BLO 5540 - Business & Company Law Assignment
Added on 2020-03-04
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Political Science
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Running head: TitleTitleName of the StudentName of the UniversityAuthor Note:
TitleTo,Howard JoneSubject: Advice on CrowdfundingThe client Howard Jones (“Client”) has requested to be advised on the aspect ofcrowdfunding with respect to his new venture for an idea that would double the life of batteries,instead of going for the traditional Corporate Funding under Chapter 6D of the Corporations Act2001, he would like to opt for the crowdfunding source. The first thing that needs to be understood is the meaning of crowdfunding.Crowdfunding is new method of raising capital which is internet based, where small amount ofmoney is pooled by individuals. This approach is quite attractive for entrepreneurs like the Clientsince it allows not only to raise the capital for a small business which have very limited optionswhen it comes to financing, but it also helps as an essential tool in testing the marketability of theidea.1 The possibility of contributing to an idea that they have faith in is enjoyed by theindividuals, even if it is a small amount that they are able to invest. This effect also has a positiveeffect on the economy by way of creating new jobs, fostering recovery of the economy andinnovations, due to which this approach is appreciated by the government.2The benefit for crowdfunding can be explored by musicians, artists, not for profitorganizations or businesses like the Client. Crowdfunding functions by making possiblefundraising through various small donations from a crowd or a large group of people. For the1Paul Belleflamme, Thomas Lambert and Armin Schwienbacher, "Crowdfunding: Tapping The RightCrowd" (2014) 29(5) Journal of Business Venturing.2Steven Dresner, Crowdfunding: A Guide To Raising Capital (John Wiley & Sons, Inc., 2014).
TitleClient’s business crowdfunding can be used as a platform for raising funds at various stages.From the seed phase where the viability of the idea is being investigated to the capital seekingstage for expansion to support in manufacturing. The activities of crowdfunding take placethrough websites and there are various websites that can be accessed for this.3Particularly for the entrepreneurs like the Client and SMEs as discussed abovecrowdfunding can prove to be extremely attractive as apart from raising capital and acting as amarket viability tool, unlike a debt financing traditionally, it does not require generally:➢detailed due diligence or credit assessment;➢a securable asset base that is underlying; or➢ formal execution of documents for finance or negotiation with the financiers. There four types of crowdfunding which are accepted generally, first being the reward-based crowdfunding wherein the contributions are made financially with the expectation ofbenefit in the future or current good. Second being the donation based crowdfunding whereinfor a social cause the contributions are pooled in. Third is equity based crowdfunding, whereinthe contributions made are in anticipation that there would be a stake in the company growing.Finally there is the lending based crowdfunding where the financial contributions made arediscrete which are collected and offered as a debt that is to be repaid with interest.4To reiterate, the Client via crowdfunding business platform will be able to raise financefrom the people or the crowd. A platform is provided by the crowdfunding business online frownwhich the client will be able to showcase its product and idea to the audience online. In its3Leigh Schulz and Domenic Mollica, "ASK THE EXPERT The Regulation Of Crowdfunding In Australia:Where Are We And What’S To Come?" [2015] Australian Banking & Finance Law Bulletin.4Crowdfunding — Sourcing Financial Backing To Drive Digital Innovation (2014) Digital Innovation<http://www.digitalinnovation.pwc.com.au>.
Titlesimplest form the Client would be required to create the content which would be pitched as anidea on crowdfunding business platform and financial contribution be asked for the same (ArtsLaw, 2014; Gerber 2014). There have been various examples of successful crowdfunding, on a particularplatform one of the division that is principal is regarding the project type. One of the mostprominent platform for crowdfunding Kickstarter is dedicated to projects that are creative. Onthe other hand sites like Indiegogo is more general in nature and allows campaigns of any type.There are various crowdfunding which concentrate only on social causes and still others forscientific research, healthcare, startups, small businesses and research. A popular category onboth gaming focused and general platforms is Gaming. Focus of crowdfunding commentary andactivity has also been on Citizen Journalism, however this is not an exhaustive list. Thecrowdfunding world is diverse and there are various crowdfunding activities similar to that of theClient that have been successful. This model can be used by the Client for raising finances for his(legal) enterprise. The mode of cultural production can be circumvented and supplemented by way ofcrowdfunding. For example the video game Double Fine Adventure the fundraisingconducted provides an explicit and useful example. It was explained by the producer of the gameas a part of the pitch for Kickstarter that:“Big games cost big money ... To finance the production, promotion, and distribution ofthese massive undertakings, companies like Double Fine have to rely on external sourceslike publishers, investment firms, or loans. And while they fulfill an important role in theprocess, their involvement also comes with significant strings attached that can pull thegame in the wrong directions or even cancel its production altogether ...”This situation and pitch is important to understand for the Client as for a start-up it isimportant to be able to control the development and proceed without hindrance. Websites likeKickstarter which are for raising crowdfunding will prove to be essential for raising fund for the
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