**1. Historical origin and evolution of crowdfunding**

The difficult crisis that has hit the financial markets has pushed the sector players to find new financing tools, since the banks could support neither long-established companies nor emerging start-ups any longer. This deep recession has created a solid ground for alternative forms of financing, such as crowdfunding, which stems from it. The word crowdfunding originates from the English "crowd" (mass or multitude of people) and "funding," meaning financing and literally means to be financed from a multitude of people. Alessandro Brunello defines financing in: "Il manuale del crowdfunding" (the Crowdfunding manual) as "a process of cooperation between several people who decide to hand out their money, generally small sums, to finance the effort, the projects and the visions of other private citizens, but also entities

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and/or organizations" [1]. With this financial tool, funds can be raised by a virtual community through online fundraising meant to support projects proposed by a group of people or organizations. "Crowdfunding originates from Crowdsourcing, a system of outsourcing the solution to a given problem to an online community: the feasibility of the prospected hypothesis is then evaluated by the entire group for the purpose of selecting the one that better fits that particular case. All the participants to the problem solving activity may receive several forms of reward: from money to mere intellectual satisfaction" [2].

In 2005, Kiva [8], the first microloan platform for entrepreneurs from developing countries, which presently raises over 165 million dollars with an excellent 98.83% repayment rate [9], was launched. In 2006, Michael Sullivan invented Fundavlog, an attempt, later failed, to create an incubator for events linked to videoblogs [10] and, for the first time in a post, he used the term "crowdfunding" to define this specific financing modality. The word spread rapidly worldwide thanks to the American platforms Kickstarter and Indiegogo, which finance new projects while granting a reward that is not financial, but rather of material or experiential type. The development and diffusion of social web media has determined a higher visibility of these platforms and has enriched them with new applications. From the United States, the phenomenon has spread worldwide and has arrived in Italy, amid some difficulties, thanks to the "culture of sharing" that has made it so that an activity that used to be hidden and limited

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The first Italian portal is "Produzioni dal basso" which dates back to 2005. The crowdfunding

The Italian regulatory framework is a new limiting factor to the development of the phenomenon; therefore, Piattelli wonders whether the regulation be an avant-garde or a missed occasion [6]. The implementation of the Italian regulatory system fits in a trend that, from 2012 on, has seen the legislator become more oriented toward start-ups and to support small- and medium-sized businesses. Essential to this purpose is L.D. 179/2012 *Decreto crescita bis (Decree for growth bis)* carrying "further urgent measures for the growth of the country" that has taken on the significance of a real systematic policy which has identified, in the support of innovative business people a new approach toward the Industrial policy, pinpointing the specific recipients of the regulation related to Crowdfunding [12]. Subsequently, with L.D. 3/2015 *Decreto crescita 3.0,* the range of beneficiaries was extended to start-ups and to innovative small- and medium-sized businesses. In Europe, a harmonic regulation on crowdfunding equity (the most common type) is still

In 2013, the European Crowdfunding Network (ECN), a professional association that tries to facilitate the political debate on a European level and to make the public aware of bottom-up funding, was established. The first European research on the matter is the Framework for European Crowdfunding. The deficiency of a regulatory framework has been later analyzed by the European Commission that, in 2013, promoted a public consultation with the aim of understanding the correct lines of action for the development of this form of financing. An expert forum was held in 2014: the European Crowdfunding Stakeholders Forum, to promote

Within the member states, the absence of specific national regulations (except that for Italy) refers to any controversies arising to ordinary justice according to the "warning documents" published in order to protect the investors. The United States, instead, together with Italy, have intervened to positively discipline the spreading phenomenon of crowdfunding [14]. Indeed, in 2012, Obama signed the "Jumpstart our business Startups Act (Jobs Act)" that aims to regulate the conduct of the web platforms to which all subjects but financial intermediaries

to a restricted number of followers could emerge.

phenomenon has reached a strong popularity [11] only in 2013.

missing, and this represents an obstacle to its development [13].

transparency and define best practice.

Crowdfunding is characterized by Internet platforms able to gather people beyond any geographical barrier, for the ideas that are proposed and for the emotional and spontaneous participation of the crowdfunders. Other features to be ascribed to this phenomenon are definitely "pliancy, referring to the fields of application that are various and heterogeneous (arts, culture, science, journalism, politics, philanthropic, business…), as well as the centrality of the information technology tool for what concerns the fundraising operations" [3]. It is called civic crowdfunding when the field of application extends to financing, with small or large capitals, public or social and cultural works, or environmental impact projects benefitting the citizens.

Crowdfunding has its roots in the 700 Ireland, when Jonathan Swift, the author of "Gulliver's travels," established, in Dublin, the Irish Loan Funds, which granted microcredit to poor farmer families with the commitment to pay back on a weekly basis without interest. The applicant had to bring in two people who would serve as guarantors that, in case of lateness, would provide payment of the loan.

The first ever example of collective financing, in this case civic financing, was in 1884 when the French Government gave the Statue of Liberty to the United States of America to celebrate the centennial of the Declaration of Independence in 1776 [4]. In 1885, the American Commission entrusted with the building of the base needed to hold the statue, finished the funds, which blocked the completion of the work, and consequently the possibility to erect the statue. The situation changed thanks to the intervention of Joseph Pulitzer, who, through his newspaper "The New York World," announced the intention to collect \$100,000 that would be needed to complete the base. As a reward, he offered a mention to whoever would donate funds, no matter the amount. In just 5 months, the sum collected amounted to \$102,000, raised by more than 100,000 people, most of whom had donated less than one dollar [5].

The success of the fundraising was determined by the fact that Pulitzer was able to hinge on the "sense of belonging of the citizens and on the recognition of the moral value of the donations" [6], having considered the mention of their name on the pages of his newspaper as a reward for the fundraisers.

In 1976, Muhammad Yunus, an economist from Bangladesh, the winner of the Nobel Prize in Economic Science, established the Grameen Bank, the "first bank of the poor" which granted micro-loans to poor people without asking for guarantees. Therefore, the present fundraising originates from the concept of microfinancing and has become common at the beginning of the 1990s as an evolution of microcredit [6]. With the coming of the Internet in 1991, the early online fundraising campaigns began and they were mostly meant for charity purposes, like those started by the platform JustGiving 2000 [7].

In 2005, Kiva [8], the first microloan platform for entrepreneurs from developing countries, which presently raises over 165 million dollars with an excellent 98.83% repayment rate [9], was launched.

and/or organizations" [1]. With this financial tool, funds can be raised by a virtual community through online fundraising meant to support projects proposed by a group of people or organizations. "Crowdfunding originates from Crowdsourcing, a system of outsourcing the solution to a given problem to an online community: the feasibility of the prospected hypothesis is then evaluated by the entire group for the purpose of selecting the one that better fits that particular case. All the participants to the problem solving activity may receive several forms

Crowdfunding is characterized by Internet platforms able to gather people beyond any geographical barrier, for the ideas that are proposed and for the emotional and spontaneous participation of the crowdfunders. Other features to be ascribed to this phenomenon are definitely "pliancy, referring to the fields of application that are various and heterogeneous (arts, culture, science, journalism, politics, philanthropic, business…), as well as the centrality of the information technology tool for what concerns the fundraising operations" [3]. It is called civic crowdfunding when the field of application extends to financing, with small or large capitals, public or social and cultural works, or environmental impact projects benefitting the citizens. Crowdfunding has its roots in the 700 Ireland, when Jonathan Swift, the author of "Gulliver's travels," established, in Dublin, the Irish Loan Funds, which granted microcredit to poor farmer families with the commitment to pay back on a weekly basis without interest. The applicant had to bring in two people who would serve as guarantors that, in case of lateness,

The first ever example of collective financing, in this case civic financing, was in 1884 when the French Government gave the Statue of Liberty to the United States of America to celebrate the centennial of the Declaration of Independence in 1776 [4]. In 1885, the American Commission entrusted with the building of the base needed to hold the statue, finished the funds, which blocked the completion of the work, and consequently the possibility to erect the statue. The situation changed thanks to the intervention of Joseph Pulitzer, who, through his newspaper "The New York World," announced the intention to collect \$100,000 that would be needed to complete the base. As a reward, he offered a mention to whoever would donate funds, no matter the amount. In just 5 months, the sum collected amounted to \$102,000, raised by more

The success of the fundraising was determined by the fact that Pulitzer was able to hinge on the "sense of belonging of the citizens and on the recognition of the moral value of the donations" [6], having considered the mention of their name on the pages of his newspaper as a

In 1976, Muhammad Yunus, an economist from Bangladesh, the winner of the Nobel Prize in Economic Science, established the Grameen Bank, the "first bank of the poor" which granted micro-loans to poor people without asking for guarantees. Therefore, the present fundraising originates from the concept of microfinancing and has become common at the beginning of the 1990s as an evolution of microcredit [6]. With the coming of the Internet in 1991, the early online fundraising campaigns began and they were mostly meant for charity purposes, like

than 100,000 people, most of whom had donated less than one dollar [5].

of reward: from money to mere intellectual satisfaction" [2].

would provide payment of the loan.

116 Public Management and Administration

reward for the fundraisers.

those started by the platform JustGiving 2000 [7].

In 2006, Michael Sullivan invented Fundavlog, an attempt, later failed, to create an incubator for events linked to videoblogs [10] and, for the first time in a post, he used the term "crowdfunding" to define this specific financing modality. The word spread rapidly worldwide thanks to the American platforms Kickstarter and Indiegogo, which finance new projects while granting a reward that is not financial, but rather of material or experiential type.

The development and diffusion of social web media has determined a higher visibility of these platforms and has enriched them with new applications. From the United States, the phenomenon has spread worldwide and has arrived in Italy, amid some difficulties, thanks to the "culture of sharing" that has made it so that an activity that used to be hidden and limited to a restricted number of followers could emerge.

The first Italian portal is "Produzioni dal basso" which dates back to 2005. The crowdfunding phenomenon has reached a strong popularity [11] only in 2013.

The Italian regulatory framework is a new limiting factor to the development of the phenomenon; therefore, Piattelli wonders whether the regulation be an avant-garde or a missed occasion [6]. The implementation of the Italian regulatory system fits in a trend that, from 2012 on, has seen the legislator become more oriented toward start-ups and to support small- and medium-sized businesses. Essential to this purpose is L.D. 179/2012 *Decreto crescita bis (Decree for growth bis)* carrying "further urgent measures for the growth of the country" that has taken on the significance of a real systematic policy which has identified, in the support of innovative business people a new approach toward the Industrial policy, pinpointing the specific recipients of the regulation related to Crowdfunding [12]. Subsequently, with L.D. 3/2015 *Decreto crescita 3.0,* the range of beneficiaries was extended to start-ups and to innovative small- and medium-sized businesses.

In Europe, a harmonic regulation on crowdfunding equity (the most common type) is still missing, and this represents an obstacle to its development [13].

In 2013, the European Crowdfunding Network (ECN), a professional association that tries to facilitate the political debate on a European level and to make the public aware of bottom-up funding, was established. The first European research on the matter is the Framework for European Crowdfunding. The deficiency of a regulatory framework has been later analyzed by the European Commission that, in 2013, promoted a public consultation with the aim of understanding the correct lines of action for the development of this form of financing. An expert forum was held in 2014: the European Crowdfunding Stakeholders Forum, to promote transparency and define best practice.

Within the member states, the absence of specific national regulations (except that for Italy) refers to any controversies arising to ordinary justice according to the "warning documents" published in order to protect the investors. The United States, instead, together with Italy, have intervened to positively discipline the spreading phenomenon of crowdfunding [14]. Indeed, in 2012, Obama signed the "Jumpstart our business Startups Act (Jobs Act)" that aims to regulate the conduct of the web platforms to which all subjects but financial intermediaries and publicly traded companies have access to. The aim of the Jobs Act is to encourage financing of small entrepreneurs, which is essential to the relaunch of American economy.

companies that offers company shares to the crowdfunders in exchange for money. This model is used to favor the growth of small companies provided with little financial possibilities that are new to the financial market. In order to face the complexity of the equity procedures, the platforms have introduced two solutions: club and holding. According to the first, the equity web offer is not directed toward the public, but just toward the investors that are members of a closed investment club; the holding, also called cooperative, entails the creation of an investment society with the aim of collecting funds and of serving as an intermediary between the financier and the beneficiary company. Italy, with art. 30 L.D. 179/2012, has been one of the first countries to introduce a consistent regulation on equity

The companies can orientate themselves in the choice of the type of crowdfunding more suitable for them based on the type of activity they carry out, on their life cycle, on their financial

> **Rewards crowdfunding**

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**Peer-to-peer loans**

**Equity crowdfunding**

Profitable and growing company v V Long-established company growing steadily v V Stable long-established company v V Launch of new products/services/brands v v V Acquisitions V Expansion in new territories v v V Investment in new structures V Refinancing needs v V Capital restructuring needs v V Source: European Commission, *Il Crowdfunding. Cosa è. Una guida per le piccole e medie* imprese, 2015.

Alessio Barollo and Daniela Castrataro during the "Torino Crowdfunding" convention defined civic crowdfunding as "collective funding of public works and projects – outside the budget of the interested entity or administration - collected by citizens, organizations and private compa-

The decrease in public funding, due to the difficult economic crisis, has favored the inception of civic economy, a new economics model based on the social responsibility of the citizens

nies sometimes in match funding with the administrations themselves" [17].

crowdfunding deemed to be avant-garde at a European level.

Pre-trading v Pre-profit v v

needs, and so on as summarized in **Table 1**.

**3. Civic crowdfunding**

**Table 1.** Guide to the choice.
