Crowdfunding: Types, History, and Impact on Innovation

This article discusses the history and types of crowdfunding, including equity, donation-based, reward-based, and debt crowdfunding. It also explores the impact of crowdfunding on innovation, with examples such as the Glif and Oculus Rift. The article concludes with tips for being successful in crowdfunding and two key insights on the topic.

CROWDFUNDING 1
Crowdfunding
Name
Institution
Professor
1

CROWDFUNDING 2
Abstract
Crowd funding is "an open call, essentially through the Internet, for the provision of
financial resources either in the form of donation or exchange for some form of reward and/or
voting rights to support initiatives for specific purposes.” (Schwienbacher & Larralde, 2010,
p. 2)
Background
Crowdfunding can be traced back to the 1700s when the Irish Loan fund founded by
Jonathan Swift started to give loans to low-income families in the rural parts of Ireland. By
the 1800s more than 300 crowd funding programs gave out small sums for short periods of
time. Bruton et al. (2015, p. 9) noted that its peak, 20% of all Irish households had used this
program. They further explain that after this period there was no documented evidence of
crowdfunding until 1997 when British rock band Marillion funded their U.s tour when their
fan base raised $60,000 online to give to the band. In 2000 Artistshare became the first
dedicated crowdfunding website (Schwienbacher et al., 2013, p. 585). From 2009 crowd
funding kicked off and since then it has become a novel way for entrepreneurs to raise capital
for various projects.
Facilitation of crowdfunding is done through a website, or an application called a
crowdfunding platform. These platforms offer founders/entrepreneurs their webpage where
they explain what the project entails, its outcomes and the outline of the amount of money
they needed to achieve the potential outcome (Schwienbacher et al., 2013, p. 586). They can
also state how many days or months their campaign will run for & collect money from
backers/funders. Research from Northwestern University’s Segal Design Institute suggests
that crowdfunding is often found by campaign creators to be strenuous and time-consuming.
For some entrepreneurs, they must deliver new skill sets entirely new to them for they have to
deal with funder relations, marketing and publicity which require time and effort (Harrison,
2

CROWDFUNDING 3
2013, p. 283). Top crowd funding websites include kick-starter, gofundme, Indiegogo,
Crowdrise, Crowdfund, Ozcrowd, Crowder and Pozible
Types of crowdfunding
Equity crowdfunding is whereby an individual /organization invests a big sum of
money in exchange for a piece of equity, shares or a stake in the company. Donation-based
crowdfunding is designed to raise money for charitable or social projects, in this case, there is
no equity nor reward, a tax deduction may be the incentive (NiBusiness, 2018). In the website
of NiBusiness (2018) it is also explained that reward-based crowd funding allows investors to
raise money in exchange for a non-financial reward, the reward may range from free software
licenses, use of the invention or free gifts. Debt crowdfunding consents financiers to fund
your project in exchange for monetary returns on their investment (NiBusiness, 2018). This
finance option may provide you with borrowing at a lower cost than that offered by applying
for a loan through a bank. The advantage of this model is that it may be easier to win support
for a campaign, as investors are attracted to getting a return.
Crowdfunding in innovation
Fast Company (2018), suggests that crowdfunding has changed how entrepreneurs
bring innovations and products to the market. According to this website, it has also allowed
millions of innovators to raise money, join a wider network of potential funders and build
brand awareness, all while still in the product development process. Examples of
crowdfunded products include the Glif. Photography has become an integral part of cell
phone users with new smartphones coming out with more focus on the camera pixels. In
2010, almost eight years ago, through Kickstarter, Dan Provost & Tom Gerhardt launched
the Glif, a tripod mount for the iPhone 4 (Fast Company, 2018). After realizing that
smartphones had become an integral tool, for journalists, filmmakers, regular smartphone
users and photographers, they had one target- to create the best tripod mount for smartphones.
3

CROWDFUNDING 4
The internet communities’ response to their campaign was outstanding. They were able to
initially raise more than $137,000 for the device (World Bank, 2013). Since then, they have
released several updates to the Glif not only for iPhone but 90% of the current phones in the
market. The Glif allows smartphone users to attach their phones to a tripod or prop their
phones up at different angles (Bruton et al., 2015, p. 9). The photography landscape has
changed drastically since the launch of the original Glif in 2010. With each successive
smartphone, the camera is getting more and more incredible.
The Oculus Rift is a virtual-reality gaming headset worn by the user for gaming. It
raised $2.4 million via kick-starter. Oculus has disrupted the traditional gaming platform as
we know it. As argued by Bruton, et al. (2015, p. 11), in the past one would use a controller
connected to a game box/pc and a monitor. However, the Oculus allows the user to become
the game. The user enters the game and becomes part of the simulation. A player can go
inside their favorite film, hang out with friends or space travel or time travel (Bruton et al.,
2015, P. 12). Oculus VR has been acquired by Facebook Inc. for $2 billion.
Conclusion
To be successful in crowdfunding the quality of the project is important, and one
should be well prepared to have a good pitch ready. A founder should develop SMART goals
Specific, Measurable, Achievable, Realistic and Time-based to deliver a product on time.
Careful planning and organization are important to achieve crowd funding goals.
Crowdfunding is a disruptive change the funding of new ventures.
Key insight 1.
The subtleties and ever-changing aspects of crowdfunding have been largely
unstudied due to its rapid rise as a source of capital. Being well prepared, social readiness, as
well as idea quality, have been linked to the rate of project success. Geography is a major
factor associated with new ventures, but crowd funding has disrupted this idea of traditional
4

CROWDFUNDING 5
constraints imposed by geography (Allison & Davis, 2014, p. 53). Social media platforms
and the availability of online communities have made the creation of new ventures around the
world a possibility (Pozible, 2018). A founder in Australia can get funds from a funder in
America or a founder in Africa may get funding from funders is Australia and Israel. Online
communities can interact, fund and coordinate with crowdfunding efforts to spawn new
services and products with diverse people in different parts of the world. Crowdera is an
international platform which allows an entrepreneur to raise funds from countries all over the
world and in multiple currencies through the same campaign
Key insight 2.
It has also been noted that there was a problem of logistics when it came to delivering
products to the markets as well as to funders with very few founders doing so in the time
frame they had given. An example is The Pebble E-Paper Watch was able to raise
$10,266,845 in 38 days, but as months passed, the funders became distraught when
production came to a halt raising questions of whether founders would deliver large orders in
a little time (Mollick, 2014, p. 3). They were able to deliver in 10 months after their said time
frame.
5

CROWDFUNDING 6
References
Allison, T. & Davis, B., 2014. Entrepreneurship Theory and Practice. Pp. 53-73.
Bruton, G., Khavul, S., Siegel, D. & Wright, M., 2015. New Financial Alternatives in
Seeding Entrepreneurship: Microfinance, Crowdfunding, and Peer-to-peer Innovations.
Entrepreneurship Theory and Practice, 39(1), pp. 9-26.
Fast Company, 2018. The World’s Top 10 Most Innovative Companies in Crowdfunding.
[Online]
Available at: https://www.fastcompany.com/40532754/this-is-how-regulation-affects-airbnb-
in-san-francisco-report-says
[Accessed 18 February 2018].
Harrison, R., 2013. Crowdfunding and the Revitalisation of the Early Stage Risk Capital
Market: Catalyst or Chimera?. Venture Capital, 15(4), pp. 283-287.
Mollick, E., 2014. The dynamics of Crowdfunding: An Explanatory Study. Journal of
Business Venturing, 29(1), pp. 1-16.
NiBusiness, 2018. Crowdfunding. [Online]
Available at: https://www.nibusinessinfo.co.uk/content/types-crowdfunding
[Accessed 18 February 2017].
Pozible, 2018. Introducing Equity Crowdfunding Platform Birchall: Everyone should have
the Opportunity to Invest in the Brands they Love.. [Online]
Available at: https://pozible.com/birchal/equity-crowdfunding
[Accessed 18 February 2017].
6

CROWDFUNDING 7
Schwienbacher, A., Belleflamme, P. & Lambert, T., 2013. Crowdfunding: TApping the Right
Crowd. Journal of Business Venturing, 29(4), pp. 585-609.
Schwienbacher, A. & Larralde, B., 2010. Crowdfunding of Small Entrepreneurial Ventures.
Pp. 1-23.
World Bank, 2013. Crowdfunding's Potential for the Developing World. In: Washington, DC:
World Bank.
ICF assessment 1
ORIGINALITY REPORT
14% 9% 2%
SIMILARITY INDEX INTERNET SOURCES PUBLICATIONS
10%
STUDENT PAPERS
PRIMARY SOURCES
www.nibusinessinfo.co.uk 1
Internet Source 5%
(Schwienbacher & Larralde, 2010)Submitted to Fullerton College
2 Student Paper 2%
7

CROWDFUNDING 8
www.slideshare.net 3
Internet Source 1%
Submitted to Georgia College & State
4
University
Student Paper
1%
Submitted to University of Western Sydney
5 Student Paper 1%
Submitted to University of Sydney
6 Student Paper 1%
www.aaacn.org 7
Internet Source 1%
link.springer.com 8
Internet Source 1%
www.jfin-
swufe.com
9
Internet Source 1%
networkconference.netstudies.org
10 Internet Source
8