CROWDFUNDING MODELS AND INVESTOR RISKS ASSOCIATED WITH CROWDFUNDING

Abstract

Crowdfunding platforms offer smaller companies and individual entrepreneurs’ valuable opportunities for accessing finance, which may not be available to them through financial institutions or the capital markets. Initial public offerings (IPOs), for example, require companies to produce an investor prospectus and undergo extensive due diligence, both of which are expensive procedures and effectively exclude smaller players from entering the equities market. Crowdfunding, by contrast, allows businesses with fewer resources to draw on a multitude of investors by linking them together through the internet. This approach also enables entrepreneurs to benefit from the expert advice that many of these investors are likely to possess, which further increases the chances of a venture being successful.