the founder gives the backer an interest in future profits of the business or project in
exchange for invested capital.
• Debt: the founder returns the principal amount borrowed, with interest.
• Appreciation: the founder gives the backer his/her appreciation in exchange for their monetary
contribution.
However, simply using the exchange rule appears to lack conceptual sharpness or precision. Consider,
for example, the differences between two imaginary (but possible) equity crowdfunding projects. The first
project expands an existing firm’s premium vodka line: it hopes to raise $1.5 million dollars from backers
where the minimum contribution is $25,000 and is limited to accredited investors. Backers receive an
ownership interest in the company and are entitled to future dividends and a share of the profit if the
company is sold. Now, consider a second project by a country music band raising $10,000 to go on tour
for which the minimum contribution is $10. In exchange for the $10, the backer receives a share in the
profits from the music tour. The mechanisms and motivations underlying these two projects will be
different based on differences in risk. Risk is one means used in literature to distinguish between
crowdfunding models (Ordanini et al., 2011).
One approach to categorize risk in crowdfunding is through two easily identified attributes: the amount of
the capital goal and the average contribution from a backer. The capital goal is an excellent discriminator
because it can act as a proxy for the size/complexity of a project because larger, more complex projects
take longer to implement and their costs are harder to estimate; as such, they are more risky. Risk can
also be defined as what is at stake from the backer; namely their contribution amount. Smaller contribution
amounts represent less of a stake or risk than larger contribution amounts. This is easily understood by
comparing a minimum investment of $25,000 in the premium vodka deal versus a contribution of $10 to
help the band go on tour. Campaigns under each scenario are structured differently, the decision
processes are different, and the stake in the outcome are also different. Thus, we propose risk as
determined by the two attributes—capital goal and average contribution—to further discriminate each
exchange class.
Using the two characteristics, exchange and risk factors, we propose six distinct crowdfunding models:
private equity, royalty, microfinance, peer-to-peer, rewards, and donation. For each model, Table 2
denotes the type of exchange and the typical capital goals and contribution amount. The table also
provides examples of crowdfunding websites supporting each model. In Section 5, we profile each model
in detail.
Table 2. Summary of Crowdfunding Models

Model Exchange Typical capital goal and contribution Examples

Typical capital goal: high to very high CircleUp.com
Private Equity Equity
Typical contribution: high to very high EquityNet.com
Sellaband.com
Typical capital goal: low to medium
Royalty Equity SellanApp.com
Typical contribution: low
Appsfunder.com
Typical capital goal: very low to low Kiva.com
Microfinancing Debt
Typical contribution: very Low Opportunity.org
Lendingclub.com
Typical capital goal: medium (but wide variety)
Peer-to-Peer Debt Prosper.com
Typical contribution: relative to capital goal
GrowVC.com
Kickstarter.com
Typical capital goal: low to high
Reward Appreciation Indiegogo.com
Typical contribution: very low to high-medium
Rockethub.com
Typical capital goal: low to medium Experiment.com
Donation Appreciation
Typical contribution: very low Donorschoose.org

In order to gain some perspective on how these crowdfunding models relate to each other, we present in
Figure 2 a diagram showing how each model compares based on the typical capital goal and typical
contribution amount. The size of the region is derived based on the normal range of values for each

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model. For example, microfinancing (MF) projects show little variation and typically have very low to low
capital goals and very low individual contributions from backers. Thus, the region in Figure 2, marked
“MF”, is relatively small, and positioned in the bottom left corner of the map. The “reward” model has the
largest region because this model represents both a large variety in the capital goals sought and a large
variety of individual contribution amounts received. The private equity region is located in the upper right
corner and is relatively small because, while the amount of funding requested and investment amounts
are significantly higher than the other models, the variety in the model is less. Finally, each region is
colored to match its exchange type of crowdfunding model: equity (orange), debt (blue), and rewards
(green). Figure 3 shows the overall scheme of crowdfunding models. Because we focus on crowdfunding,
we do not fully develop the scheme for traditional forms of intermediation.

Figure 2. Crowdfunding Models Relative To Each Other

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Figure 3. A Classification of Crowdfunding Models

5 Crowdfunding Model Profiles

There exists some confusion and a lack of a common understanding or awareness regarding
crowdfunding’s different operational models. Knowing the practices in each model along with each
model’s strengths and weaknesses is important for a more thorough understanding of crowdfunding.
In this section, we develop a profile of each model by examining multiple crowdfunding websites and
projects hosted by these websites. We selected campaigns across multiple crowdfunding websites to
provide a representative sampling reflecting what is typical of each model. In some instances, we
specifically selected additional campaigns to illustrate a concept using a more extreme case. Our purpose
was not to determine the existence of each model but instead to understand how each crowdfunding
model is instantiated. We base our profiles on patterns observed in the selected campaigns and
supplement them with findings from literature.
To perform the analysis, we first evaluated each campaign to identify salient attributes. These attributes
do not necessarily influence the success of a crowdfunding campaign but rather help to provide
understanding of the mechanisms underlying each model. We picked an initial set of attributes and
reviewed the selected campaigns in light of these attributes. Second, we looked for patterns of similarities
and differences in campaigns associated in a crowdfunding model and between models. We did this to
find attributes that discriminated between different models or attributes that were highly characteristic of a
model. We discarded attributes that provided neither of these functions. An example of a discarded
attribute was “niche/mass market”. We found a similar number of campaigns in each model that would
appeal to a niche versus mass market, and, thus, this attribute neither helped discriminate between nor
was highly characteristic of a given model; the attribute was not instrumental in our profiling and we
discarded it.
This was an iterative process in which newly identified attributes would cause a reevaluation of previous
thinking and, in some cases, recoding as specific definitions evolved over time. For example, we initially
conceived the attribute of transparency rather simplistically, but, as coding continued and other
affordances of a crowdfunding website sharpened in focus, we realized that our initial interpretation of
transparency was too narrow; that is, a website may instantiate transparency in different ways and for
different types of information.
Table 3 summarizes the selected campaigns and notes from which crowdfunding websites we collected
data. Table 4 lists the attributes we used in the final analysis and briefly defines each attribute.

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Table 3. Summary of Selected Projects

# selected Mean Website

Model Max. goal Min. goal Mean goal
campaigns contribution providers
Equitynet.com;
Private Equity 15 campaigns $5,000,000 $150,000 $1,177,000 Not public
Circleup.com
Royalty 18 campaigns $50,000 $930 $12,515 $69 Sellaband.com
Microfinance 16 campaigns $1,250 $75 $594 $30 Kiva.org
Prosper.com;
Peer-to-Peer 18 campaigns $30,000 $7,000 $17,907 Not public
Lendingtree.com
Rewards 16 campaigns $38,000 $600 $9,831 $71 Kickstarter.com
Donation 16 campaigns $9,622 $702 $3,373 $111 Experiment.com
Total 99 campaigns

Table 4. Salient Attributes used to Describe Crowdfunding Model Profiles

Attribute Description
Operational aspects
Exchange What the founder is willing to give “in exchange” for the backer’s contribution
Capital goal The average capital goal for the project.
Typical contribution The average individual contribution from a backer to a campaign
Limited time Whether the website limits the length of a campaign.
Founder attributes
Founder
Whether the founder is an individual or a team.
composition
Founder The type of experience of the founder (see discussion above under ecosystem/founder). When
experience the founder is a team, we analyzed all members where possible.
Project attributes
Product represents those campaigns whose goal was to fund either an existing business or to
launch an on-going business. Project represents a one-time project; for example, artists raising
Product/project
money for a film or album, or a research project. For projects, the raised capital will be used to
begin and complete the endeavor as opposed to supporting an on-going business.
The purpose of many crowdfunding campaigns is to develop a product that can be taken to the
marketplace. However, founders will come to the capital markets with products in different stages
of development from mere ideas roughly sketched on paper to fully developed prototypes ready
for commercialization. Still others may come to crowdfunding with an existing revenue stream
Business cycle
and they are looking to grow an existing business by taking their product to the next level.
Crowdfunding of products in the conceptual phase will have longer development times and
should set the expectation that the resulting product may resemble a beta version rather than a
polished market-tested end product.
Backer attributes
Motivation Based on literature, reports findings on motivation behind backer’s actions.
Technology attributes
Social media Whether the website supports social media links such as Facebook, Twitter, and Linkedin.
Communication
The type of tools provided by the website to communicate between the founder and backers.
tools
Support tools The type of support tools provided by the website to support the founder.
Whether the website enables or constrains information sharing, and what type of information is
Transparency
readily available.

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5.1 Private Equity

5.1.1 Operational Overview
Private equity crowdfunding involves the founder exchanging an ownership interest in the firm in return for
a backer’s contribution. Backers are entitled to future dividends and a share in the proceeds if the
company is sold. Capital funding goals are typically higher (generally over $1 million dollars), and backers
contributions are also larger (generally over $10,000) relative to other crowdfunding models. Campaigns
may last multiple months and are ended once the funding goal is met.

5.1.2 Profile
Private equity crowdfunding is growing rapidly and will continue this trajectory due in large part to new
legislation in the United States that will open up investment in private companies to a significantly larger
group of investors through the Jumpstart Our Business (JOBS) Act of 2012. The legislation removes the
ban on public solicitation of offerings and allows private offerings to non-accredited investors, thereby
opening up ownership in private companies essentially to the crowd. While these regulations are still
being finalized, it is proposed that under the JOBS act, companies may raise up to US$1 million per year
5
using private equity crowd-funding . In addition, legislation is being drafted in other countries to find the
right balance for disclosure and funding limits that suit founders, backers, and the website providers
(Cumming & Johan, 2013).
Our set of projects from Equitynet.com and circleup.com (both leading crowdfunding websites focusing on
equity crowdfunding) revealed that every campaign was for an ongoing business (as opposed to a single
project); all but one firm had existing sales, and all businesses were in the growth stage of the business
cycle. There were no projects with individual founders: all founders comprised at least two people, and all
but one campaign had an experienced team with each member showing either entrepreneurial expertise
or product expertise.
Traditionally, projects funded by VCs are often sold in 5 years of funding and the “exit strategy” is an
important consideration during the funding period (Lavinsky, 2011). While all campaigns addressed the
market size in some way, we found only about 40 percent of our private equity cases mentioned an exit
strategy during their opening pitch. Typically, there are no time limits for reaching the capital goal in equity
crowdfunding. There is evidence that, when the capital requirement is larger, founders prefer private
equity crowdfunding over rewards-based crowdfunding (Belleflamme et al., 2014).
Private equity crowdfunding has several advantages over traditional equity fundraising in that a larger and
more diverse pool of backers can be reached, and money can be raised faster, which lets the founder stay
focused on running their business. However, the disadvantages include limited access to resources
typically provided by venture capital firms such as advice, mentoring, and network connections. It is yet to
be seen whether these types of resources will become available and to what extent under the
crowdfunding model; however, there is value in these non-financial resources that private equity founders
may miss out on, perhaps to their detriment.
While backers primarily take an investment approach and are interested in the monetary returns (Ordanini
et al., 2011), the risks of business failure remains high. Private equity investments are illiquid, and backers
may wait several years before they see a return (if any) of their original contribution (Colao, 2013).
Because these companies are exempted from many of the SEC regulations, some opponents argue that
less regulation and less disclosure increases the risk of fraud. Arkansas Securities Commissioner Heath
Abshure argues that, given other sources of funding, there is no reason for a company to give up equity if
it doesn’t have to; thus, Abshure maintains that equity funded projects are much riskier (“Feel-good crowd
funding”, 2014).

5.1.3 Use of Technology

The process of equity crowdfunding has mimicked many of the practices of the traditional venture
capital/angel investing market (Ley & Weaven, 2011). The equity crowdfunding websites enable and
further this institutionalization by offering communication tools, labeled as “conference calls”, and the
equivalent of a “deal room”. Equitynet.com also offers tools for the founder to better assess their business

5
The proposed rules may be found viewed on the SEC website: http://www.sec.gov/rules/proposed/2013/33-9470.pdf

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risk and business valuation tools. As opposed to enabling transparency, these websites play a role in
limiting access by qualifying would-be backers and providing tools such that founders can decide with
which backers to share projects details.

5.2 Royalty
5.2.1 Operational Overview
Royalty crowdfunding involves the founder agreeing to share the profits from the project with backers.
Projects are typically not on-going businesses but represent a discreet product, such as a record album, a
music tour, or a mobile app. Capital goals are typically under $50,000, and an individual backer’s
contribution is typically under $100. The campaign ends once the funding goal is met, which may take
several months to more than a year.

5.2.2 Profile
The second type of equity crowdfunding is referred to as a royalty model. In this format, individuals invest
money in return for a portion of the profits. The royalty model differs from the private equity model in two
ways: 1) the risk profile is lower in royalty crowdfunding (i.e., capital goals are lower, and the average
contribution amount is lower), and 2) funding is used to support a single project, as opposed to private
equity, which is generally used to grow an existing business. Sellaband.com, one of the first crowdfunding
websites established, is a European-based crowdfunding website and provides a royalty option to help
music bands raise enough money to accomplish a project such as recording an album or going on tour.
Backers can listen to each band’s music online and contribute to those they like. There is no limit to the
number of days on which funding must be completed and it can take 2-3 years for a project to be fully
funded (Ward & Ramachandran, 2010). Once the band reaches their funding goal, it receives the
contributed money to complete their project and the funding period ends. In return for the contributions,
backers share in the proceeds earned from the project; that is, revenue from the tour or profits from the
sale of the financed album. Similarly, royalty crowdfunding has been used to fund the development of
mobile applications (see sellanapp.com and appsfunder.com for examples). An individual can post their
idea for a new mobile app on a crowdfunding website. In exchange for financing the development costs of
the mobile application, backers are entitled to a share of the future download revenue.
All projects in our selected campaigns were in the conceptual stage of the business development cycle,
and, in contrast to private equity campaigns, we found little to no description of anticipated sales, nor did
any campaigns in our sample include forward looking statements or projections about possible sales. This
perhaps confirms Ordanini et al.’s (2011) findings that backers, despite sharing in the revenue, generally
approach the transaction philanthropically and typically identify with the artist. This is a distinction from
private equity, which is more investment focused. Peer effects such as external blog posts or top-five lists
appear to help backers overcome information overload facing backers (Ward & Ramachandran, 2010).
Another distinction concerns the founders. As opposed to private equity founders that comprised teams
possessing both project and business experiences, the Sellaband founders comprised either a single
artist or a team of artists (i.e., a band) that possessed strong project (i.e., music) skills; no projects
discussed a team member as having business skills although some referenced the use of external
business help.
In addition to exposure to a large number of backers across a wide geographic range (Agrawal et al.,
2011), the royalty model has advantages in that backers are able to contribute smaller amounts as
compared to private equity (the minimum on most Sellaband projects is €10, although some projects have
a minimum investment such as €500 in order to participate in revenue sharing). Another advantage is the
ability for a more direct connection between the artist and fan.
A disadvantage of the Royalty model is that the project may never become profitable or that little profit will
be available to distribute to the backers. Also, when larger numbers of backers are involved (i.e., the
crowd), the transaction costs of dealing with this large number of backers can be high. Founders need to
keep track of and communicate with backers over the profitable life of the project. Imagine a small profit
split amongst many backers and it quickly becomes apparent from a transaction cost point of view that the
larger the number of backers, the more work it is to manage royalty payments.

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5.2.3 Use of Technology

For royalty model crowdfunding, the main goal of the website campaign is to provide a closer connection
between the founder and the backer. Sellaband accomplishes this by providing an interface that founders
can use to upload their music so that backers and browsers can listen to the artist and decide whether to
offer their support. Supporters can also use links on a founder’s page to Facebook, Twitter, and other
social media outlets. Other ways to get to know a founder better include a blog where backers and
browsers can post questions and offer their support. The founder can use the blog to keep their fans
updated and provide answers to posted questions. Founders can promote themselves by posting pictures
of themselves or their band on the picture page, provide a list of upcoming shows, or create a video
through which they can send a direct message to backers and browsers. After a founder has reached their
goal, support tools are used to facilitate the actual funding of the founder’s project and a quarterly process
where incoming royalties are distributed to backers.

5.3 Microfinancing
5.3.1 Operational Overview
Microfinancing is used by founders in rural and underdeveloped areas who have little access to banking
products. Proceeds are often used to buy farming supplies (seeds, fertilizer, livestock), or goods to re-sell.
Backers receive their principle back (often without interest), which can be reinvested in another
microfinance project. Funding goals are typically under $1,000, and the average backer contribution is low
(typically under $50). The campaigns are limited in time, and, for some websites, the founder may have
received the money prior to the campaign ending.

5.3.2 Profile
Microfinancing as a concept and practice predates what is now referred to as crowdfunding. In 1976,
Muhammad Yunus, an American-educated Bangladeshi economist, founded the Grameen Bank in
Bangladesh, which provided small loans that were guaranteed by the borrower’s own community (Yunus,
1999). Microfinancing became a form of crowdfunding when websites, such as Kiva.org, took the concept
of lending to the poor in underdeveloped nations to the crowd through an Internet website. For example,
through kiva.org, a backer may review posted projects and decide whether they want to donate money to
founders who have been pre-qualified through an intermediary party. Founders pay loan interest to the
intermediaries. However, no interest is paid to the backer who simply receives their principal back, which
can then be withdrawn from Kiva or lent to someone else in need.
The funding from our selected campaigns was used to buy supplies for ongoing businesses, farming,
livestock, and education. A review of all recently funded projects (i.e., before the payback period began)
indicates that 48 percent of funds were used for agriculture, followed by food (10%), retail (10%), and
education (8%). From our selected campaigns, 83 percent of the founders had product and business
experience and were using the funds to support their ongoing business. Approximately 13% of the
founders were starting a new business venture, and 6% were using the funds for education. Research has
shown that, in general, microfinance does help lesson poverty in impoverished nations, improve gender
equality, and provide access to financial instruments, which would otherwise be unavailable to the poor in
impoverished nations (Mutengezanwa et al., 2011). Once a campaign is posted on Kiva.org, there is a
fixed number of days during which the loan is available for funding.
Backers tend to donate to those who are culturally similar and geographically close, although financial
intermediaries may reduce this effect by providing a trust mechanism (Burtch et al., 2014). Backers are
often driven by charitable motives and the ability to help those in rural underdeveloped areas who have
little access to financial instruments. Research has found that successful campaigns appeal to a backer’s
desires to help the founder as opposed to campaigns that describe the venture as a business opportunity
(Allison et al., 2014).
Founders may be an individual, a team, or a group. When the founder is a group, each member may
receive an individual loan, whereas the purpose of the group is to provide support to each other and
“provide a system of peer pressure” (Kiva.org) to pay the loan back. Every group has a “group leader”,
and one common practice we noted was for the group leader to be identified by raising their hand in a
photo posted on the campaign page. The responsibility to pay back the loan may fall on the group as a
whole via a group guarantee or may be only the responsibility of the individual.

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Cultural and geopolitical issues influence lending practices. For example, instead of an interest-bearing
loan, a different financial instrument is used in Muslim countries to comply with Islamic law whereby the
founder pays a service fee to the intermediary instead of interest (Bradford, 2012). Government
regulations in India dictate that loans will not be paid back to backers for at least 3 years (Kiva.org).
Geopolitical unrest can also impact the risk involved in lending. For example, this warning was posted on
a Kiva.org campaign to finance a group of Yemen women’s resell clothing business:
Because Yemen is a new and unstable environment, there is a possibility that future loan
repayments could be held indefinitely in the country for regulatory reasons, even if individual
borrowers pay back their loans. As a lender to borrowers in Yemen, you accept this additional
risk.

5.3.3 Use of Technology

Microfinance campaigns are distinctly different from other crowdfunding models in their ability to
communicate between founders and backers. Neither Kiva.org nor Opportunity.org provide a comment
feature or a way to update the project. In addition to a language barrier between founder and backer, the
founders may not have access to a computer or the Internet. The role of the intermediary while qualifying
founders and facilitating the funding may both enable and constrain communication between the founder
and backer. Only opportunity.org provides links to Facebook, Twitter, or LinkedIn, and these are not very
prominent. A primary role of these crowdfunding websites is to provide information to backers regarding
details of the founder and to provide transparency regarding the intermediary so backers can make
informed decisions.

5.4 Peer-to-Peer Lending

5.4.1 Operational Overview
Peer-to-peer lending supports personal loans and small business loans. Backers receive their principal
back with interest in exchange for their contribution. Evidence shows a wide variation in capital funding
goals, where small businesses typically have larger funding goals than personal loans. Subsequently,
larger capital goals are associated with larger individual contributions from backers, whereas backers
generally contribute smaller amounts to personal loans. Generally, a campaign ends after a set number of
days, and the founder receives the amount contributed only when the funding goal is met.

5.4.2 Profile
Peer-to-peer lending involves individuals lending to other individuals bypassing banks as a mediator. The
idea is that borrowers can pay less interest and lenders can earn more interest because overhead from a
bank’s involvement is minimized. P2P lending websites such as Prosper.com and LendingClub.com focus
mainly on personal loans from individuals who are often seeking funding to consolidate debt as opposed
to funding a specific project or an ongoing business. Since their inception, these two websites have
facilitated over 112,000 loans for over US$1 billion dollars (Barth, 2012). Founders post their needs on a
P2P lending website and complete a questionnaire that determines their credit worthiness and the
resulting interest rate for the loan. Once the need is posted, backers can scan through the postings and
lend money as they see fit. Websites such as LendingClub.com and Prosper.com encourage backers to
build a portfolio of varying interest rates based on the backer’s risk tolerance and preferences. This gives
backers the opportunity for a steady fixed income by investing varying amounts at different interest rates
across multiple projects, which spreads out risk. An advantage to founders is fast approval, a single fixed
payment each month, and improvements to the founders credit score. Because these loans are
unsecured, there is always the risk of the founder’s defaulting.
A previous study found that about 28 percent of campaigns on Prosper.com link to friends, and these
campaigns are more successful at reaching their capital goal, have a lower interest rate, and have lower
default rates (Lin et al., 2013). In their findings, Lin et al. note these findings may be explained by backers
who lack “sophisticated risk assessment methodologies” and may interpret friends as a signal of quality
(p. 33). Other ways that backers can find quality campaigns is through rational herding; that is, not merely
mimicking other’s behaviors (irrational herding), but instead, learn from other backers’ actions in order to
determine a founder’s creditworthiness (Zhang & Liu, 2012).

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An interesting phenomenon is emerging on peer-to-peer websites that are beginning to reach out to
institutional lenders such as asset managers, pension funds, hedge funds, family offices, and other
institutions and marketing these loans as a new asset class (“Institutional investment through Prosper”,
n.d.). To support institutional investors, Prosper.com provides an application programming interface (API)
that backers can use to download historical data of past loans and data on current loans. Peer-to-peer
lending is regulated for the most part by state and federal laws (“How is Prosper regulated”, n.d.).

5.4.3 Use of Technology

The main focus of the websites is to qualify and rate founders and facilitate the monetary transaction
between the founder and backer. Unlike other crowdfunding models, other than knowing the founder’s
credit risk, there is little information available regarding the founder on the campaign. There are no social
media links such as Facebook nor Linkedin to share a campaign, although Prosper.com does offer a link
to share a campaign through email. Neither Prosper.com nor LendingClub.com provide communication
tools or updates from founders during or after the campaign ends. For backers and browsers, the
websites are used to search for loans meeting a certain risk level and to fund the loan. Transparency is
focused on disclosing the founder’s credit risk and on providing extensive data on past and current loans.
There is very little in the way of communication from the founder explaining their needs and plans for the
funding. While the websites allow for this possibility, in our set of campaigns, no founders took advantage
of this. We suspect this may be a newer trend because past literature has shown that founders do post
their personal story on the campaign and that backers are more likely to fund those they identify with
(Herzenstein, Sonenshein, & Dholakia, 2011). However, as peer-to-peer lending leans toward institutional
investors with sophisticated data mining tools, the story of the individual founder may become
insignificant.

5.5 Rewards
5.5.1 Operational Overview
Founders may use rewards crowdfunding when they have an idea for a project or an ongoing business. In
exchange for a contribution, founders give backers a copy of the product or a memento from the project
(e.g., a t-shirt, coffee mug, recognition, or an invitation to a special event). There is a wide variation in
capital funding goals (e.g., under $100 to over $1 million); the average is around $10,000. There is also a
wide variation in backer’s contribution, with the average being around $70. Kickstarter currently limits a
single backer contribution to $10,000. The campaign ends after a set amount of time (generally 30 days),
and some websites (e.g., Kickstarter) enforce an all-or-nothing scheme in that founders do not receive any
contributions unless the funding goal is met.

5.5.2 Profile
When a rewards model is used, the project founder may begin with an idea for a project or product and
may even have a rough prototype of the project they hope to create. For example, an individual may
envision a book they want to write, a movie to produce, a new innovative type of sports gear to develop,
and so on. Founders come to a crowdfunding websites with the goal of raising enough money to
produce/complete/finance their idea. Project details are posted on crowdfunding website such as
kickstarter.com, indiegogo.com, and rockethub.com. On the campaign’s page, the project is described,
pictures are posted, and a video is often used to introduce the project founder and their idea. Links to
social networking sites (e.g., Facebook, Twitter) are common to allow backers and browsers alike to share
the crowdfunding campaign with their social network.
Founders offer “rewards” in return for a backer’s donation. The crowdfunding website allows the founder
to specify different rewards for different levels of donation. For example, on a campaign to help expand a
zine business, the founder offered a one-year subscription to the zine for a $20 donation. In return for a
donation, the product itself is often used as a reward level where backers can receive one of the first
copies of the product or get a discount off of the intended retail price similar to “pre-ordering”.
A rewards crowdfunding campaign typically runs for 30 days. Research has shown a “diffusion of
responsibility” effect as contributions are negatively related to accumulated contributions up until the end
of a campaign at which point project updates can spur further contributions (Kuppuswamy & Bayus,
2013). Once a campaign has ended, the project founder receives the donations from the backers only if

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the project funding goals are met, although some websites (e.g., indiegogo.com) allow the founder to
receive all funds contributed even when the funding goal is not met. The rewards model of crowdfunding
can be thought of as a “mashup between venture capitalism, social networking, and a pledge drive”
(Beaulieu & Sarker, 2013, p. 3, emphasis in original).
The rewards model is interesting because it most embraces a new innovative business model. The equity
models and the debt models mainly mimic current practices, albeit with a larger and more diverse group of
founders and backers. That is, the processes enabled within these crowdfunding models are similar to
current debt and equity practices. In contrast, we believe the rewards model represents a new type of
business model. A significant distinction between the rewards model of crowdfunding and other forms of
financing relate to the types of projects that are created. From our selected campaigns, 75 percent
focused on completing a specific project and the other 25 percent were for an ongoing business. The
founders are also distinct in that the majority (75%) had experience related to the project, while the
remaining (25%) had both project and business experience. We did not find any campaigns where the
founder’s main skill was business experience. Founders were a mix of teams (54%) and individuals
(44%). We also noted that founders’ experience in teams tended toward homogenous skills as opposed to
complementary skills.
Another distinction of the rewards model is that the backer does not receive any equity or debt; thus, the
backer’s concern is simply the short-term completion of the project (and the resulting receipt of their
reward) as opposed to the long-term outcome of the project founder or the project per se. And while the
rewards model may overlap with e-commerce business models to some extent, the distinction is that the
product does not exist before the purchase is made, nor is the founder of a campaign generally an
existing business, so the risks taken by the backer and the associated motivation to contribute are
different than what one would expect in an e-commerce situation. Beyond the reward, backers’ are
motivated by a desire to support the founder and their cause and to engage with the project community
(Gerber et al., 2012). This was evidenced by a comment from one backer who stated, “I love it, want it,
but, can't afford it...I will give you one dollar, to show my belief in your ingenious design...in hopes that I
can someday buy it” (Floyd Leg, 2014).
Founders who present a quality project and use their personal networks have shown to be important
factors in success (Mollick, 2014). Although scant research has been conducted on reward fulfillment,
Mollick (2014) did find that most founders (over 75%) do fulfill their obligation, although the larger the
funding amount, the more delayed reward fulfillment seems to be. Founders have also been found to
engage in both direct and indirect reciprocity (Zvilichovsky et al., 2013). A campaign can be used to
establish a relationship with potential customers and to test the market to see if a product has sufficient
appeal before spending time and effort in developing a product where there is no market (Gerber et al.,
2012).
A distinguishing factor of the rewards model is that, due to the nature of the exchange, campaigns can far
exceed their capital goal quickly. As opposed to the other crowdfunding models, rewards campaigns end
at the end of the time period, not when the dollar goal amount is reached. This can lead to campaigns far
exceeding their requested capital goal. For example, a founder with an innovative idea to produce a table
leg for a collapsible table had a capital goal of $18,000 but ended up with contributions of $256,273. This
can prove problematic (as indicated above by Mollick, 2014) because founders are not always prepared to
handle the fulfillment of a significantly larger number of rewards. Founders can address this issue by
setting up rewards with limited quantities that are spread out over time. For example, the founders for a
project of wireless earbuds set up an early bird tier priced at $179 that was limited to 1,000 backers. This
was followed by subsequent, limited tiers for slightly higher prices and later deliveries. Other founders
simply cancel the campaign when success comes early. For example, a project to create an innovative
wool running shoe with a capital goal of $30,000 raised approximately $119,000 within 5 days of the
launch. The founders explained their decision to stop the campaign within the first week as follows:
While it has been thrilling (and more than a little tempting) to imagine the potential scope of our
project through the remaining 20+ days of our campaign, we have made the conscious decision
to not bite off more than we can chew. (Wool Runners, 2014)

5.5.3 Use of Technology

The websites supporting rewards-based crowdfunding provide several features to help both founders and
backers communicate and to share the project with others. Links to social media outlets such as

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Facebook and Twitter are prominent, and the number of times a campaign has been “liked” is visible,
which encourage backers to let others know about campaigns. Founders and backers are able to
communicate through a comments section where backers ask questions, receive clarification, complain,
or encourage the founder. Founders post project updates that let backers know the status of a campaign
(and the resulting project progress after a successful campaign has ended). Updates are also used to
encourage further contributions after the funding goal is met by providing “stretch goals” and unlocking
new reward levels. The rewards structure is unique to rewards-based crowdfunding, and website
providers offer tools to set up various reward levels and tools after the campaign to collect names,
addresses, sizes, preferences, and so on from backers in order to make the reward fulfillment as efficient
as possible. The website providers also offer secure third party payment processing to collect the
contributions from backers and then distribute the money to the founder. Transparency is enabled through
the websites with a focus on providing information about the founder and the project itself. Many websites
post a list of backers on the campaign while others allow a backer to keep their identity private. Backers
tend to keep their identity private when there is greater “scrutiny” or the project is related to an
“undesirable” behavior (Burtch et al., 2013b).

5.6 Donation
5.6.1 Operational Overview
Founders using donation crowdfunding often rely on the social good that the project can provide, and
backers are not given any additional incentive other than “thanks” from the founder. The capital funding
goals are generally low (typically under $5,000), and the average contribution from backers is around
$100.

5.6.2 Profile
Donation models of crowdfunding share aspects of other models yet are unique in that the backer does
not receive anything in return for their donation other than gratitude from the founder. Donation
crowdfunding has been associated with funding open access journalism, classroom teachers, and
scientific research. In many instances, the projects themselves may be considered public goods and lend
themselves to philanthropy. In addition to appreciation from founders, results from funded projects are
then shared, which is consistent with the concept of a public good. And while some research has argued
that pure altruism does not exist, the donation model of crowdfunding shows evidence of a substitution
effect as seen in crowding-out behavior (Burtch et al., 2013a), which supports the existence of pure
altruism.
We collected our set of campaigns from Experiment.com, which was established to help move science
forward by providing funding alternatives to researchers. Founders consisted of both individuals (69%)
and teams (31%), and all founders brought project experience with them. Due to the research focus of the
projects, we looked for research experience as evidenced by a PhD instead of business experience as the
other dimension of experience. The educational breakdown of our selected campaigns is: PhD (31%),
PhD candidate/student (19%), masters’ student (13%), undergraduate (19%), and professional R&D (6%).
In all instances, PhD candidates/students, masters’ students, and undergraduates were working under the
mentoring of a researcher with a PhD. In all instances, the campaigns were for a single research project
that was in the conceptual stage.

5.6.3 Use of Technology

These websites allow space for the founder to post their research project including an opening pitch, a
description of the project, and a budget for funds. On a page labeled “abstract”, founders can describe the
context of their research, its significance, and the project’s goals. A page labeled “lab notes” is used for
the founder to provide updates and the results of their research. A comments section is available and was
used mostly to wish the founders luck and success.
The use of social media is available but is not a prominent part of the campaign. Beyond communication
tools in the form of comments, the website also facilitates secure payment transactions and distribution of
the collected funds through a third party payment processing system. Transparency is enabled through
the websites with a focus on providing information about the founder and the project itself.

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6 Discussion
In this paper, we define a definitive set of crowdfunding models and illustrate each model based on
literature and real-world examples. The above profiles demonstrate the homogenous nature of campaigns
found within each model and the distinctness across models. Table 5 summarizes these findings: it
categorizes the major characteristics along operational, founder, project, backer, and technology
attributes. An important consideration, and in some respects what defines each crowdfunding model, is
how the model is enacted through the crowdfunding website because it is the websites that define and
enforce the rules in effect. We found how transparency is enabled (or not) in each crowdfunding model
and how technology is used to focus the attention of backers on what attributes are salient for each model
to be especially interesting.
Table 5. Profile of Crowdfunding Business Models
Private equity Royalty Microfinance Peer-to-Peer Rewards Donation
Operational aspects
Product,
Return of
Share of Return of memento,
Exchange Ownership principle plus Thanks
proceeds principle experience,
interest
thanks
Medium (but
Risk: capital goal High to very high Low to medium Very low to low Low to high Low to medium
wide variety)
Risk: typical
Relative to Very low to high-
individual High to very high Low Very low Very low
capital goal medium
contribution
Enforced
No No Yes Yes Yes Yes
time-limit
Founder attributes
Founder Dominated by Individuals and Individuals and Teams and Teams and
Individuals
composition teams teams groups individuals individuals
Project and Project and Project and
Project Not typically Project
Founder experience business business research
experience disclosed experience
experience experience experience
Project attributes
Projects and
Product/project Product Project Product Project Project
Products
Expand or Conceptual
Business cycle Growth Phase Conceptual support existing Unknown through Conceptual
business prototype
Backer attributes
Rewards,
Motivation Investment Philanthropic Philanthropic Investment Being part of the Philanthropic
project
Technology attributes
Social network Social network
Social media Not prevalent Not prominent Not prevalent Not prominent
connections connections
Conference calls,
Communication Comments, Comments, Comments,
access to n/a Not prevalent
tools updates, blog updates results & updates
financial reports
Screening & Funding,
qualification of Funding, extensive search
Funding, rewards
Support tools backers, distribution of n/a criteria, data Funding
fulfillment
business royalties downloads for
Valuation backers
Transparency of
Limits access, Transparency of Transparency of Transparency of
Transparency of loan risk, past
Transparency founders choose intermediary project and project and
founder details loan
backers details founder founder
performance

Our findings show that one model is not necessarily better than another model; indeed, success and
failures can be found to be distributed across all of the operational crowdfunding models. While little

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research to date has addressed these issues, what is important is for a founder to choose the
crowdfunding model that fits the specific project. Using the attribute characteristics from Table 5 provides
insight into how fit may be identified as the following two examples illustrate. Founders with a project that
has the ability to generate income over time, where rewards are not evident, are suitable to use royalty
crowdfunding. Alternately, founders whose idea is an event or experience with limited income potential are
more suited to a “reward” or “donation” model.
Past literature has measured project success as the funding goal being met. However, this may prove to
be too simplistic of a view and does not consider the events after the campaign ends. Other measures of
success might include whether the product or project actually came to fruition, whether the backers
received what was promised, and the degree of backer satisfaction. For example, in the case of a private
equity crowdfunding, one measure of success is whether the company was sold in the expected timeline
and whether backers received the expected return on their investment. As addressed in the rewards
model profile above, when campaigns raise far more than the original goal, they may be deemed
“successful” initially or in the short run. However, in some of these cases, founders need to produce a
larger number of rewards/products than originally anticipated, and this can result in delays and delivery
failures (Mollick, 2014), which brings into question an initial designation of success.
Moreover, a definition of failure is also elusive. Founders who fail to raise the required funds may have
gained exposure, helpful knowledge, and contacts that turn out to be necessary antecedents for future
success. For example, in August 2014, Ryan Grepper’s campaign for the “coolest cooler” toppled the
Pebble Watch as the highest funded Kickstarter campaign by raising over $13 million dollars (Coolest
Cooler, 2014). However, this was not Grepper’s first attempt at the innovative cooler: he previously “failed”
with a campaign that raised just over $100,000 of a $125,000 goal (Coolest, 2013). While deemed
“unsuccessful”, clearly Grepper learned much from the first attempt, built contacts, and exceeded the
funding goal by 26,570% in a second attempt.
A unique feature of crowdfunding is the ability for a campaign to evolve over time. Web 2.0 applications
ushered in the dynamic internet, built on social media, and websites that “do things”. Some crowdfunding
models take advantage of this ability, especially when founders respond to the evolving needs and desires
of browsers and backers. For example, in rewards crowdfunding, campaigns develop over time as
meaning is created through interactions between the founder and the backer (Beaulieu & Sarker, 2013).
This interaction can be a positive boost to a campaign by creating a sense of a community that backers
want to join and be a part of through their contributions. However, this interaction can also become
problematic, especially when backers bring up issues with the project that are not adequately addressed
by the founder. The evolving conversation both in the crowdfunding website and through social media can
greatly influence the amount of capital raised depending on whether a sense of community is established.
Beyond the evolving nature of a campaign, practices in a specific crowdfunding model can also evolve.
While crowdfunding websites themselves provide a level of stability to the models based on the rules and
structures enforced, this is not to say that models are necessarily static. How rules and structure are
instantiated and which features are used and how is determined by human agency and can and do
change over time. For example, in the peer-to-peer model of crowdfunding, originally, founders were more
apt to post their personal stories and describe their uses of the raised funds. However, over time, this
feature became used less and less as practices evolved whereby data relating to the founder’s credit
rating has become the main criteria for deciding funding. In response, peer-to-peer websites such as
Prosper.com now offer an API and access to historical loan data allowing backers to spot trends and
make decisions regarding future contributions.
In this section, we show the distinctiveness of each crowdfunding model. Table 5 overviews the models
and can be used to compare the models to understand the differences inherent in each one. We address
the concept of success and failure of a crowdfunding campaign and illustrate that one factor of success is
using a crowdfunding model that fits the proposed project. In addition, we reflect on the dynamic nature of
crowdfunding, both during a campaign and at a macro level, to illustrate how models evolve over time.

7 Research Agenda
Crowdfunding is at a nascent stage with no established investigative framework across the multiple
disciplines where research is beginning to emerge from. We take a multidisciplinary view and
acknowledge the many interrelated dimensions of crowdfunding. Guided by our two structural elements
(stakeholders and crowdfunding model), we show in Table 6 the current state of the empirical literature.

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22 A Conceptual Framework for Understanding Crowdfunding

We categorize each reviewed paper based on which stakeholder perspective is represented and the
crowdfunding model addressed. We determined the crowdfunding model(s) attributed to each paper
based on our classification scheme in Section 4. In addition, Table 6 displays the general topic of each
paper. Papers may appear more than once if they address multiple models, multiple topics, or multiple
stakeholder perspectives.
Table 6. Current Literature within Research Framework
Models
Perspective Private equity Royalty Microfinance Peer-to-peer Rewards Donation
Campaign Campaign
Contribution
success (17), success (2), Contribution Contribution
Backer behavior (10)
contribution contribution behavior (18) behavior (6)
(11), privacy (8)
behavior (1) behavior (7)
Campaign
Campaign success (9) (10)
Campaign
Founder success (4), (11),
success (13)
viability (12) contribution
behavior (10)
Design (9) (16), Design (16),
Website providers Viability (5)
viability (12) viability (5)
Industry VC financing (3) Impact (15)
Papers Legend: (1) Agrawal et al. (2011), (2) Allison et al. (2014), (3) Bains et al. (2014), (4) Belleflamme et al. (2014), (5) Braet
et al. (2013), (6) Burtch et al. (2013a), (7) Burtch et al. (2014), (8) Burtch et al. (2013b), (9) Cumming & Johan (2013), (10)
Gerber et al. (2012), (11) Kuppuswamy & Bayus (2013), (12) Ley & Weaven (2011), (13) Lin et al. (2013), (14) Mollick (2014),
(15) Mutengezanwa et al. (2011), (16) Ordanini et al. (2011), (17) Ward & Ramachandran (2010), (18) Zhang & Liu (2012), (19)
Zvilichovsky et al. (2013).

Table 6 shows that considerable gaps exist in the literature. We see very little research in the donation
model and little research at an industry level. While the microfinance area has experienced considerably
more research than shown here, our literature review was limited to empirical papers in which the authors
refer specifically to crowdfunding via their title, abstract, or keywords and does not necessarily represent
the larger realm of research in this area.
An additional area of concern is that, almost exclusively, current research focuses on the crowdfunding
phenomenon during the phase when campaigns are taking place. However, crowdfunding, as a process
entails decisions and actions that occur before and after the campaign, and current research has yet to
address these topics at any level of detail. Thus, we propose a research agenda that takes into
consideration not only processing during a crowdfunding campaign but also ex ante and ex poste
decisions and actions. Figure 4 presents this broad perspective and shows the process from the
founders’, backers’, and website providers’ perspectives. Future research can use this as a guide while
being cognizant of how the approach and findings may vary across crowdfunding models.

Ex-Ante During Campaign Ex-Post

Discovery Communication Contribution Reward Fulfillment Communication

CF vs Traditional Social Media Providing Updates Reward Fulfillment

Select Model Blogs Responding to
Founder
Choose Website Search Comments
Produce campaign

Discover Campaign Vetting Process Monetary Receive Reward Comment on reward

Backer
Social Media

Vetting Founders Search Criteria Communication Tools Pledge tracking Support tools for Communication Tools
Website Support tools for facilitating funding,
Providers posting projects and reward fulfillment

Figure 4. A Broad Framework for Crowdfunding Research

First, there are many decisions faced by a founder ex ante to embarking on a crowdfunding campaign.
Decision theory has identified several steps to this process including identifying the need, evaluating

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alternatives, making a selection, and implementing the decision. All of these process must occur prior to
the launch of a campaign. Founders must first decide whether to use crowdfunding or a more traditional
means. Next, the founder must decide what type of crowdfunding model to use and which crowdfunding
website is most appropriate. The crowdfunding website providers also play an ex ante role because the
support tools they provide, the rules they enforce, and the payment fees they charge influence founder’s
choice. Website providers also scrutinize and vet founders who post projects because it is in their best
interest to prevent fraud and abuse. However, very little research has addressed these questions and
there are still many unknown mechanisms at work.
Once a campaign is underway, backers enter the ecosystem and again have unique decisions to make.
We segment this process into three areas: discovery, communication, and contribution. While some
research has addressed these processes, there remain many open questions.
From a discovery perspective, founders must market their campaign, and backers must find the
campaign. This process of discovering campaigns is under-researched and we might expect that it will
vary greatly between crowdfunding models. As we see from the peer-to-peer model, the search criteria
involves factors of founder risk, while private equity involves an aura of exclusiveness and limited access.
Social media has an impact on the discovery process, but, to date, we do not understand how this
mechanism works; however, we suspect that it varies across models due to its prominence (or lack
thereof) for different models.
The second segment is communication, during which the website providers enable this communication.
However, we know little of this process. Drawing on media richness theory (Daft & Lengel, 1986), we
might expect the need for a rich communication media. Yet, how does this occur in a crowdfunding
campaign? We see almost no communication during a microfinance or peer-to-peer campaign, yet a
rewards campaign may have hundreds (or more) of comments between founders and backers. It is
through the communication process that the backer vets the founder and project. This vetting process
may establish legitimacy, trust, identity, but, again, scant research has explored this process.
Crowdfunding campaigns are not static but dynamic and evolve over time. Questions that have not been
adequately addressed include: “how are comments used?”, “what is the role of updates during a
campaign?”, “can changing rewards or setting stretch goals increase the momentum of contributions?”,
and “how do these developments over time impact the success or failure of the funding?”.
The third segment, contribution, has received some attention in the research stream in that contribution
behavior and crowdfunding success have been addressed. However, there remain many open issues and
other areas to explore. For example, a topic that has not been addressed is when a backer does not
contribute monetarily but rather socially by sharing the project on social media. Research questions that
help understand the factors influencing contribution (monetarily and socially) can be enhanced and the
factors expanded considerably.
Ex post considerations have been largely unaddressed in the literature. Assuming a successful campaign,
there are two main actions that occur next: the first being funding and the resulting reward fulfillment, and
the second being continued communication with the backers. Other than private equity, the crowdfunding
websites plays a major role (albeit through third party payment processors) in facilitating the collection of
funds from backers and subsequent distribution to founders. How do models vary in this regard and how
can the website providers add value by making this an efficient process is a possible research question to
address. We know from reading comments after campaigns have ended that reward fulfillment can be an
arduous task, especially when campaigns are over-funded (Mollick, 2014). Research could provide some
valuable insights into this process: for instance design research may address how to provide tools to
support the fulfillment process while keeping backers updated as to the progress.

8 Contributions and Conclusion

In this paper, we provide a broad view of the crowdfunding phenomenon and its participants’ roles.
Through a review of current literature, we demonstrate a current lack of a cohesive understanding in the
literature, especially regarding different operational models of crowdfunding. We derived six unique
models of crowdfunding and provide an in-depth profile of each model. Finally, based on the roles and
processes invoked, we show how current research correlates to our derived crowdfunding models and
propose a broader research agenda that addresses not only processes that occur during a crowdfunding
campaign, but also the ex ante and ex post processes.

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24 A Conceptual Framework for Understanding Crowdfunding

First, we contribute to the literature by identifying operational crowdfunding models. Given the emerging
nature of the crowdfunding phenomenon and its multi-disciplinary aspects, it is understandable that there
are different terms and ways of conceptualizing crowdfunding. However, for future research to be most
effective, research needs to have a common foundation of knowledge. This is instrumental for three
reasons. First, without a common nomenclature, it is difficult to share findings between studies due to a
lack of clarity and precision. Second, without a clear distinction between crowdfunding models, it is
unclear whether findings are generalizable across the phenomenon or apply only in a given model. Third,
as we demonstrate, each model, while sharing the common goal of raising money from a crowd over the
Internet, is quite distinct. We highlight these differences by examining attributes that define each specific
model. We discuss the concept of success and failure across all crowdfunding models and we note the
different ways these concepts can be defined. And, finally, we highlight the dynamic nature of certain
crowdfunding models and discuss the impact on campaigns over time. Through this discussion, we show
that research that fails to consider the essence and distinctiveness of each model may miss valuable
insights afforded by a particular model.
Second, we contribute to the literature by clearly identifying the technology features associated with each
model. We clarify the role of technology as a provider of structure, an enforcer of rules and regulations,
and a support tool. For each model, we examine how technology enables and constrains communication
in a campaign and the sharing of campaigns through social media. Web 2.0 applications have been
heralded as bringing increased transparency to the marketplace, but we show, for certain models, how
technology is used to control information such that less transparency results. Technology, as the
backbone and driver of the crowdfunding phenomenon, will portend future directions of this rapidly
growing phenomenon.
Third, we contribute to the literature by placing the current research into a framework and provide a
broader research agenda. As new phenomenon unfolds, it is important to provide intermittent “check
points” where knowledge is examined, consolidated, and perhaps reorganized based on new insights. We
believe our paper provides such a review and will help move research forward in a more cohesive and
comprehensive manner and with a better understanding for future research possibilities.
Crowdfunding is an exciting phenomenon that offers a new, innovative method for founders to connect
with others to share ideas and jointly turn ideas into reality. Crowdfunding “circumvents traditional sources
and decision makers and gatekeepers, a sort of grassroots redistribution of wealth” (Steinberg, 2012 p.
15). As the entrepreneurial economy continues to emerge, structures such as venture capital and debt
funding become restructured as these older routines and ways of doing business do not support the
entrepreneurial economy, which is demanding a higher number of innovative ideas to be financed but at
much lower costs. Whereas in the managed economy, many innovative ideas had no funding outlets,
crowdfunding is restructuring the capital markets and allowing lower barriers and increased access to
funding.

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Communications of the Association for Information Systems 25

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Appendix
We searched the EBSCO database at the end of 2013 and again in March 2104 to retrieve all papers
relating to crowdfunding. We retrieved papers with the terms “crowdfun*”, “crowd fun*”, and “crowd-fun*”
in either the title, abstract, subject terms, or author-supplied keywords. This resulted in 688 documents.
Because of the newness of the phenomenon, we also looked at literature from several open access
working paper websites when those manuscripts were cited multiple times from peer-reviewed papers (1
paper). And finally, we searched and included papers from the AIS Electronic Library (AISeL) and the
International Conference on Information Systems (ICIS) (4 papers). This brought the total number of
papers for consideration to 693. From the EBSCO set of papers, EBSCO classified 70 as academic peer-
reviewed papers. We reviewed these 70 papers and removed those that were not research focused, not
on topic, or that only mentioned crowdfunding incidentally. This resulted in 30 papers of an academic
nature, and brought the set of papers under consideration to 35 (30 from EBSCO search, 1 working
paper, and 4 ICIS papers). Of the 35 papers, we found 19 papers that were of an empirical nature. Table
A1 categorizes the papers we found from this comprehensive search.
Table A1. Classification of Crowdfunding Literature

Paper classification Number of papers

Scholarly (peer reviewed)
Academic
Empirical* 16
Non-empirical 12
Non-academic 26
Not on topic 14
Working papers* 1
ICIS papers (2 empirical*) 4
Book review 4
Government document 2
News 42
Periodical 562
Report 3
Unclassified 7
TOTAL 693
*Empirical papers included in synthesized review

Crowdfunding is a global phenomenon with the earliest crowdfunding websites forming in the UK and the
United States. Table A2 shows whether each papers focused on a specific country, a set of countries, or
was not specific to a country.
Table A2. Global Reach of Literature

Global Reach Count

Specific Country 6
Multiple Countries 3
Not Specific 10

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The breadth of literature remains focused in the business disciplines, with the highest number of
publications in the entrepreneurship/management area followed by information systems (Table A3).
Table A3. Disciplines Represented in the Literature

Discipline Count
Biotech 1
Design 1
Economics 1
Entrepreneurship/management 6
Finance 2
Information systems 4
Marketing 2
Media 1
Operations 1

Table A4 shows the variation of data sources.

Table A4. Classification of Crowdfunding Literature

Type of Data Count

Secondary data 13
Survey 3
Business modeling 1
Interviews 3
Coded campaign 1

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About the Authors

Tanya Y. Beaulieu is finishing her Ph.D. in management information systems from Washington State
University, and has accepted a position as an Assistant Professor of Information Systems at Utah State
University. Her research interests include how entrepreneurs and small businesses use technology,
especially as it is related to social commerce, cloud computing, and crowdfunding. She has published a
guest editorial in MIS Quarterly, presented at the International Conference of Information Systems (ICIS)
and published book reviews in the Journal of Information Technology Case and Application
Research. She is currently the managing editor of the Journal of the Association for Information Systems
(JAIS). Prior to her PhD, Ms. Beaulieu owned a software development and consulting firm specializing in
custom software for large enterprise systems.

Suprateek Sarker is Professor of Commerce (Information Technology) at the University of Virginia, USA.
He concurrently holds visiting professorships at Aalto University, Helsinki, and Royal Holloway, University
of London. His work has been published in journals such as Information Systems Research, MIS
Quarterly, Journal of MIS, Journal of the AIS, Decision Sciences Journal, Decision Support Systems,
European Journal of Information Systems, Journal of Strategic Information Systems, Information Systems
Journal, Journal of Information Technology, IEEE Transactions on Engineering Management, ACM
Transactions on MIS, IEEE Transactions on Professional Communication, Information & Management,
DATA BASE, Information Technology & People, Journal of Academy of Marketing Science, MIS Quarterly
Executive, Communications of the AIS, and the Communications of the ACM. He and co-author S. Sahay
were awarded the Stafford Beer Medal by the OR Society, UK, in 2006 for a paper on virtual teamwork
published in the European Journal of Information Systems. Suprateek currently serves as the Editor-in-
Chief of the Journal of the AIS, a Senior Editor of Decision Sciences Journal, a Senior Editor Emeritus of
the MIS Quarterly, and as an editorial board member of the Journal of the MIS and IEEE Transactions on
Engineering Management.
Saonee Sarker is currently Area Coordinator and Professor of IT in the University of Virginia. Earlier, she
was the chair of (and Hubman Distinguished Professor of MIS in) the Department of Management,
Information Systems, and Entrepreneurship at Washington State University. She is also Visiting Fellow at
Lund University, Sweden, and University of Augsburg, Germany, Visiting Professor in Aalto University,
Finland, and Visiting Associate Professor of Information Technology at IMT, India. She received her PhD
in management information systems from Washington State University, her MBA from the University of
Cincinnati, and her BA (Honors) from Calcutta University. Her research focuses on globally distributed
software development teams and other types of computer-mediated groups, technology adoption by
groups, technology-mediated learning, Green IS, and information technology capability of global
organizations. Her publications have appeared in outlets such as MIS Quarterly, Information Systems
Research, Journal of Management Information Systems, Journal of the Association of Information
Systems, Decision Sciences, European Journal of Information Systems, Decision Support Systems,
Information Systems Journal, and International Conference on Information Systems proceedings. She has
also served as the principal investigator of a National Science Foundation (NSF) grant awarded to study
work–life balance in globally distributed software development teams. She serves as an Associate Editor
at MIS Quarterly, Decision Sciences, and Communications of the AIS.

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