Crowdfunding

Crowdfunding is a fast growing financing and investment alternative. Primarily four different forms of crowdfunding can be distinguished namely donation-based reward-based lending-based and equity-based crowdfunding. These forms differ significantly in terms of requirements costs return and legal restrictions. Each form also entails its benefits challenges and risks. Entrepreneurs can benefit from a large pool of potential capital easy access a reduction of geographical barriers low costs and a huge support network. However they need to keep administrative and marketing challenges as well as the exposure of intellectual property in mind. Investors are able to diversify their investment within a large amount of business opportunities and concurrently minimize their default risk through several small contributions. Nevertheless investors should be aware of the high risks involved in investing in start-up businesses such as information asymmetries business failure and fulfillment risks as well as potential fraud.