Crowdfunding Industry in Business: An Alternative Source for Finance Funding
Providing a Unique Opportunity to Make Money
For many years, startups and small businesses had a difficult time in raising equity and debt in order to grow and expand. Furthermore, under the laws, ordinary investors, such as friends, family, peers, and strangers are restricted to invest. Today, with a stagnant economy, many startups and businesses are struggling more than ever just to survive.
With the passing of the Jumpstart Our Business (JOBS) Act of April 2012 and advanced technology, crowdfunding has taken a whole new level in helping startups and small businesses. Instead of using the traditional banking industry, crowdfunding offer …show more content…
Moreover, the strengths (advantages) and weaknesses (problems) of crowdfunding will be presented along with how different types and platforms of crowd funding can be utilized safely.
Based on the findings in this report, it is recommended that startups and small businesses apply the following strategies when using crowdfunding platforms. Startups and businesses should choose the appropriate models of crowdfunding for the right purpose according to their need and select the right crowdfunding industry to reach out to the particular audience. By doing this, their campaign will be efficiently and effortlessly successful in receiving funding.
The world of crowdfunding industry is fast-moving and ever-evolving. In 2011, before JOBS Act, crowdfunding was growing to an estimated 452 platforms worldwide (Wasik, 2012, p. 144). By 2014, according to Massolution, there are 1,250 active crowdfunding platforms worldwide (Marketwired, 2015). Crowdfunding industry has raised billions of dollars for businesses and other fundraising projects and will continue in the future.
According to the research firm Massolution 2015CF annual Crowdfunding Industry Report, released on Crowsourcing.org, global crowdfunding has grown every year since 2011. In 2012, crowdfunding raised $2.7 billion in 2012, an 81% increase from 2011. Still growing, crowdfunding raised $16.2
Crowdsourcing development requires the investment of substantial capital and resources over a significant time period before the launch of the revenue-generating platform. And the possibility of revenue return is contingent on competently evaluated investment opportunity. Have you given any serious thoughts on crowdsourcing as an investment vehicle? What are some of the steps you are willing to take to secure funding? How serious are you committed in fundraising to get off the ground? What do you currently see as obstacles impeding the development progress of your crowdsourcing and/or crowdfunding currently been contemplated and planned? How do plan on overcoming some of these obstacles?
Crowd-funding, also known as crowd-sourcing, for the past five years has helped entrepreneurs and creators of art successfully fund their ideas without having to bow to traditional powers for resources. The following paper attempts to summarize what crowd-funding is, how it can help finance a project and how Kickstarter.com has drastically changed the popularity and efficiency of crowd-funding.
Crowdfunding in the United States is less than a decade old and remain in the infancy of its development. Group Capital, a Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) registered equity crowdfunding broker-dealer, can glean vital information from the existing financial services model. The challenge is to evolve from the current scheme and develop an innovative process. Group Capital’s business evolution can be better understood by managing and balancing the time-scope-cost triangle, exploring the key risks and obstacles, recognizing the triggers and signals, and tallying the cost schedule.
“Crowd funding is to increase the money for new projects from web by asking contributions from a large number of people. It is also known as crowd financing and crowd source funding” (Turban, Volonino, & Wood, 2013).The great platform for the crowd funding creative project is Kickstarter. “Crowd funding relies on the participation of anyone who takes an interest in a particular goal or project” (Turban, Volonino, & Wood, 2013).To make easy and secure request, donate, and collect the online contributions crowd funding uses IT platforms. An integration of social networking, payment systems, and financing, e – commerce is crowd funding. It is responsible for the needs of market. Kick starter and other platforms provide the ability to support the growth of economy by funding project creators during hard economic times.
Are you looking for the most exciting investment form? Well, in this case nothing can be the best option other than crowdfunding investment. This scheme has currently emerged in investment industry with the most refreshing ideas and thus it is gaining the highest popularity. How does crowdfunding work?
From almost the beginning, the idea of community and local based Slow Money ideals being served through crowdfunding was acknowledged here in Southern California. Our Slow Money SoCal founding members were working against a conservative legal backdrop and a sprawling suburbia that made local investing and the community building it entails all the more difficult. In our early days, while we measured the idea of crowdfinancing still serving the Slow Money Principles, we decided it was a legitimate sounding of our regional voice. Today, the access to equity finance through crowdfunding is just another opportunity to continue to serve ways to catalyze capital while exploring the inherent tension between the virtual world and the visceral character of a place based investing.
Albeit the growth of funding scale, the failure rate of crowdfunded projects is very high. A report from Statistica indicates that, as of April 2017, the success rate of fully funded projects on Kickstarter.com was 35.79 percent. In other words, two-third of the listed projects failed, implying the need for more research on the mechanism and factors that affect project success. In a study by Gerber and Hui , they found one of the major deterrents to funders’ participation - lack of trust.
These types of crowdfunding are still quite new so the data is limited, but for those raising money from ordinary investors using the $1 million cap, the average business has raised about $700,000, according to Entrepreneur.
When talking about the aptitude to make or have an impact, investors exhibit interest in crowdfunding as a conduit to make the greatest impact. The goal of equity crowdfunding is to afford SME’s access to capital in new and innovative ways by offering investors opportunities in original products. Crowdfunding exemplifies a low-cost means to raise money from the public. The JOBS Act removed the ban on general solicitation
Crowdfunding is an emerging source of finance for start-ups that involves calling for money from public in general, mainly via Internet for exchange of either equity or product or any other reward or as a means of donation. It focuses on generally small contributions from a large number of people to achieve a targeted financial requirement without involvement of a intermediary.
One of the main issues that crowdfunding campaign will face when targeting B2B is the perception of being a threat. Startup businesses, especially those which branch off from small established businesses, may be seen as trying to overtake the business rather than presenting a solution to a problem of the smaller business. It is paramount that a startup establishes a trust with the smaller established businesses. Present a solution to a problem with the reassurance that the new business is not going to be competitive with the business funding the campaign. A business needs to present that it will benefit the investing business both functionally as well as financially to invest.
The power of new Crowdsourcing assets and the use of social networking and related Web 2.0 technologies are helping film-makers, musicians, politicians and charities finance new projects. Football clubs like Ebbsfleet United have funded operations through fans subscriptions; Obama has used the internet to reach a new and much broader funding audience, while redesigning the campaign financing business; and sites like buyacredit.com allow people to buy a credit or become an executive producer based on their level of patronage. Now may be the time for other growing companies.In practice, this is a very immature method of raising capital.
* Risk, moral hazard and information asymmetry: The riskiness of the project and the risk-taking personality of the entrepreneur are important determinants. Investors may decide to see the progress of the project and invest accordingly in time. Some investors may need more information related to the project from the entrepreneurs before they make their decision. This may lead to idea stealing.
There are a countless number of ways for startups to try and raise capital for their new ventures, but not all of them are the right fit for each startup. Most entrepreneurs have the initial reaction that they need to go out and find capital as quickly as possible. Inexperienced entrepreneurs do not realize the repercussions that can happen by selecting the wrong funding outlet. Crowd funding is becoming increasingly popular because of the ability to microfinance investments. This industry shift makes deal flow happen more quickly but limits the amount of relationship resources needed to help build successful businesses. If you are not an experienced entrepreneur, this method of investment can pose a huge financial and educational risk.
Kickstarter is a donation based site whose projects are more on the creative side of things. They prefer creative projects like art shows, selling of music albums etc. they shun away from businesses, charities, causes and other activities like personal funding. Their platform has experiences growth since its establishment since they were able to adapt to their niche.