The role of due diligence in crowdfunding platforms

Cumming, Douglas J.; Johan, Sofia; Zhang, Yelin

doi:10.1016/j.jbankfin.2019.105661

Cited by 115 publications

(98 citation statements)

References 41 publications

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“…3 Similarly, projects on Seedrs (an equity CF platform) often relate to food and beverage, finance and payments, home and personal, software as a service, platform as a service, and travel, leisure, and sports. 4 CF projects should not be overly complex because "the crowd" has low incentives and capabilities to perform in-depth due diligence (Cumming et al 2019c). Consistent with this view, Chan and Parhankangas (2017) show that more radically innovative Kickstarter projects-which are riskier to develop and more difficult for the crowd to understand-exhibit less favorable funding outcomes.…”

Section: Proponentsmentioning

confidence: 87%

“…Comparing platforms globally, these authors find that the assignment of individual voting rights is associated with lower chances of success of the platforms, whereas the delivery of pooled voting rights is not significant. Cumming et al (2019c) evaluate the factors associated with platforms' compliance expenses and their due diligence application. These authors find that due diligence is related to legislation requirements, platform size, and CF campaign type or complexity.…”

Section: Selection Of Projectsmentioning

confidence: 99%

“…Hence, the CF community is often able to detect cases of fraud, and online marketplaces may facilitate such detection. To varying degrees, CF platforms also perform due diligence before projects are listed on the platform (Cumming et al 2019c). However, such due diligence is more prominent on larger platforms, notably on equity and lending CF platforms.…”

Section: Fraud Resistancementioning

confidence: 99%

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The entrepreneurial finance markets of the future: a comparison of crowdfunding and initial coin offerings

et al. 2020

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Entrepreneurial finance markets are in a dynamic state. New market niches and players have developed and continue to emerge. The rules of the game and the methods for receiving financial backing have changed in many ways. This editorial and the special issue of Small Business Economics focus on crowdfunding (CF) and initial coin offerings (ICOs), which are two distinct but important entrepreneurial finance market segments of the future. Although the two market segments initially appear to be similar, we identify differences between them. Our comparison focuses on the stakeholders, micros t r u c t u r e s , r e g u l a t o r y e n v i r o n m e n t s , a n d development of the markets. We conclude with suggestions for future ICO and CF research.

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Section: Proponentsmentioning

confidence: 87%

Section: Selection Of Projectsmentioning

confidence: 99%

Section: Fraud Resistancementioning

confidence: 99%

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The entrepreneurial finance markets of the future: a comparison of crowdfunding and initial coin offerings

et al. 2020

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“…A study of Canadian crowdfunding platforms including both investment and non-investment models (Cumming et al 2019) found that platform due diligence efforts were associated with a higher percentage of successful campaigns, more fund contributors, and larger amounts of capital raised on platforms. A study by Wessel et al (2017) based on reward crowdfunding on Kickstarter showed that increasing platform openness for third-party offerings, by relaxing platform pre-screening procedures, can destabilize a platform's ecosystem, leading to lower success rates, lower-quality information provided by campaigners, and greater uncertainty for backers.…”

Section: Quantity Vs Quality As Strategic Focusmentioning

confidence: 99%

The Future of Crowdfunding Research and Practice

Shneor

Flåten

Zhao

2020

Advances in Crowdfunding

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This chapter critically reflects on current crowdfunding research and practice while highlighting eight dilemmas that are expected to shape the future of crowdfunding. Each dilemma is critically discussed and is followed by relevant suggestions for future research. These dilemmas include: (1) the balance between idealism and pragmatism; (2) the extent of cooperation between crowdfunding platforms and traditional financial institutions; (3) measurement of crowdfunding success and performance in financial and socio-economic terms; (4) the balance between quantity and quality in campaigns approved for publication by platforms; (5) domestic versus international growth of crowdfunding platforms; (6) manoeuvring between facilitation of collective decisions as crowd wisdom while avoiding crowd madness, as well as intentional and unintentional harmful crowd behaviour; (7) the focus of platforms’ technological developments in terms of efficiency gains versus community support; and (8) the balance between informing the public and constraining our understanding of crowdfunding in educational efforts.

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“…This applies for the crowdfunding platforms acting as intermediaries as well as the individuals or start-ups seeking crowdfunding. Thus, intermediaries have a strong incentive for self-regulation to mitigate asymmetries, build trust and protect themselves from all risks that might harm their reputation in the eyes of potential campaign creators and funders, and several scholars have studied the ways to tackle problems and risks caused mainly by asymmetric information in the crowdfunding platforms (Belavina, Marinesi, & Tsoukalas, 2018;Courtney et al, 2016;Cumming et al, 2019Cumming et al, , 2020Greiner & Wang, 2010;Hainz, 2018;Mäschle, 2012;Rey-Martí et al, 2019).…”

Section: Crowdfunding As a Research Contextmentioning

confidence: 99%

Exploring the Co-operative Form’s Potential in Crowdfunding: A Non-monetary Perspective

Talonen

Pasanen

Ruuskanen

2020

FIIB Business Review

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Technology-driven change has generated new, even revolutionary business models, characterized by high levels of user participation. In the finance field, business models based on crowdfunding have seen significant growth and entered use as an alternative means of extending access and gaining financing for various types of projects. Nonetheless, current crowdfunding practices have been subject to criticism for issues such as information asymmetry, lack of trust and transaction costs, spurring discussion of how to develop and improve these practices. One way of speaking to the criticism has been a suggestion that platforms could be owned by the ones who use them. While the associated way of thinking, referred to as platform co-operativism, has seen some inroads in practice, its novel and practical nature means that a clear knowledge gap remains with regard to its potential for dealing with challenges of platform economy. Consequently, the aim of this study is to examine the relevance and potential of the co-operative company form for crowdfunding arrangements. Our conceptual study utilizes existing research on co-operatives and considers features of crowdfunding from three different perspectives: asymmetry of information and of trust, interaction frequency and homogeneity of interests. As a result, we provide three taxonomies for outlining future research on co-operative platforms.

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The role of due diligence in crowdfunding platforms

Cited by 115 publications

References 41 publications

The entrepreneurial finance markets of the future: a comparison of crowdfunding and initial coin offerings

The entrepreneurial finance markets of the future: a comparison of crowdfunding and initial coin offerings

The Future of Crowdfunding Research and Practice

Exploring the Co-operative Form’s Potential in Crowdfunding: A Non-monetary Perspective

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