Research On The Profit Allocation In Investment-Based Crowdfunding

As the rise of online financing,crowdfunding has become an important way of financing for small startups and entrepreneurs.Investment-based crowdfunding,among all types of crowdfunding,has large funding size as well as intense competition and has therefore attracted more and more attention.Even distribution is a normal profit allocation mechanism for investment-based crowdfunding projects on many platforms.In other words,the investors pledging with the same amount of money will be paid evenly when the investment ends.The even allo-cation mechanism works well under the assumption that the investors arrive at the plat-form simultaneously.However,in practice,the investors are sequential,consequently,the stories are different when considering the dynamic entry times of the investors.In this paper,we study ways to design appropriate profit allocation mechanisms to enhance the success rate of an investment-based crowdfunding project and provide managerial guidance to entrepreneurs.The basic model focuses on the two-investor case,where only two investors with dynamic entry times are considered After that,we shift our focus to the two-cohort case,where dynamic investors are assumed to arrive at the platform as two sequential cohorts.Finally,to generalize our studies and test the robustness,we implement some numerical experiments under the situations where(?)there are more than two pledging periods for the investors,(?)the herding effect of the investors is considered,and(?)the valuations of the investors are assumed to be normally distributed.As the first effort to tackle the profit allocation mechanism in investment-based crowdfunding,the main conclusions of our paper are:(?)to enhance the success rate,en-trepreneurs should compensate early investors with more share of return because of the additional costs during waiting;(?)when investors are arriving in cohorts,entrepreneurs tend to motivate the smaller cohort to enhance the success rate;(?)the share of re-turn allocated to different investors should decrease with their entry times when there are multiple crowdfunding periods;(?)the herding effect stregthens the importance of motivating early investors.Finally,we offer several directions for future research.