Crowdfunding as a Trust Test: a Factor Model of Early Risk Capital in the Russian Economy

In Russian financial discourse, crowdfunding is often considered to be statistical noise, representing just a few tenths of a percentage point in the structure of financing for small and medium-sized enterprises (SMEs), or a range of platforms with low-profile campaigns that are hardly ever included in the serious expert agenda. It can be easily referred to as ‘donations to bloggers’ and dismissed. However, it is precisely this seemingly granular-level nature that makes crowdfunding a unique indicator of the economy’s ability to handle risk and trust.

Our study of Russian crowdfunding explains why, under similar macroeconomic conditions, some crowdfunding segments develop, while others stagnate; and why economic growth and digitalisation are ‘sufficient’ for some forms of crowdfunding, while others require an environment of trust formed by interpersonal attitudes, institutional predictability, and cultural characteristics.

According to our data, the global crowdfunding market for SMEs totalled $19.2 billion in 2024. The market can be divided into three segments, representing three types of crowdfunding:

• Crowdlending is a collective financing method where businesses receive loans directly from private investors (P2B lending) via platforms. In the global crowdfunding market, it is the most popular method, accounting for 86%.
• Crowdinvesting is also a method of collective financing where, unlike in crowdlending, which implies that the investor becomes a lender, the investor receives an equity stake in the business. In the global crowdfunding market, this method accounts for 9% of total crowdfunding financing.
• Crowdrewarding is a method where investors provide funds for a project in exchange for a future product or service. Crowdrewarding accounts for 5% of the market.

Russia holds around 3% of the global business-crowdlending market and 5% of the global crowdinvesting market. In absolute terms, Russian crowdlending is worth around $0.4 billion; for comparison, this market is worth $8 billion in the US and $4.3 billion in the UK. Although the gap is manifold, it not only reflects the difference in the size of the economy, but rather shows differences in ecosystem maturity, capital market depth, and the length of institutional development.

Systematic data series for crowdfunding in Russia began in the late 2010s. Comprehensive statistics are available from about 2019. This is a very young market, which explains both its vulnerability and analytical value. Its youth implies the absence of long time series and a limited default history, but it also means there is fresh data and the opportunity to observe the formation of institutions in real time. While in the UK and the US, crowdfunding has already undergone several cycles of regulatory adjustment, in Russia, it is still in the first serious scaling phase.

In our study, to identify and describe conditions for crowdfunding market development, we construct a factor model consisting of three levels:

• Economic: per capita income, financial market depth, credit availability for SMEs, and venture capital volumes.
• Institutional: rule of law, investor protection, predictability of bankruptcies, and platform regulation.
• Cultural: individualism vs collectivism, power distance, uncertainty avoidance, and generalised trust (willingness to trust strangers).

Early risk ‘pixels’

In textbooks, startup financing looks like gradual and even steps: own funds and money from the close circle (FFF – friends, family, fools), then crowdfunding, business angels, seed funds, venture capital, late rounds, and finally, an IPO. This ‘financing ladder’ assumes that each subsequent step grows naturally from the previous one, and that the market adopts the project at the right stage of its maturity.

In Russian practice, this process is distorted: the first step is funded by the founder’s own equity, which is often followed by a gap. In the current settings when angel investments and early-stage venture capital markets are underdeveloped, bank loans for SMEs are tailored for collateral and established business models: a young company without revenue and collateral becomes virtually invisible for a traditional bank. This is exactly where crowdfunding fits in, not as a ‘next step’, but as an attempt to bridge this gap using the entrepreneur’s social capital. However, in the absence of a business angel, this attempt is a leap into the void. And this is where the Russian funding ladder shows one of its key structural defects.

The institution of business angels plays a special role in the financing architecture. A business angel is more than just a source of early-stage funding. He has hands-on experience in these issues, as he has lived through several business cycles and is now able to distinguish the inevitable growth challenges from the signs of a systemic failure. He guides the entrepreneur up the steps through the ‘valley of death’, which most startups are unable to cross alone. In exchange for an equity stake, the business angel acts as a guide: in addition to providing capital, he opens the door to the next stage – to seed funds, venture partners, and strategic partnerships. Their presence is a signal of competence and approval for investors, and a source of confidence for entrepreneurs, meaning that there is someone who understands the exit points.

In this sense, the business angel is an artefact of trust, i.e. an actor who personally verifies the quality of a project and assumes part of the reputational risk. Wherever this institution is developed, crowdinvesting functions differently: being the first to enter, a professional investor creates a signalling effect that lowers the entrance barrier for subsequent participants.

Although the institution of business angels exists in Russia, it still remains underdeveloped. It is exactly the lack of a professional ‘guide’ at the early stages that exacerbates the deficit of trust that our factor model reveals in the data. The development of this institution via tax incentives, professional associations, and status recognition is a vital condition for a mature startup financing market and is therefore no less important than improving platform regulation.

When trust was required

Our study began with familiar tools: ‘fixed’ economic variables – GDP per capita, financial sector depth, venture capital volumes, and digital infrastructure level. In an international sample constructed using data from the Cambridge Centre for Alternative Finance, these variables explained the crowdlending dynamics rather reliably: the higher the income, the deeper the banking sector, and the more developed digital payments, the bigger is the volume of P2B lending through platforms. The model worked, and the logic was clear: the algorithm of crowdlending is similar to a bank loan, the only difference is that crowdlending uses a platform instead of a bank branch.

But as for equity-based crowdinvesting and crowdrewarding, the picture fell apart. Countries with comparable levels of income, banking depth, and internet penetration demonstrated radically different levels of fundraising. Financial and infrastructure variables could not explain this difference, and the gap between expected and observed values was too systematic to be disregarded as incidental. The model required something else.

Factor analysis compresses dozens of variables into two or three latent factors:

• ‘Financial Depth.’ This factor combines per capita GDP, banking sector depth, SME lending, and venture capital volumes.
• ‘Digitalisation.’ This factor incorporates internet penetration, digital payments, and mobile services.

These two factors work well when describing crowdlending. However, the equity segment requires a third factor:

• ‘Trust and Institutional Environment Factor.’ This factor includes interpersonal trust, trust in financial institutions, rule of law, predictability of law enforcement, and Hofstede’s cultural dimensions (individualism vs collectivism, uncertainty avoidance; see Box below).

Key Finding. For P2B crowdlending, financial and infrastructure variables prevail: this is in fact a segment with a market logic, being closer to a bank loan, where the investor’s decision is determined by interest rates, scoring, and formalised conditions.

For equity-based crowdinvesting, the trust factor turned out to be extremely important. In other words, equity crowdfunding works well not just where there is money and internet, but under special conditions – an environment where strangers are willing to share risk without an institutional intermediary.

A separate issue is the mismatch between legal instruments and the nature of the early stage. If you are raising children, you need children’s shoes and clothes, rather than a tailored adult suit. This mismatch is clearly seen in equity crowdinvesting today: the underlying legal mechanism is still the joint-stock company (JSC), a form created for mature companies with a clear valuation, shareholder register, and familiar procedures. At the early stage, when the valuation of a startup is conventional and capital changes hands when going through different stages, the JSC becomes a burden, as under this form valuation, there is assessment whenever shares are transferred, registers need to be maintained according to strict rules, and transaction costs are disproportionate.

This is why such instruments as ‘baby clothing’ have long been created in the global practice of early investments, i.e. convertible loans, SAFE (Simple Agreement for Future Equity), SPV-like facilities that allow avoiding premature valuations and formalisation. In Russia, their equivalents exist in embryonic form, and the market clearly feels this, as some deals are transferred to closed-end unit investment funds (closed-end UIFs), which prove more practical than JSCs at an early stage. However, closed-end UIFs, despite their flexibility, lack the key quality of crowdfunding, i.e. their openness, as a broad range of investors and publicity are impossible in these funds. The creation of a complete "baby wardrobe" – a functional toolset for early-stage investments, from the legalisation of SPV-like facilities to simplified convertible agreements, remains one of the structural deficiencies of the Russian market.

Voting with the ruble in a climate of uncertainty fog

The trust factor identified by our model possesses two interconnected components. The first is social trust: the willingness of people to trust each other and financial institutions, including the judicial system. The second is institutional quality: rule of law, predictability of law enforcement, investor protection level, and transparency of bankruptcy procedures.

In equity crowdfunding, these two components are indistinguishable for ordinary investors: by investing in a project on the platform, they simultaneously invest in the project, the platform, and the underlying system of rules. Whenever one of these components is unreliable, the investment will fail, or it will be made, but at a disproportionate risk premium.

In the case of Russia, this gap is especially noticeable. According to survey results, generalised social trust (willingness to trust others in general) is rated at approximately 0.23 on a scale from zero to one. However, trust in officials and formal institutions is markedly higher – about 0.84. This means that it is psychologically easier for people to invest their money in a bank with a known name and established status, than to participate in a horizontal transaction involving many private investors. For crowdfunding, which is inherently based on such horizontal links, this asymmetry of trust becomes a structural constraint.

This is why countries with similar incomes and a comparable level of banking sector development show such different behaviour patterns. High generalised trust and predictable institutional environment reduce the subjective barrier to entry: an investor is willing to risk a small amount of money if he knows that the system of rules will provide at least minimum support if something goes wrong. In other situations, where trust is lower, –and Russia does not rank very highly according to the international measures of generalised trust – every investment in equity crowdfunding becomes a more difficult decision. Investors not only weigh up the project’s prospects, but also the probable stability of the overall rules of the game.

Russia’s position is dual. On the one hand, its strong digital infrastructure and high internet penetration (by 2024, Russia reached the level of leading countries in the crowdfunding market) facilitate the advancement of P2B crowdlending where logic is closer to that of the banking sector. On the other hand, more modest estimates of generalised trust and institutional predictability limit the development of the equity segment. Crowdlending in Russia is growing steadily. Equity crowdinvesting lags far behind; the model shows that the reasons for this slowdown are rooted not in the economy or technology, but in the trust environment.

Equity crowdinvesting is not an isolated exotic phenomenon on the outskirts of the financial system. It is in essence a part of the venture capital market where an investor acquires a stake in an early-stage company, assuming risks comparable to those of an angel round. At this point, there is a question which has not yet been asked directly in Russia: if a retail investor does not have a professional trust actor – an experienced business angel, who has read the project, asked the right questions and was the first to enter the deal – should he be allowed to enter this segment without any restrictions?

Our study gives a clear answer. According to a survey of 2,500 retail investors, the overwhelming majority of respondents are not ready to lose their invested funds, which means that they enter equity crowdfunding with psychological expectations incompatible with the nature of venture risk. Should this market be opened to retail investors in the absence of a mature business angel institution, there will be a systemic risk of disappointment, which undermines trust in the entire instrument (and even in the financial market). The logic of regulation should be opposite: first, stimulate and develop professional leading investors (including on taxation issues), and then, only after this institution is created, expand access for retail participants, providing them with clear limits, mandatory financial education, and transparent risk design.

Hofstede’s cultural typology adds one more dimension to this picture. A high level of uncertainty avoidance, typical of Russia, means that people generally prefer situations with clear rules and predictable results. Equity crowdfunding is, by definition, a territory of maximum uncertainty, where there are no return guarantees, no collateral, and no project credit histories. This cultural inclination towards certainty acts as an additional barrier, which is invisible in standard economic models but becomes rather noticeable in investor behaviour.

Laboratory in stress test mode

Crowdfunding generates a huge number of small repeated decisions: someone invested one or two thousand rubles, someone makes a symbolic contribution, and others refuse to participate. Each such decision is a microscopic act of trust or distrust, recorded by the platform precisely, to the second. These decisions form a stream of observations that demonstrate the mechanisms of trust hidden in more regulated market segments behind professional filters and entry barriers. If an angel deal is a single event, hidden in a negotiating room, then a crowdfunding campaign represents thousands of public decisions, each of which can be observed, dated, and analysed.

A predictive model built on data from the Planeta.ru and Boomstarter platforms (over 40,000 projects) captures a consistent pattern: a campaign’s success is determined by the speed at which the first 25% of the target amount is raised, i.e. the speed that reflects not the algorithm, but the real trust of the audience. For the most successful projects, the correlation between this indicator and the final result reaches 0.99; the accuracy of predicting campaign success is 98.84%. These figures inform us of something more important than just a statistical result: the project’s first supporters do not simply invest funds, they assume the role of trust agents, whose public participation changes the risk perception of all subsequent participants.

Crowdrewarding occupies a specific place in this laboratory, as its nature differs fundamentally from that of crowdlending or crowdinvesting. Participants in a crowdrewarding campaign support the project not for financial return; they are interested in the product itself and in being part of its creation. For this very reason, crowdrewarding has become a culture-forming instrument globally: it connects creators and their audience even before the appearance of the product. This connection is neither marketing nor a preliminary order. It is an early experience of shared risk-taking, which, under certain conditions, can transform into long-term relationships: today a campaign supporter, tomorrow a loyal customer, and the day after tomorrow a potential investor.

In this sense, crowdrewarding is an incubator of shareholder culture, as it cultivates the habit of participating in product creation, accepting the risk of uncertainty, and trusting strangers on the basis of ideas rather than guarantees. If crowdrewarding is viewed as a tool for fostering a culture of participation rather than as a channel for fundraising, its role in the development of the early-stage capital market is much more significant than its modest 5% in the global crowdfunding structure.

In this sense, crowdfunding functions as a laboratory of trust and risk sharing: each campaign is an experiment and each round is an observation. However, for Russia, this laboratory works in a stress-test mode. Technical infrastructure is available: platforms and digital channels operate, regulatory framework exists. Despite that, every failed campaign, every conflict over terms, and every unclear precedent of platform operation becomes an argument not only against a specific project, but against the system in general. In an environment where generalised trust is low, every negative signal acquires disproportionate significance: it confirms existing concerns instead of being viewed as an isolated case.

This creates a specific asymmetry: a successful campaign strengthens trust on a local basis – for a concrete creator, a concrete platform, and a concrete community; whereas a failure generates a systemic negative signal, influencing the perception of the entire instrument. The laboratory is functional, but its results are transmitted to the market unevenly: good news remains at the local level, and bad news spreads widely.

This is one of the structural traps of Russian crowdfunding: a critical mass of successful campaigns needs to be achieved to expand trust, but it is only possible with a sufficient level of trust.

Small change in pockets vs a contract of trust

In statistical terms, crowdfunding in Russia today is still ‘small change in pockets’, or fractions of a per cent in the financial structure. However, these very small amounts show best of all to what extent the economy is able to handle risk and trust at a basic level. Each round, whether raised or not, shows not only the fate of a specific project, but also the state of the contract between entrepreneurs, investors, and institutions.

The factor model, derived from Russian and international data, shows that economic growth and digitalisation are not enough for the development of equity crowdfunding. A third component is required: an environment of trust, consisting of interpersonal attitudes, institutional predictability, and cultural characteristics. Crowdlending can grow in the logic of the market, whereas crowdinvesting can only develop in the logic of trust. It implies a specific agenda for public policy:

• Develop the institution of business angels as professional trust actors;
• Create ‘baby clothes’ for early-stage deals, i.e. SPV-like structures and convertible instruments;
• Open access to the crowdinvesting market for retail customers gradually, as proper conditions develop, and not before.

Paradoxically, the fact that Russian crowdfunding regulation generally gives room for platform growth, model experimentation, and investor education makes this laboratory especially valuable. The issue has already shifted from the formal question of ‘is it legal or not?’ to a more mature one of ‘are we ready to use crowdfunding as a mechanism for collective work with early-stage risk, rather than merely as a convenient way to raise funds for personal needs?’ The answer to this question no longer depends on technology or the regulator, but on the very trust factor revealed by the model in the data.