Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
25 
In recent years, equity-based crowdfunding has become an important financing alter-
native for startups. The total funds raised through equity crowdfunding have doubled 
every year since 2009. (Ahlers et al., 2015) Although total volumes are large, invest-
ment-based projects represent only a minority of all the crowdfunding initiatives. In-
vestment-based projects only amount to a few percent of the total. These few-and-far-
between projects acquire substantial funds – the typical equity-project being 100 times 
larger than the average donation-based initiative. The average equity-based project 
raised approximately 190000 US dollars in 2012. (Belleflamme et al., 2015) 
Equity-based crowdfunding is well suited for ventures requiring large amounts of cap-
ital. Reward-based crowdfunding has to distort the pricing scheme, but investment-
based funding does not. Unlike pre-ordering, which invites more people to purchase 
the product at a lower price, profit sharing might have fewer customers, but higher 
margins. Individuals are heterogeneous towards community benefits in cases of pre-
ordering, but homogenous in cases of profit sharing. This means taxing community 
benefits is easier in investment-based crowdfunding, and the most eager customers are 
likely to finance the entrepreneur to ensure development and production of the offer-
ing. (Belleflamme et al., 2014) 
Like with the lending model, equity-based crowdfunding does not come without its 
regulation. The legislative environment of a region significantly influences equity 
crowdfunding (Ahlers et al., 2015). Most countries impose strict constraints on it 
(Belleflamme et al., 2014). Heavy investor protection laws in Europe are designed for 
existing investment practices, and consequently restrict crowdfunding in the area. 
This prevents efficient and transparent crowdfunding markets from arising. (
De 
Buysere et al., 2012)