Crowdfunding and Risk

David Cimon

Staff Working Papers from Bank of Canada

Abstract: This paper examines the role of rewards-based and equity-based crowdfunding in funding new businesses. In this model, crowdfunding is a unique technology that serves as a real option for production and eliminates downside risk. It affords entrepreneurs who face uncertain consumer demand a viable means of funding new projects. Crowdfunding performs well for projects with a high variability in demand and a low probability of success. Conversely, crowdfunding does not perform well for large projects with little variability in demand or for projects where the production side is uncertain.

Keywords: Digital currencies and fintech; Financial markets; Financial services (search for similar items in EconPapers)
JEL-codes: G21 G24 G32 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-pay, nep-ppm and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-28

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