As part of an ongoing effort to build a knowledge base for the field of opening governance by organizing and disseminating its learnings, the GovLab Selected Readings series provides an annotated and curated collection of recommended works on key opening governance topics. In this edition, we explore the literature on Crowdsourcing Funds. To suggest additional readings on this or any other topic, please email firstname.lastname@example.org.
Crowdsourcing funds, or crowdfunding, is an emerging method for raising money that allows a wide pool of people to make small investments, gain access to ideas and projects they feel personally connected to, and spur growth in small businesses and social ventures. Popular crowdfunding platforms like Kickstarter and Indiegogo helped bring the practice into the public consciousness. Now, civic crowdfunding platforms like Citizinvestor and Spacehive are helping to apply this innovative funding model already in use for helping to fund artists, charities and inventors to help address public concerns traditionally considered under government’s purview. Crowdfunding has also received recent attention from policymakers in the US through the US Securities JOBS Act, which provides an exemption from the registration requirements for offerings of securities by a company made through an SEC registered Crowdfunding Platform.
Selected Reading List (in alphabetical order)
- Tanja Aitamurto — The Impact of Crowdfunding on Journalism — an article exploring crowdfunding in journalism, particularly related to reporting for the benefit of the public good.
- Peter Baeck and Liam Collins — Working the Crowd: A Short Guide to Crowdfunding and How It Can Work for You — a general overview of crowdfunding models and the technological advances that make them possible.
- Jason Best, Sherwood Neiss and Davis Jones — How Crowdfund Investing Helps Solve Three Pressing Socioeconomic Challenges — a paper describing the various public benefits of the rise of crowdfunding.
- Kristof De Buysere, Oliver Gajda, Ronald Kleverlaan, Dan Marom and Matthias Klaes — A Framework for European Crowdfunding — an exploration of the crowdfunding ecosystem in Europe with an eye toward developing strategic crowdfunding policy frameworks for the continent.
- Matthew Hollow — Crowdfunding and Civic Society in Europe: A Profitable Partnership? — a paper on crowdfunding’s effects on civil society in Europe.
- Ethan R. Mollick — The Dynamics of Crowdfunding: An Exploratory Study — an overview of the varied dynamics of success and failure in crowdfunding initiatives.
- Abbey R. Stemler — The JOBS Act and Crowdfunding: Harnessing the Power—and Money—of the Masses — a discussion of the JOBS Act’s effects on the public, including changing the relationship between businesses and the government.
Annotated Selected Reading List (in alphabetical order)
Aitamurto, Tanja. “The Impact of Crowdfunding on Journalism.” Journalism Practice 5, no. 4 (2011): 429–445. http://bit.ly/1bk4wNI.
- This article analyzes the impact of crowdfunding on journalism, where, “readers’ donations accumulate into judgments about the issues that need to be covered.”
- Aitamurto’s central findings inspire optimism regarding the potential of crowdfunding for the public good. She finds that, “From the donor’s perspective, donating does not create a strong relationship from donor to journalist or to the story to which they contributed;” rather, “[t]he primary motivation for donating is to contribute to the common good and social change.”
Baeck, Peter and Liam Collins. Working the Crowd: A Short Guide to Crowdfunding and How It Can Work for You. Nesta, May 2013. http://bit.ly/Hkl3rx.
- This report “aims to give a quick overview of crowdfunding, the different versions of the model and how they work.”
- The authors list four technological innovations that have contributed to the growth of modern crowdfunding:
- An online place for pitches
- Moving your money with a click
- The social engine
- Fueling campaigns with algorithms
- Baeck and Collins consider public and social projects to be one of the areas where crowdfunding can have a significant impact. They argue that civic crowdfunding “has the potential to disrupt how money for charitable causes is sourced and how public services and spaces are used and paid for.”
Best, Jason, Sherwood Neiss and Davis Jones. “How Crowdfund Investing Helps Solve Three Pressing Socioeconomic Challenges.” Crowdfunding PR, Social Media & Marketing Campaigns. http://bit.ly/1aaTGwQ.
- This paper outlines the forces driving the widespread use of crowdfund investing, namely social media, the existence of funding systems that marginalize people outside of major urban centers and the ability of people to function remotely from their work spaces.
- The authors also discuss a number of public-facing benefits of crowdfund investing:
- Crowdfund Investing Creates Jobs
- Bringing capital in off the sidelines for use by small businesses
- Funding entrepreneurs everywhere
- Capital no longer for the chosen few
- Crowdfund Investing Grows GDP
- Reduction in the failure rate of small businesses
- Crowd monitoring reduces agency costs
De Buysere, Kristof, Oliver Gajda, Ronald Kleverlaan, Dan Marom, and Matthias Klaes. A Framework for European Crowdfunding, 2012. http://bit.ly/1aaTFsE.
- This paper seeks to provide a “concise overview of the state of crowdfunding in Europe, with the aim of establishing policy and a distinct framework for the European crowdfunding industry,” which the authors believe, “will aid in the economic recovery of Europe.”
- The authors, in their advocacy for greater crowdfunding opportunities for businesses in Europe, provide a rationale for the practice that also helps demonstrate the potential benefits of greater crowdfunding opportunities within government. They argue that, “Crowdfunding can offer unique support for budding and existing entrepreneurs on multiple levels. No other investment form, be it debt or equity, can provide the benefits of pre-sales, market research, word-of-mouth promotion, and crowd wisdom without additional cost.”
Hollow, Matthew. “Crowdfunding and Civic Society in Europe: A Profitable Partnership?” Open Citizenship 4, no. 1 (May 20, 2013). http://bit.ly/1cgzefL.
- In this paper, Hollow explores the rise of crowdfunding platforms (CFPs), particularly related to civil society. He notes that, “[f]or civil society activists and others concerned with local welfare issues, the emergence of these new CFPs has been hugely significant: It has opened up a new source of funding when governments and businesses around the world are cutting back on their spending.”
- Hollow argues that, “aside from their evident financial and economic benefits, CFPs also have the capacity to help foster and strengthen non-parliamentary democratic structures and practices. As such, they should be supported and encouraged as part of a framework of further European democratization and civic integration.”
Mollick, Ethan R. “The Dynamics of Crowdfunding: An Exploratory Study.” Journal of Business Venturing (June 26, 2013). http://bit.ly/1aaTJIV.
- This paper “offers a description of the underlying dynamics of success and failure among crowdfunded ventures,” focusing on how personal networks and the project quality and viability have an impact on the success of crowdfunding efforts.
- Mollick also highlights how other factors, like the geography of the project, design choices made by crowdfunding sites and developments in technology in this space all have an influence on the relationship between backers and project founders.
- The paper finally demonstrates that projects that succeed do so by a small margin and those that fail seemingly by a large margin suggesting the influence of social bias and crowd influence.
Stemler, Abbey R. “The JOBS Act and Crowdfunding: Harnessing the Power—and Money—of the Masses.” Business Horizons 56, no. 3 (May 2013): 271–275. http://bit.ly/1ih9lts.
- This paper discusses the Jumpstart Our Business Startups (JOBS) Act signed into law by President Obama in 2012, with a specific focus on the CROWDFUND Act, which enables entrepreneurs and small business owners to sell limited equity in their companies to a “crowd” of investors.
- The objective of the Act is to exempt crowdfunding from registration requirement costs, allowing the potential of equity-based funding to be realized, by creating a pathway for underfunded entrepreneurs to access otherwise inaccessible streams of funding.
- Stemler argues that the Act helps to legitimize crowdfunding as a community-building and fundraising tool for the business community, and also helps build better relationships between small business owners and government.
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