Crowdfunding is a new way of acquiring funds through the internet. For start-up companies, however, various other sources of funds are available. These include inter alia venture capitalist, banks and business angels. The aim of this paper is to compare the processes of a company acquiring funds through crowdfunding and through a bank credit. This is made on the basis of the transaction cost theory. In addition, general advantages and disadvantages of both concepts are displayed.

In the first step, this paper provides one with an overview of crowdfunding. Secondly, background knowledge about the transaction costs theory is provided. After that a detailed analysis of the procedures in getting a bank credit and acquiring funds through crowdfunding is done. These two methods of raising money will finally be evaluated based on the transaction cost theory. Upon this a conclusion is drawn and open questions are considered.

In general, the transaction costs are lower in case of crowdfunding compared to bank credits. This is due to the high degree of standardization in crowdfunding processes and contracts. Crowdfunding offers many new possibilities to the investors and to companies requiring funds. These include inter alia the opportunity for small-scale investors to access innovative projects. Also, the investor can next to acquiring funds through a crowd of investors, profit from the effect that these followers will promote “their” company and act as company ambassadors. However, as the reputation of lending money online is still in its infancy, the status of crowdfunding needs to be defended. Moreover, crowdfunding has a high potential for small-scale fraud. The question arises if there should be tighter regulations in that area. There are, in addition, certain similar questions in crowdfunding, which have to be solved in order for this concept to get fully established.