Crowdfunding: The development of an online community

Jens Christian Kobberø

Student thesis: Master thesis

Abstract

This thesis investigates the financing method of reward-based crowdfunding, which is a way for entrepreneurs to attract finance by using an online platform to connect with a large crowd of possible investors. Crowdfunding has experienced significant growth as entrepreneurs finds that it is a new way to obtain funding for projects that otherwise have a difficult time of getting funded through traditional sources. This thesis uses current theories on trust development and signalling of trust in virtual organisations to understand how the entrepreneur and online platform can develop a functioning online community that makes it possible to attract investors. The necessity of developing a trustworthy online community is due to the nature of the crowdfunding relationship where investors have no possibility of knowing whether or not the entrepreneur will behave fraudulent. This because the virtual setting means that the investor have little opportunity to monitor and punish a fraudulent entrepreneur. Therefore the entrepreneur and platform must work together to create a trustworthy and functioning online community. The key findings of the thesis is that crowdfunding can provide a viable alternative for entrepreneurs to attain funding for their projects, but in order to do so they must be able to signal their trustworthiness as investors have little to no protection. The best way of doing so is to develop a shared social identity where investors feel they become part of a larger group of developing a specific product. The main contribution of this thesis is thus to increase the understanding of how crowdfunding participants can signal their trustworthiness in order to make crowdfunding a safe place to invest. In a situation where there are no formalised governance structures, thereby allowing the entrepreneur to have a new source of finance in a world where there is a lack of risk-willing capital from traditional sources.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages88