The Handbook of Global Science, Technology, and Innovation

Chapter 12Crowdfunding: Toward the Democratization of Innovation Financing

Alessandro Cordova, Johanna Dolci, and Gianfranco Gianfrate

Introduction

Who is best suited to finance innovation is a long debated issue in both academia and policymaking. Usually, large corporates (Schumpeter 1943), venture capital (Gompers and Lerner 2001), and the State (Mazzucato 2013) are pointed to as likely candidates, but a new one has recently emerged: the crowd. The collective efforts of individuals who network and pool their money via the Internet to support innovative projects – namely, crowdfunding – is in fact becoming a potentially disruptive channel to raise capital for new ventures.

Early-stage financing is of fundamental importance to make new projects and ventures succeed (Gompers and Lerner 2004; Gorman and Sahlman 1989; Kortum and Lerner 2000) and to foster innovation in the economy (Cosh, Cumming, and Hughes 2009). Since large corporations often feel pressure to preserve existing markets rather than introduce disruptive products, innovators tend to work in small new companies and these need financing to fund their ideas (Riedl 2013). However, because of its riskier nature, the supply of this type of financing is often insufficient compared to the demand from entrepreneurs. Such capital shortage for young entrepreneurial companies is usually referred to as “equity gap.”¹ In fact, because of their lack of collateral, limited cash flows, and absence of past track record, start-ups ...