Whilst crowdfunding does not perhaps have the allure it did a few years ago, it remains a significant form of funding for ventures around the world. New research from Trinity Business School suggests that countries where individualism is more widespread are more likely to embrace the concept of crowdfunding than their more collectivist peers.
The research found that the institutional characteristics of a country have a significant impact upon the likelihood of that society being able to successfully create new business ventures. The study also found that these characteristics had an impact on the success of crowdfunding in those nations.
Successful conditions
Across 27 different countries, the researchers assessed the role of both formal and informal institutions on crowdfunding between 2014 and 2017. These institutions included the various political, legal and economic rules that shape and govern our behavior on the formal side, and the values, behavioral norms and beliefs on the more informal side.
The analysis found that societies that lent more towards individualism appeared to have higher levels of crowdfunding. Similarly, countries with more business-friendly legal systems were also more likely to have high levels of crowdfunding.
The study also found that a risk-averse culture within communities meant they were more likely to invest in ‘lending-based crowdfunding’, whereby the investors expect to recoup their investment along with interest. This, as opposed to equity-based investments, are seen as a safer investment.
The data suggests that China has the largest crowdfunding market in the world, with lending-based investments far and away the most common form. The United States and United Kingdom come next.
“Covid-19 has had a severe impact upon financial markets, forced small businesses and entrepreneurs to rethink their business model and look for alternative forms of financing,” the researcher says. “This research is useful in identifying where crowdfunding is most likely to be successful for these entrepreneurs.”
