Crowdfunding of Small Entrepreneurial Ventures

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Authors: Armin Schwienbacher & Benjamin Larralde

CROWDFUNDING OF SMALL ENTREPRENEURIAL VENTURES Book chapter forthcoming in Handbook of Entrepreneurial Finance (Oxford University Press) Date: September 28, 2010 (final version) Armin Schwienbacher, Professor of finance, Université Lille Nord de France, Faculté de Finance, Banque et Comptabilité, Rue de Mulhouse 2 - BP 381, F - 59020 Lille Cédex (France); +33 3 20 90 75 34 ; armin.schwienbacher@univ-lille2.fr. SKEMA Business School, Avenue Willy Brandt, F - 59777 Euralille (France); armin.schwienbacher@skema.edu. Research fellow, University of Amsterdam Business School, Roetersstraat 11, 1018WB Amsterdam, The Netherlands; a.schwienbacher@uva.nl. Benjamin Larralde, Master student at the University of Luxembourg, Luxembourg Business Academy, 4 rue Albert Borschette, L-1246 Luxembourg, Luxembourg; benjamin@fansnextdoor.com

ABOUT THE AUTHORS Armin Schwienbacher is professor of finance at the Université Lille Nord de France, SKEMA Business School (France), and research fellow at the University of Amsterdam Business School (the Netherlands). He obtained his PhD in finance at the University of Namur (Belgium). His dissertation focused on exit strategies of venture capitalists. In 2001-2002, he was a visiting scholar at the Haas School of Business, UC Berkeley (USA). He teaches courses in corporate finance and entrepreneurial finance at the master, MBA and executive levels. He has presented his research on venture capital and various other topics in corporate finance at numerous universities, financial institutions and international conferences, and his work has been published in various international academic journals, including Journal of Financial Intermediation, Economic Journal, Journal of Banking and Finance, Entrepreneurship Theory and Practice, Journal of Business Venturing and Financial Management. Benjamin Larralde is a Master student specialized in Entrepreneurship. He graduated in Business Studies from the University of Amsterdam (The Netherlands) in 2009, where he studied the topic of crowdfunding for startups for his master thesis. He is currently following another year-long Master degree at the University of Luxembourg (Luxembourg) in order to acquire deeper knowledge in all areas of Entrepreneurship. In the meantime, he is also launching a French platform allowing all creatives to leverage the power of the crowd in order to promote and fund their projects (http://fansnextdoor.com).

Table of Contents INTRODUCTION ....................................................................................................................................... 3 CROWDFUNDING: TAPPING THE CROWD FOR MONEY .......................................................................... 3 Definition of crowdfunding ................................................................................................................. 4 The market of crowdfunding initiatives .............................................................................................. 4 Existing literature ................................................................................................................................ 5 From “crowdsourcing” to “crowdfunding” ...................................................................................... 5 Why do companies crowdsource/crowdfund? ................................................................................ 6 Characteristics of crowdfunders ...................................................................................................... 7 CROWDFUNDING DECISIONS IN THE CONTEXT OF ENTREPRENEURIAL PROJECTS ................................ 8 Existing sources of finance .................................................................................................................. 8 Factors influencing the use of crowdfunding ...................................................................................... 9 BUSINESS MODELS OF...
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