We are researching the potential benefits and risks of crowdfunding – the relatively new, innovative and quickly-growing form of finance. Crowdfunding is an emerging alternative source of financing. It refers to open calls to the public, generally via the internet, to finance a project through either a donation, a monetary contribution in exchange for a reward, product pre-ordering, lending, or investment. Any type of project can launch a crowdfunding campaign: SMEs, artists, innovative start-ups, social entrepreneurs may all benefit from different forms of crowdfunding.
Crowdfunding is an emerging area of financial intermediation that has shown impressive growth rates after the global financial crisis. By the ‘crowd’ we essentially mean the general public. The European industry saw a total growth of 144 per cent in 2014, totalling €2.9 billion and the UK holds more than two-thirds of the market share (74.3 per cent) with an estimated market volume of £1.78 billion. Excluding the UK, the market for the rest of Europe increased from €137m in 2012 to €338m in 2013 and reached €620m in 2014, with an average growth rate of 115 per cent over the three years. The UK market is growing rapidly, and has more than doubled in size year on year from £267 million in 2012 to £666 million in 2013 to £1.74 billion in 2014.
Even though this area has been rapidly expanding, use and awareness are still relatively low. The market is young with huge potential through raising awareness, while the level of understanding of crowdfunding benefits and risks for existing users is an area that has not been adequately analysed so far. With poor understanding, the risk of detrimental consequences from a negative event ('scandal') is considerably high. These areas need to be explored in order to gather enough data to draw safe conclusions about future prospects.