Pure and hybrid crowds in crowdfunding markets

Liang Chen (), Zihong Huang () and Liu De ()
Additional contact information
Liang Chen: West Texas A&M University
Zihong Huang: Yuanshihui Inc.
Liu De: University of Minnesota, 3-163 Carlson School of Management

Financial Innovation, 2016, vol. 2, issue 1, 1-18

Abstract: Abstract Background Crowdfunding has risen rapidly as a way of raising funds to support projects such as art projects, charity projects, and new ventures. It is very important to understand how crowds in the crowdfunding market are organized to carry out various activities. This study documents and compares two crowd designs for crowdfunding, namely pure crowds, where all crowd members participate as equals, and hybrid crowds, where crowd members are led by an expert investor. The hybrid design is rarely studied in the crowdfunding literature despite its large presence in equity crowdfunding. Methods We examine industry practices from various countries in terms of crowd designs, review relevant literature on this topic, and develop a conceptual framework for choosing between pure and hybrid crowds. Results We identify several inefficiencies of pure crowds in crowdfunding platforms and discuss the advantages of hybrid crowds. We then develop a conceptual framework that illustrates the factors for choosing between pure and hybrid crowds. Finally, we discuss the issue of how to manage and regulate lead investors in hybrid crowds. Conclusions Pure crowds have several shortcomings that could be mitigated by a hybrid crowd design, especially when the proposed project suffers from greater risks, a high degree of information asymmetry, concerns about information leakage, and a high cost of managing the crowds. But for the hybrid crowd to work well, one must carefully design mechanisms for lead investor selection, compensation, and discipline. Our study contributes to the crowdfunding literature and to crowdfunding practice in multiple ways.

Keywords: Crowdfunding; Wisdom of the crowds; Crowd design; Lead investor; Syndicate (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://link.springer.com/10.1186/s40854-016-0038-5 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fininn:v:2:y:2016:i:1:d:10.1186_s40854-016-0038-5

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-016-0038-5

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().