Controlling information asymmetry in equity crowdfunding

Abstract. Crowdfunding is a fast developing method of projects finance mobilization. However, weakness of trust and the associated problem of information asymmetry constrain risk sharing investments as well as equity crowdfunding. Reputation mechanism is one of the newest ways to address asymmetric information issue in web-based social networks. A reputational mechanism has been designed and named “Fame” in this paper specifically for equity crowdfunding systems to eliminate moral hazard and reduce asymmetric information. The term “Fame” is meant to capture the qualitative aspects of reputation such as trustworthiness, credibility, reliability of every individual member of an equity crowdfunding system. Fame is systematic, countable and computable (implicit and explicit) reputation monitoring mechanism. A game theory approach is employed using two different games: “without Fame” and “with Fame” games, to show that a “with Fame” crowdfunding game leads to better results. Moreover, net aggregate surplus in “with Fame” crowdfunding is larger than “without Fame” crowdfunding system. Keywords. Crowdfunding, Equity crowdfunding, Reputation mechanism, Mechanism of fame, Information asymmetry, Risk sharing.JEL. C70, D82, D85, D91, G23

Crowdfunding Project Success for Game Developers: Evidence from Kickstarter and Steam

Crowdfunding has revolutionized business investor connection in many industries, one of which is game development. Traditionally, triple-A game developers and publishers were able to monopolize the industry, but with the emergence of crowdfunding platforms, smaller game development teams and companies have a way of competing with large corporations by attracting funds. However, Kickstarter reports show that two-third of game funding projects fail to meet their goals. This study develops and empirically examines a theoretical model to predict video game’s crowdfunding success to address this gap. We collect data on video game projects that were initiated on Kickstarter and were later released on the Steam platform. Our analysis of more than 7000 reward tiers for 1967 projects reveals that reward type (free game copy, in-game perks, accessories, artworks, and involvement), and reward description length positively influence funding success, while the number of reward tiers and funding period negatively impact funding success

Civic Crowdfunding for Agents with Negative Valuations and Agents with Asymmetric Beliefs

In the last decade, civic crowdfunding has proved to be effective in generating funds for the provision of public projects. However, the existing literature deals only with citizen's with positive valuation and symmetric belief towards the project's provision. In this work, we present novel mechanisms which break these two barriers, i.e., mechanisms which incorporate negative valuation and asymmetric belief, independently. For negative valuation, we present a methodology for converting existing mechanisms to mechanisms that incorporate agents with negative valuations. Particularly, we adapt existing PPR and PPS mechanisms, to present novel PPRN and PPSN mechanisms which incentivize strategic agents to contribute to the project based on their true preference. With respect to asymmetric belief, we propose a reward scheme Belief Based Reward (BBR) based on Robust Bayesian Truth Serum mechanism. With BBR, we propose a general mechanism for civic crowdfunding which incorporates asymmetric agents. We leverage PPR and PPS, to present PPRx and PPSx. We prove that in PPRx and PPSx, agents with greater belief towards the project's provision contribute more than agents with lesser belief. Further, we also show that contributions are such that the project is provisioned at equilibrium.Comment: Accepted as full paper in IJCAI 201

Go crowdfund yourself: some unintended consequences of crowdfunding for documentary film and industry in the U.K.

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Crowdfunding:A disruptive innovation in entrepreneurial finance?

Is crowdfunding a disruptive innovation in entrepreneurial finance? This dissertation consist of three chapters that explore the emergence of crowdfunding as a viable financing alternative for entrepreneurial ventures. More specifically, I study the evolution, dynamics, and impact of the crowdfunding phenomenon. I find that crowdfunding has grown exponentially over the years and has proven to be an essential tool for supplying capital to entrepreneurs. It has played an important role in fostering innovation, facilitating business creation, supporting early-stage ventures, and stimulating job creation. Furthermore, crowdfunding has enabled the financial inclusion of different types of investors, who were previously restricted from investing in young early-stage businesses. This has openedup opportunities, but also poses risks. Especially in equity crowdfunding, where “crowd investors” become shareholders in typically early-stage companies, “tapping the right crowd” is essential for the survival and further development of entrepreneurial ventures. Taken together, the insights derived from this dissertation suggest that crowdfunding has indeed emerged as a game-changing force in entrepreneurial finance.<br/

Crowdfunding: disintermediated investment banking

This paper introduces crowdfunding as a concept and model for the evolution of investment banking. Crowdfunding, an application of crowdsourcing, is defined as one party’s attempt to finance a project by offering three types of investment opportunities to potential investors. The investment opportunities are donations, passive investments, and active investments. From this foundation I develop a model in which interdependent agents operate in a dynamic, discrete setting. Potential investors decide whether or not to invest in one of three opportunities each period while the entrepreneur sets the parameters of the game to maximize the probability of successful financing. I then simulate the model to analyze the effects changes in key parameters have on the results of the game.crowdfunding, crowdsourcing, network, finance, banking, relationship, evolution, investment, commercial, customer, participation