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Key determinants of crowdfunding volume

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Cambridge Network | Jun 27, 2017

Key determinants in crowdfunding volume - Key determinants of crowdfunding volume

A country’s control of corruption and quality of regulation are significant factors in the volume of crowd financing being carried out, but the type of legal system (civil or common law) has little effect, according to a new study at Cambridge Judge Business School based on more than 1,300 crowdsourcing platforms in 157 countries.

The study, based on a database compiled at the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge, also found that the volume of crowd financing appears related to the level of trust individuals have for strangers, because such funding relies almost entirely on anonymous donors who have no social or other formal interactions with the recipients.

In addition, the study found that higher charges by banks boost crowdfunding volumes, while crowdsourcing volume declines when it is easier to set up a business – suggesting that crowd financing volumes are tied directly to high costs or other obstacles in pursuing traditional channels.

The study by Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge, is being presented by Professor Rau later this week at the annual conference of the Centre for Alternative Finance, where he is Research Director. The conference is being attended by leading experts on alternative finance from banking, business, government and academia.

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The study – entitled “Law, trust, and the development of crowd financing” – is based on 1,362 crowdsourcing platforms in 2015; it follows detailed studies by CCAF on alternative finance trends and volumes in various regions around the world.

The study covers four distinct types of crowd finance business models – debt platforms for debt lending, equity platforms that allow firms to raise financing from investors, reward-based platforms where funders promise backing in exchange for non-monetary rewards, and donation platforms.

“This is the first paper that analyses the global determinants of crowd financing,” says Professor Rau. “Interestingly, the study finds that trust is the only factor that consistently seems to explain the volume on platforms that don’t have a financial motive, meaning reward-based and donation platforms.”

Globally, 98 per cent of crowd finance platforms are debt or equity platforms, and debt-based platforms are dominant with 96 per cent of global crowd financing originating on those platforms. In emerging economies, however, the predominance of debt and equity platforms is less pronounced, at 78 per cent.

The volume raised through crowd financed platforms increased globally from around $500 million in 2011 to nearly $150 billion in 2015, a growth rate of over 200 per cent per annum, fuelled by advances in technology (thus the term “fintech”). The three largest crowd financing markets in 2015 were China ($103 billion), the US ($36 billion) and UK ($5 billion).

“The overall level of crowd financing volume is strongly positively related to the level of development of the market,” the study says. “However, controlling for the level of market development, there are three factors that significantly affect the volume of crowd financing within the country.”

The three factors are: aspects of the legal system such as corruption control and regulation quality; a demand factor driven by the cost of using traditional financial institutions; and a supply factor linked to user demographics including the level of access investors have to the formal financial institutions.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at

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