Authors: Armin Schwienbacher & Benjamin Larralde

CROWDFUNDING OF SMALL ENTREPRENEURIAL VENTURES Book chapter forthcoming in Handbook of Entrepreneurial Finance (Oxford University Press) Date: September 28, 2010 (final version) Armin Schwienbacher, Professor of finance, Université Lille Nord de France, Faculté de Finance, Banque et Comptabilité, Rue de Mulhouse 2 - BP 381, F - 59020 Lille Cédex (France); +33 3 20 90 75 34 ; armin.schwienbacher@univ-lille2.fr. SKEMA Business School, Avenue Willy Brandt, F - 59777 Euralille (France); armin.schwienbacher@skema.edu. Research fellow, University of Amsterdam Business School, Roetersstraat 11, 1018WB Amsterdam, The Netherlands; a.schwienbacher@uva.nl. Benjamin Larralde, Master student at the …show more content…

More recently, some entrepreneurs have started to rely on the Internet to directly seek financial help from the general public (the “crowd”) instead of approaching financial investors such as business angels, banks or venture capital funds (Kleemann et al., 2008; Lambert and Schwienbacher, 2010). This technique, called “crowdfunding”, has made possible to seek capital for project-specific investments as well as for starting up new ventures. A prominent example is Trampoline Systems, a UK-based software company that intends to raise £ 1 million through crowdfunding. A first tranche was successfully raised at the end of 2009, with the remaining to be completed in 2010 through three follow-up tranches. To our knowledge this is the largest amount ever raised by a single venture through crowdfunding. It shows that crowdfunding may potentially be a mean to raise funds not only for small projects but also for high-growth startups that are typically financed by business angels and even venture capital funds. Whether it will become a meaningful alternative to angel finance and venture capital still needs to be seen. However, Trampoline Systems has shown that it is possible. While this is certainly an exception in terms of amounts targeted, crowdfunding has been used already by many other startup companies to