Crowd Funding: A Modern Approach to Fund Raising

INTERNATIONAL FINANCE

EXECUTIVE SUMMARY
This assignment consists of various sources through which funds can be raised. There are certain
traditional methods to raise funds whereas there is also an alternative called the crowd funding.
This report states the advantages as well as disadvantages of raising funds through crowd
funding. It also contains the ways in which crowd funding has influenced MNE’s. The impacts
of raising funds through different alternatives are stated in this project.

INTRODUCTION
A business is a transformation of a person's idea into reality. It costs everything to start up a
business in terms of physical efforts and monetary values. This is how the concept of 'Financing'
came into existence. To be someone's reality from an idea, a person needs funds or more
precisely, capital to set up his business and execute its operations and make profits. Considering
different type of business, the different sources of fund can be raising of money from public,
investments from relatives & friends, self savings and loans from banks & financial institutions.
Our study is based on the concept of 'Crowd funding' that has come into existence and is
significantly used by a number of businesses (Fridson & Alvarez, 2012). .

Answer 1.
Let us first discuss the various types of funding that were widely used before and are considered
as traditional approaches these days.
 Own Capital: A person may have his own life time savings which he may invest to start
up his business. The main advantage of it is the capital is of self and therefore, no burden
of interest will arise. However, an opportunity cost is associated with such funds. For
example, such funds could have been invested in some profitable company or could have
been deposited as fixed deposits (Ittelson, 2009).
 Friends & Family: these are the people who are mostly approached first or rather because
of their influence and support in both monetary and emotional terms, a person sets his
mind to start up a business. It is important for a person to determine the nature of such
funds. For example, whether it has been invested as a loan or equity investment because a
loan giver would take an interest payable at regular intervals and an equity investor will
take shares of a company and will form a part of the ownership of the entity. This is
however suitable when a small amount of investment is required and also, there is a
strong network among people. Also, the risk is comparatively low (McLaney & Adril,
2016).
 Small Business Loans: Borrowing from the bank is basically in the form of overdraft
facility. It is for meeting the short term initial requirements like working capital needs,
that is, making a balance between the expenses and income or cash outflows and cash
inflows. Loans from banks carry low risk on the part of bankers because banks provide
loans after proper scrutiny and after having a security against such loans. Also, these type
of loans carry a high interest which may crate a burden in the future of the business if
adequate profits are not earned.
 Early Investors: These investors consider various business plans and invest their money
in such business plans they think are strong enough and will have future profits. These
investors are like angels to the owner of the business model as all it takes for a person to
win the confidence and trust of such investors in their plans. These investors open up the
doors for such business planners. Such investors usually invest money on an agreement