What is the potential of crowdfunding?

A crowdfunding platform provides an internet-mediated place for creators and donors to connect. Therefore, it is both a financial and relation mediator. Donors can connect both with other donors and the creator. Crowdfunding builds on a large group of (private) individuals each donating a small amount online. In exchange for their donation, donors can receive a reward, which ranges from acknowledgements on the developed product to a discount before market launch. The project-based nature of crowdfunding results in a transparent strategy, which provides potential donors with information and control: the donors determine which project is funded rather than the charity. Crowdfunding projects often report statistics about earlier donors, like the number of donors or the average donation amount of earlier donors. The effect of reporting on the donation behavior of other donors is called the social information effect. Few empirical studies have looked specifically at philanthropic crowdfunding projects.