Heterogeneous in their motivations, funders engage in crowdfunding for at least five distinct incentives. These incentives include:

Formalization of contracts: As in other settings, early investors on crowdfunding platforms are often family and friends who invest to support the entrepreneur (Agrawal, Catalini, and Goldfarb, 2011). Crowdfunding platforms act as an intermediary and formalize what would otherwise be informal finance. In this way, they improve on the financial contracts between family and friends by balancing the benefits and costs of social relationships (Lee and Persson, 2012). Whereas family and friends can use social pressure to incentivize the entrepreneur, their presence also discourages ex-ante risk- taking in the absence of a formal contract, since failure could also negatively impact the social relationship.