Table of contents

I.  List of Figures  3

1.  Introduction  4

2.  The world of crowdfunding  6

2.1.  Crowdfunding tools.  6

2.1.1.  Crowdsourcing  6

2.1.2.  Web 2.0  7

2.1.3.  Fundraising  8

2.1.4.  Social Media  8

2.2.  Different forms of crowdfunding  8

2.2.1.  Donations  8

2.2.2.  Passive investments.  9

2.2.3.  Active investments  9

2.3.  Advantages of using crowdfunding  10

2.4.  Choice of the organization form  11

2.5.  Limit and problems of crowdfunding  11

2.6.  Forms of financing  13

2.6.1.  Differences in support  13

2.6.2.  Differences in risk  14

2.6.3.  Differences in volume  14

2.6.4.  Similar forms of fincancing  15

2.7.  Geography and history of crowdfunding  15

2.7.1.  Crowdfunding in Germany  16

2.7.2.  Crowdfunding in Europe  17

2.7.3.  International Crowdfunding.  17

2.8.  Practical example - the project “Protei  17

3.  Conclusion  19

II.  List of references  20

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I.  List of Figures  

Figure  1: Different sources of crowdsourcing  7

Figure  2: Relative number of different investments.  18

Figure  3: Percental part of the funding goal.  18

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1. Introduction

What are the similarities of a garden that can be hung with magnets on the wall, a fleet of pollution collecting sailing drones and a bracelet which merges with the iPod touch to a watch? All three have made the leap from an idea to a real product. And all three were financed by crowdfunding.

In theory, before the discovery of crowdfunding, individuals have been indirectly financed projects by their savings. In doing so, banks acted as an intermediary between them who need the money and those who have it. The innovation in crowdfunding process is in comparison to other financing methods that it don´t needs an intermediary, because the entrepreneurs seek their investors by themselves. The typical communication takes place via the internet. 1

Crowdfunding is an option of financing which is especially used for artistic projects. It is also used to finance startups in information and communication, design, fashion or trade industry. The special thing about crowdfunding is the collection small amounts of money from many people by using the internet. Every amount is just a small part of the fund they need to achieve the project. If a project is successful, the investors might even receive interests on ² their deployed capital, but mostly they receive another form of reward.

Three different market roles can be distinguished. The first one is the guy who has an idea, but is not able to finance the project on his own because he hasn´t enough money. The second role figures the investor who wants to support the project. The third role is somebody who realizes the project. He has to develop an adequate strategy. It is possible that the guy who has the idea is also the guy who realizes the project. Alternatively, the guy investing in the project also supports the realization of this project. Double roles are common if we examine small projects. In order to combine the idea and the capital, there are different crowdfunding platforms in the internet which are acting as a mediator. 3

Crowdfunding it is not just to raise funds, it is also the collection of information. Moreover, it is often advantageous for the project that it passes through the crowd the process of funding a higher level of awareness. This is essential for the future commercialization. Furthermore, one gets the investors feedback that can be incorporated in the development. Since investors usually slip into the role of the customer, it can be seen as an exchange of information between the organization and the customers. Often it is not only a pure crowdfunding financing. It can be a hybrid financing, in which a certain proportion of the

^{1 See Schwienbacher/Larralde (2010), p. 4. 2} See Imprint (a).

^{3 See Belleflamme/Lambert/Schwienbacher (2011),p. 10.} 4 | P a g e

required funding is obtained via crowdfunding, and the other part is obtained by usual forms of financing.

For the customer or investor the main motivation of the crowdfunding is not the profit maximization. Often, it is ideology or the desire to support a particular project out of pure conviction.

2. The world of crowdfunding

The only data analysis about crowdfunding is the paper of Lambert and Schwienbacher from the year 2010. Other existing studies describe only individual case studies.

2.1. Crowdfunding tools

2.1.1. Crowdsourcing

Crowdsourcing describes in contrast to classical outsourcing not the relocation of business tasks and structures to third-party providers, but the shifting of intelligence and working power to a crowd of free time workers in the internet. A free of charge or low paid amateurs generates capacity, solves special tasks and problems or helps in research and development projects. 4

The concept of crowdsourcing as a neologism was invented in June 2006 by Jeff Howe and Mark Robinson. ⁵ Crowdsourcing is an interactive form of value creation, which underlies a competitive organization. It uses a high number of extrinsic and intrinsic motivated people with different knowledge by using modern information and communication systems on the base of web 2.0. 6

Kleemann describes that crowdsourcing takes place when a profit oriented firm outsources specific tasks essential for the marketing or sale of its products to the general public (the crowd) in the form of an open call over the internet, with the intention of animating individuals to make a (voluntary) contribution to the firm´s production process for free or for significantly less than that contribution is worth to the firm. 7

Lambert and Schwienbacher expand the definition of crowdsourcing by calling crowdfunding „an open call, essentially through the internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes”. 8

⁴ See Brabham (2008a), pp. 80f.

⁵ See Schwienbacher/Larralde (2010), p. 5.

⁶ See Howe (2006), p. 2.

⁷ See Schwienbacher/Larralde (2010), p. 6.

^{8 Schwienbacher/Larralde (2010), p. 4.} 6 | P a g e