Crowdfunding: A Comprehensive Review

This assignment provides a thorough examination of crowdfunding, covering its origins, evolution, and current state. It includes a list of references to support the discussion on the topic, highlighting key studies, articles, and books that have contributed to our understanding of crowdfunding. The assignment also touches on the regulatory frameworks in place for crowdfunding in different countries, including the UK and Australia, providing context for its growth and development.

Crowdfunding

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
Crowdfunding and the mechanism for Capital Raising.........................................................1
Examples of Crowdfunding used for the Commercial and Social Context............................4
Legislation regarding the Crowdfunding in Australia and USA............................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
“If you’ve got an idea, start today. There’s no better time than now to get going. That
doesn’t mean quit your job and jump into your idea 100 percent from day one, but there’s always
small progress that can be made to start the movement”. It is one of the famous quotes on equity
crowdfunding given by Kevin Systrom, co-founder of Instagram. Every business starts with
small things and in order to grow it, different ideas are required but other than this, there is the
requirement of funds. Crowdfunding is the term which is helping small businesses to grow. It is
the process in which start-ups get funds from public in the form of investments. This is a new
concept which was started in 1997 when fans of British rock band Marillion funded them for
their tour of USA1. In this report, various aspects of crowdfunding will be discussed through
taking example of Satellite Reign which is one of a finest video game site who attain success
through crowdfunding and ALS Association campaigns.
TASK
Crowdfunding and the mechanism for Capital Raising
Crowdfunding is a process of raising capital through public and in other words, it is the
way of collecting money from collective efforts of friends, family, consumers and the investors.
It is the use of small amount of capital from a large number of individuals to finance certain
enterprise. Through social media and crowdfunding websites, they bring a lot of finance from the
investors and other entrepreneurs all together2. This has a great potential to expand the business
operations and bring more investors. It is totally different from the corporate funding. If any
person who wants to raise funds capital to start a business or introduce a new product, they need
to develop a business plan, do some sort of market research and then show that idea to the
wealthy people or parties. Funding through banks, venture capital firms, shareholders, etc. are
1
Brief Origin And History Of Crowdfunding. 2017. [Online]. Available through:
<http://sparkup.co/blog/brief-origin-history-crowdfunding/?lang=en>.[Accessed on 5th
September 2017].
2 Schwienbacher, Armin, and Benjamin Larralde. "Crowdfunding of small entrepreneurial
ventures." (2010).
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the things which are utilised in traditional fund raising. But in case of crowdfunding, the owner
of business uses a single platform to show his or her ideas and share resource3. They use their
personal contacts to raise the funds or invest in front of interested people and parties and in
return get funds because those individuals see some opportunities related to their profit.
There are lots of benefits of crowdfunding over the traditional process and some of them
are mentioned as below:-
Reach: By the use of a particular crowdfunding platform, a company or individual can
access a lot of investors and they can have interaction with the firm's owners and share their
fund-raising process.
Presentation: This will benefit the organisation because in this procedure of
crowdfunding, they have to design a presentation in which they will include all the details of
firm like its history, services, target market, value proposition, etc. In this way, they can revise
all the things and update any particular area where there is scope of improvement4.
PR & Marketing: From the initiation of campaign to the ending of it, companies can
promote their event through social media, email newsletters and by using different online
marketing techniques. As the media will be covering fund-raising program, firm can double
online traffic on their official website.
3 Ahlers, Gerrit K C, et. al., "Signaling in equity crowdfunding." Entrepreneurship Theory
and Practice 39.4 (2015): 955-980.
4 Belleflamme, Paul, Thomas Lambert and Armin Schwienbacher. "Crowdfunding:
Tapping the right crowd." Journal of business venturing 29.5 (2014): 585-609.
2

There are various types of crowdfunding that are based on donation, reward based and
equity. In donation based, the investors and contributors do not get anything in back and funds
which have been collected are used for the disaster relief, charities and non-profits as well as for
paying medical bills5. In reward based, individuals contribute to the business in exchange for a
“reward”. This reward can be in the form of product or services. There are some crowdfunding in
which those who want to contribute in this can become the part time owners of firm through
trading for equity share. This is called as equity based crowdfunding.
It is observed that start-ups can use crowdfunding to raise almost a million dollar in
capital per year without having registered securities with the Securities and Exchange
Commission. It is not required to give ownership control in the firm to raise capital. For raising
5 Klaebe, Helen G., and Rebecca Laycock. "How to work the crowd: A snapshot of
barriers and motivations to crowdfunding." (2012).
3
Illustration 1: Crowdfunding in Australia with ReadyFundGo
(Source: Crowdfunding in Australia with ReadyFundGo, 2017)

capital, company should build a plan with a strategy involved in it and after that, it gives a
potential to the business. They have to choose a right platform where there is existence of large
number of investors and after that, they have to present their business in a proper manner6. It
should be attractive and the investors should feel like investing in it with high trust. They have to
look in the market for better opportunities and try to utilise them at right place. Company needs
to put efforts in order to engage the target investors through social media, blog posts, etc.
Examples of Crowdfunding used for the Commercial and Social Context
There has been increase in the crowdfunding data and today it has brought revolution in
Australia. In Australia, there have been some crowdfunding campaigns that has become an
inspiration for those who wants to raise funds through this process. The Satellite Reign which is
located in Brisbane has conducted the fundraising through the use of internet and they get
success from this thing in very effective manner. There are various video games company get
success through crowdfunding out of them Satellite Reign is one of them. The game got
developed by the Brisbane based 5 live studio with a thinking to create a real life strategy game.
They attain success in their idea and arrange fund through internet. Their initial goal of arranging
the fund is $530,000 (US) at the time which was sufficient to start a game. But the Brisbane team
collected the fund which was high from their expectation which is $666,000 (US) from backers.
This signifies that craze of users for their project was too high and thus they gain a resound
success in early times.
According to Chris Conte, who is 5 studio founder says that “ The funding we got
through Kickstarter wasn’t just for Satellite Reign but also to start up 5 star as a company
without it would not be exist”. With 5 star and satellite reigns management and co founders
discussed to make this journey so far and make their success sound all over the world.
The process of crowdfunding was names as Kick-start in which contact with many
backers get done. According to a interview with a news channel of Chris Conte, he signifies that
“ Kickstarter was the most stressful thing which ever done”. Goals and targets formulate by an
organisation during whole month and reach to finish line by attaining them in an adequate
manner.
6 Kuppuswamy, Venkat, and Barry L. Bayus. "Crowdfunding creative ideas: The dynamics
of project backers in Kickstarter." (2015).
4

Backers become able to purchase the game through Kickstarter which aid an organisation
for arranging the fund which was more than their expectation. This aid them in making the
campaign more interesting and thus founders launch the two more upgraded version one of them
is Alpha and other one is Beta.
This is a process of a company which aid them in arrange fund for their idea which was
revolutionary in nature and support in implementing the idea properly.
ALS Association is an American non-profit organisation that raises funds for research
and patient services. In 2014, they have started a campaign called “Ice Bucket Challenge”. It is
an activity in which a person or individual have to dump a bucket of ice and water over their
head and this way they are promoting awareness of the disease amyotrophic lateral sclerosis and
encourage donations to research7. YouTube received 17 million different videos of this activity.
7 Hostetler, Larry. "Beyond the Ice Bucket Challenge." (2015).
5
Illustration 2: An Exercise in Crisis Communications: The ALS Ice Bucket Challenge
(Source: An Exercise in Crisis Communications: The ALS Ice Bucket Challenge, 2015)

In six weeks, they become successful in raising $115 million and out of this approx. $21.7
million was put to six programs searching for the treatments and a cure. $1 million went to
Project MinE, which is an international collaboration that aimed to sequence the DNA of 15,000
ALS patients8. It was a successful campaign as it has focused on social media platform which
helped them to reach a lot of people worldwide in less period of time. In Australia, over 60,000
people have donated almost $3 million for this cause to MND Australia and state MND
associations Out of all the money collected $1.05 million and they have supported a major three
year project grant for the Australian team that focuses on investigation the biological basis of
human MND and brining a therapy for this9. This has gained popularity worldwide and almost
all the leader, politicians, actors and etc. have taken ice budget challenge.
Legislation regarding the Crowdfunding in Australia and USA.
Australian Parliament passed Corporations Amendment (Crowdsourced Funding) Act
2017 in order to establish a legislative framework to facilitate crowd-sourced funding (CSF) by
small, unlisted public firms. The aim behind this is to make the process of funds easier and
cheaper form organisations, especially the start-up firms. With the new laws which will be
implemented in Australia in September 2017, unlisted public firms with less than A$25 million
in combine assets and annual revenues will be allowed to raise up to A$25 million a year in
equity from the public on the circumstances they have to meet certain regulatory requirements10.
After the five years, the CSF organisations will be subject to the same rules and regulations as
applied to all the firms who are public in nature. Those who are investors in CSF organisation
will not be buying their shares through Australian Securities Exchange (ASX) but they can do so
through the online platform which has approved from the Australian Securities and Investments
Commission (ASIC) to provide a CSF services11. They have stated that anyone can invest into a
8 Chakradhar, Shraddha. "In new crowdfunding trend, donors decide fate of clinical trials."
(2015): 101-102.
9 An Exercise in Crisis Communications: The ALS Ice Bucket Challenge. 2015. [Online].
Available through: <https://formomentum.com/an-exercise-in-crisis-communications-
the-als-ice-bucket-challenge/>.[Accessed on 5th September 2017].
10 Beatty, Andrea, et. al., "Crowdfunding to take-off in Australia?." Governance
Directions 67.2 (2015): 100.
11 Vitale, Matthew. "Crowdfunding: Recent international developments and analysis of its
compatibility with Australia's existing regulatory framework." (2013).
6

CSF firm but the amount which they can invest should not exceed A$10,000 in a 12 month
period. Those companies who are interested in raising the capital through the crowdfunding must
have at least three directors and they should have a capital management strategy. In the end they
should know the certain investors and prepare a CSF offer document. In the offer document they
should show following:-
 Information about the present directors and senior managers
 What all funds are raised by the firm and is it sufficient to meet the organisation's
objectives.
 Balance sheet
 Profit and loss statement
 Expenses and revenues Cash flow statement
Crowdfunding legislation in United States of America
Securities and Exchange Commission (SEC) in October 2015 has come out with their
rules which allows start-ups to raise money by equity crowdfunding. This has come due to the
result of voting in which SEC gave its approval to implement Title 111 of the Jumpstart Our
Business Start-ups (JOBS) Act signed into law by ex-President Obama in year 2012. It states that
a firm can raise maximum $1 million through equity crowdfunding programs during any 12
month period12. In the same period, any investor are restricted to the amount that they can
contribute to no more than a total of $100,000 with this process13. Those organisations who are
getting funds through should give information to SEC and the information will be about the
targets they have set of fundraising they want to achieve through their campaigns. Other than this
they also have to provide financial statements and a brief about their business in which they are
indulged in14. They detail them that how they will use that funds in their business. It is also
12 The Current and Expected Crowdfunding Regulation in the UK. 2017. [Online].
Available through: <http://www.techbullion.com/current-expected-crowdfunding-
regulation-uk/>. [Accessed on 5th September 2017].
13 Crowdfunding in Australia with ReadyFundGo. 2017. [Online]. Available through:
<https://readyfundgo.com/crowdfunding-in-australia/>.[Accessed on 5th September
2017].
14 Burkett, Edan. "A Crowdfunding Exemption-Online Investment Crowdfunding and US
Securities Regulation." Transactions: Tenn. J. Bus. L. 13 (2011): 63.
7

necessary that the crowdfunding platform they are using should be registered with SEC and
should be a member of national securities association, the Financial Industry Regulatory
Authority (FINRA). There are no other regulations in the US for the other forms of
crowdfunding.
CONCLUSION
It can be concluded from the above report that those who want to start a business but lack
in funds can approach the concept of crowdfunding and with the help of this, they can raise
money for their business. For this, they have to be unique and should analyse all their enterprise
as well as platforms which they will be using for fund raising.
8

REFERENCES
Books and Journals
Ahlers, Gerrit K C, et. al., "Signaling in equity crowdfunding." Entrepreneurship Theory and
Practice 39.4 (2015): 955-980.
Beatty, Andrea, et. al., "Crowdfunding to take-off in Australia?." Governance Directions 67.2
(2015): 100.
Belleflamme, Paul, Thomas Lambert and Armin Schwienbacher. "Crowdfunding: Tapping the
right crowd." Journal of business venturing 29.5 (2014): 585-609.
Burkett, Edan. "A Crowdfunding Exemption-Online Investment Crowdfunding and US
Securities Regulation." Transactions: Tenn. J. Bus. L. 13 (2011): 63.
Chakradhar, Shraddha. "In new crowdfunding trend, donors decide fate of clinical trials." (2015):
101-102.
Colla, Alberto, and Terence Wong. "Crowd funding-should Australia embrace the growing
crowd?." Keeping Good Companies 65.3 (2013): 154.
Hostetler, Larry. "Beyond the Ice Bucket Challenge." (2015).
Klaebe, Helen G., and Rebecca Laycock. "How to work the crowd: A snapshot of barriers and
motivations to crowdfunding." (2012).
Kuppuswamy, Venkat, and Barry L. Bayus. "Crowdfunding creative ideas: The dynamics of
project backers in Kickstarter." (2015).
Schwienbacher, Armin, and Benjamin Larralde. "Crowdfunding of small entrepreneurial
ventures." (2010).
Vitale, Matthew. "Crowdfunding: Recent international developments and analysis of its
compatibility with Australia's existing regulatory framework." (2013).
Online
An Exercise in Crisis Communications: The ALS Ice Bucket Challenge. 2015. [Online].
Available through: <https://formomentum.com/an-exercise-in-crisis-communications-
the-als-ice-bucket-challenge/>.[Accessed on 5th September 2017].
The Current and Expected Crowdfunding Regulation in the UK. 2017. [Online]. Available
through: <http://www.techbullion.com/current-expected-crowdfunding-regulation-uk/>.
[Accessed on 5th September 2017].
Crowdfunding in Australia with ReadyFundGo. 2017. [Online]. Available through:
<https://readyfundgo.com/crowdfunding-in-australia/>.[Accessed on 5th September
2017].
9

Brief Origin And History Of Crowdfunding. 2017. [Online]. Available through:
<http://sparkup.co/blog/brief-origin-history-crowdfunding/?lang=en>.[Accessed on 5th
September 2017].
10