Crowdfunding as a tool for startups to raise capital : why and how to use it

Abstract

This thesis aims to educate the reader on the different characteristics of crowdfunding, such that entrepreneurs who are considering how to raise funds for their new project can make more informed decisions. The thesis does this by extensively reviewing existing literature, both on crowdfunding and on related financing methods. The authors also examine the leading European crowdfunding markets in terms of performance, the crowdfunding platforms that operate and legal characteristics in the crowdfunding environment. Crowdfunding involves an entrepreneur creating an Internet campaign, with the aim to raise small amounts of money from a large amount of people – the crowd. The main focus of this thesis is on reward and equity crowdfunding, as these models are found most suited for startups with limited credit and performance history. Reward crowdfunding is essentially a pre-purchasing model, where future customers are invited to pre-purchase a product before production has begun. Equity crowdfunding is the offering of private companies’ equity to the general public. The thesis also examines the possibilities that Norwegian entrepreneurs have in regard to crowdfunding. For the time being, the reward model seems to be more feasible for Norwegian entrepreneurs, seeing that cross-border transactions are better facilitated for this model, while the equity model faces more challenges. Two case studies of successfully crowdfunded businesses are presented, one by reward crowdfunding and one by equity crowdfunding, in order to illustrate practical aspects of crowdfunding campaigns.