Task 9.2: Week 9 - Crowdfunding

Crowdfunding defined as an act of funding a project enterprise by raising small amounts of money from a large group of people through the internet. “Characterised by internet platforms able to gather people beyond any geographical barrier, for the ideas that are proposed and for the emotional and spontaneous participation” (Oliva, 2018). Crowdfunding offers support and contribution by showcasing their business and projects to the world. With various platforms such as Kickstarter, Indiegogo, RocketHub, Angels, and Kitabisa.com. Each of them provide unique aspects, while comprising the same concept. Publicising a profile, with a short video, introduction of the project, images to support, and description to available sources for donation. “The concept is to attract readers through a compelling message. Establishing a bigger motive, project creators comprise an opportunity to create a unique community of likeminded individuals” (Prive, 2012). When a campaign is set, comes along the goal amount of money, money earned so far, and the fixed number of days counting once the project is launched. Unlike traditional investors, crowdfunding campaigns are mostly collected by the general public. Most successful startup fundraising efforts collect 25-40% of their revenue from their first, second, and third degree of connections. Which could include family, friends, acquaintances, or anyone the owner is linked to. Leading to unrelated consumers donating to campaigns they support- key terms: participation, platforms, money.

Knowing that crowdfunding is internet-based, trusting issues both for the investors and entrepreneurs are present as “the internet, which replaces real life encounters with virtual meetings, could make it more difficult for investors to determine whether an issuers business in legitimate”. This might increase chances of fraud and is a risky nature for small businesses. Other limitations would be that it requires “meticulous and laborious bookkeeping of all investments and shares in the business to determine the share of profits to which each investor is entitled to” (Sigar, 2012). Entrepreneurs might find this challenging in both administrative and accounting parts. Bechter et al. (2011) and Galwin (2012) state that entrepreneurs seeking to crowdfund their businesses face the risk of their idea being stolen by better funded investors or large corporations. Entrepreneurs might lack knowledge to protect their ideas and business plans, and, moreover, in case an idea or business plan is stolen, most entrepreneurs would lack resources to fight for it in court (Valanciene, L and Jegeleciviute, S 2013) - key terms: internet-based, administrative, stolen.

One of the major problems with crowdfunding websites is that some companies that don't necessarily need funds for their start-up projects will still use the platform to launch their new products - for the purpose of securing a significant number of 'pre-sales'. The stakeholders that have the most responsibility would be the creators, they must be ethical, honest and transparent to the individuals who donated to the project.

Another stakeholder that is responsible would be the project backer themselves, since they have the responsibility of reading Kickstarter's Terms of Use, which outlines clearly that there's always an element of risk at play. Many project backers experience anxiety that the creators won't fulfill their side of the agreement, some creators may not ultimately complete the project they received funds for (Tim Dobbyn 2019) - key terms: stakeholder, creator, risk.

References:

Oliva, 2018, Crowdfunding and Civic Crowdfunding : Theoretical Features and Future Prospects, Intechopen, retrieved 1 May 2020, <https://www.intechopen.com/books/public-management-and-administration/crowdfunding-and-civic-crowdfunding-theoretical-features-and-future-prospects>.

Prive, 2018, What Is Crowdfunding And How Does It Benefit The Economy, Forbes, retrieved 1 May 2020, <https://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy/#3edc1dd8be63>.

Valanciene, L and Jegeleciviute, S 2013, VALUATION OF CROWDFUNDING: BENEFITS AND DRAWBACKS, Semantics Scholar, retrieved 1 May 2020, <https://pdfs.semanticscholar.org/c0e9/a5f06470d62f231e1f5bb1bfeaaff80989ef.pdf>.

Valanciene, Jegelevicitue, 2014,Crowdfunding for Creative Value : Stakeholder Approach, Research Gate, retrieved 1 May 2020, <researchgate.net/publication/275544494_Crowdfunding_for_Creating_Value_Stakeholder_Approach>.