As Crowdfunding Grows, the Rewards Increase – but So Do the Risks

A Crowd of $100 Benjamin FranklinThe campaign to front a movie based on the cult television show “Veronica Mars” through crowdfunding broke records for the fastest project ever to raise $1 million on Kickstarter. It was the website’s biggest film project so far, and it has the most backers of any project to date.

What it probably didn’t do, Wharton experts say, is throw open the doors of crowdfunding to major motion pictures. But that’s OK: Crowdfunding is successfully helping entrepreneurs raise capital without the need for them to go Hollywood.

What the “Veronica Mars” case does illustrate, however, is that Kickstarter and its crowdfunding brethren have proven their mettle as mainstream, reliable avenues of funding for both start-up businesses and established firms. Not only do crowdfunding websites provide a cheap, easy way for individuals to seek start-up funding, but would-be investors are also doing an excellent job of picking winners out of the crowd, according to Wharton management professor Ethan Mollick.

Similar Cues of Success

According to Mollick’s recent paper, “Swept Away by the Crowd? Crowdfunding, Venture Capital and the Selection of Entrepreneurs,” a draft of which was published in March, entrepreneurial quality is being examined in similar ways by donors on Kickstarter, one of the largest and most well-known crowdfunding websites, and also by venture capital firms, which for decades have been the go-to source for start-up funding…

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