A look at crowdfunding -- an emerging trend that threatens to displace traditional financial intermediaries

Open Access
Author:
Banker, Rishin Rajiv
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Brent William Ambrose, Thesis Supervisor
  • James Alan Miles, Honors Advisor
Keywords:
  • crowdfunding
  • crowdsourcing
  • crowd
  • finance
  • venture financing
  • Web 2.0
  • technology
Abstract:
Financial intermediaries, as allocators of capital between savers and borrowers, perform a critical function in the economy by determining which companies, projects, and entrepreneurs are given funding to execute their ideas. Crowdfunding, a new financial platform evolved from the success of crowdsourcing, seeks to empower the crowd to make the same decisions without the intermediation. Through a descriptive analysis of existing crowdfunding sites, the study finds that the trend has already proven its viability through a number of different funding models with a focus on not-for-profits and the arts. In order to project to what extent of the banking market crowdfunding may conquer, traditional financial intermediaries and their roles, both mechanically and conceptually, are analyzed. This finds that there are several critical functions that investors demand, namely liquidity and a delegated monitor, that crowdfunding cannot yet provide. However, the study also looks at the origin and motivation of the crowd and concludes that the technological features that crowdfunding offers, namely social networking and recommendation algorithms, give reason to view this platform as a sign of the industry’s future direction.