Traditionally seen, the financing industry has always played a vital intermediary role in the world economy, by moving funds from entities with money to invest, to those who have a clever idea and need money to develop it into a business. (Zachary, G., 2010)
The rise of the internet brought major benefits in the financial market, by bringing together demand and supply. This led to the development of Platform Mediated Networks. Platform mediated networks ties two distinct groups of users together in a network. The value of a two-sided market increases as the number of users increases, which can be referred to as a “network effect”. A rise in a platform’s network effect will increase the willingness-to-participate of existing and prospective users, which will subsequently lead to more users and in turn a higher value of the network. (Eisenmann et al., 2006) This phenomenon brought new opportunities to the centuries old dynamic of the financing industry to be seized, which resulted in the global rise of crowdfunding in 2009. (Kolakowski, M., 2017).
The basic principle of crowdfunding can be seen as: a little money, times, a lot of people who like the idea (the crowd). With the use of a platform, entrepreneurs can directly access thousands or even millions of potential investors. (Mollick, E., 2014)
As a result, the ‘demand side’ is not dependent on a limited number of investors anymore. The entrepreneur basically does not need to get his investment via conservative intermediaries. With this, the bargaining power of such intermediaries has decreased significantly as they are bypassed in the process of crowdfunding. On the other side of the spectrum, these platforms allow individuals to invest in the ideas they like. This will also attract more people to present their business ideas on a shared platform. A scholarly example of the generation of a positive cross-side network effect. (Eisenmann et al. 2006).
Crowdfunding shifted the financing industry to a more transparent, information rich and participatory private capital market, via the use of easily accessible platforms, open for everyone on earth. Reflecting on recent years, there is a major increase since the introduction in 2009, where crowdfunding has grown from less than 2 billion dollars in 2009 to more than 12 billion dollars in 2015. With an accumulating amount of crowdfunding platforms throughout the years
With the harmed trust of many people in the traditional financial institutions, the full potential of crowdfunding is not reached. Maybe even, it just got started. With the highly promising developments in new technologies such as blockchain, crowdfunding platforms are becoming an even bigger threat to the conventional financing industry. Crowdfunding is the venture capital of the future and everyone on earth will have the opportunity to fulfill his business’ dreams!
References (including references used for video):
Caldbeck, R. (2013) Why Crowdfunding is Disrupting Finance. Available at https://www.forbes.com/sites/ryancaldbeck/2013/08/14/why-crowdfunding-is-disrupting-finance/#6bbcf7ce7830. [Accessed 4 Oct. 2017].
Eisenmann, T., Parker, G., & Van Alstyne, M. W. (2006). Strategies for two-sided markets. Harvard business review, 84(10), 92.
Kolakowski, M. (2017) Financial Services Industry Basics. Available at https://www.thebalance.com/the-financial-services-industry-1287307. [Accessed 3 Oct. 2017].
Mollick, E. (2014), The dynamics of crowdfunding: An exploratory study, In Journal of Business Venturing, Volume 29, Issue 1, Pages 1-16.
Zachary, G. (2010) A brief history of your investors (and their investors). Available at http://venturehacks.com/articles/history-of-investors. [Accessed 3 Oct. 2017]
