The “wisdom of the crowd” argument

Entrepreneurs may require external support on how to run their company or to assess the economic potential of their product. Unlike business angels or venture capital funds, crowdfunders might not have any special knowledge about the industry. However, the “wisdom of the crowd” argument states that a crowd can at times be more efficient than individuals or teams in solving corporate problems. Hence, crowdfunders as a crowd would be more efficient than a few equity investors alone.

From another point of view, the risk taken by crowdfunders might be smaller, and not only because of the small amounts that they provide individually. The crowd may further become consumers once the product has been brought to the market and have an incentive to disseminate the information about the product it if they participate in the profits of the venture. In contrast, similar information dissemination would require significant advertisement campaign if the venture were financed by a few, larger investors.  Schweinbacher-Larralde on Financing Entrepreneurs