Equity Markets, Valuation, and Analysis

CHAPTER 24Equity Crowdfunding Investments

Dianna Preece

Professor of Finance, University of Louisville

INTRODUCTION

In 2006, Jeffrey Howe coined the term crowdsource (Howe 2006). He believed that a group of individuals could achieve more, and in many cases, be faster, less resource-intensive, and achieve better quality than large organizations. Howe also believed that the crowd would reinvent the technological world.

Crowdsourcing can take many forms, ranging from putting up a suggestion box in a school cafeteria to soliciting ideas to figure out how to stop the increase of plastic nanoparticles in the world's oceans. However, crowdfunding, not crowdsourcing, is the focus of this chapter. The same year Howe coined the term crowdsourcing, an entrepreneur named Michael Sullivan created the term crowdfunding (Breedlove 2018). A modern example, and perhaps the start of crowdfunding, happened in 1997 when the British rock band Marillion let their fans know, via the internet, that they could not go on a reunion tour because the tour would lose money. Their fans responded, donating $60,000 online to fund the tour. Following Marillion's and others' success, Artistshare started in 2000 as the first rewards-based “fan funding” site. As evidence of the interest in and popularity of tapping the masses for ideas and funding, the members of LinkedIn's CrowdSourcing and CrowdFunding group numbered over 19,000 members in early 2013, whereas the initial public offering (IPO) group numbered ...