CROWDFUNDING PLATFORMS: RISK-RETURN ANALYSIS FOR INVESTORS

Abstract

Crowdfunding has become a popular alternative source of financing for startups and small businesses, allowing them to raise funds from a large number of individual investors, typically via online platforms. While crowdfunding offers significant opportunities for investors and entrepreneurs, it also carries inherent risks. This paper investigates the risk-return characteristics of crowdfunding platforms, focusing on equity crowdfunding, peer-to-peer lending, and donation-based crowdfunding models. Using a sample of crowdfunding campaigns and investor returns from global and Pakistani platforms, the study analyzes the relationship between investment risk and potential returns. The findings indicate that crowdfunding investments can offer high returns but are also associated with significant risk, particularly in terms of market volatility, project failure, and regulatory uncertainty. The paper provides a comprehensive risk-return analysis for investors and offers recommendations for mitigating risks and enhancing the attractiveness of crowdfunding platforms.