The crowd-entrepreneur relationship in start-up financing

Book chapter (2018)

Authors

Thomas Lambert Erasmus Universiteit Rotterdam

Aleksandrina Ralcheva Erasmus Universiteit Rotterdam

Peter Roosenboom Erasmus Universiteit Rotterdam

Affiliation

External organisation

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Published Date

2018

Language

English

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Affiliation

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Abstract

This chapter discusses the crowd–entrepreneur relationship as an important foundation for crowdfunding success. We present community benefits enjoyed by the crowd as crucial in shaping the entrepreneur’s choice between different business models (crowdfunding vs. crowdinvesting). Then, in the crowdinvesting context, we show that this crowd–entrepreneur relationship is plagued by persistent asymmetric information problems of hidden information and hidden action, which undermine financing decisions and campaign outcomes. We highlight how entrepreneurs can address these problems by taking sophisticated investors or a syndicate of investors on board.