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The Method of Crowdfunding

   

Added on  2020-04-07

10 Pages2679 Words51 Views
Running head: CROWDFUNDING0Business Law

CROWDFUNDING1Introduction Crowdfunding is a method of financing a project by generating small amount of capital forma large number of peoples. Generally, the method of crowdfunding is used by entrepreneurswho cannot get funding from traditional sources. Crowdfunding method connectsentrepreneurs and small financiers via the internet websites. The small financiers includefamily members, friends, relatives or other interested investors looking for small investments.In Australia, crowdfunding is a relatively modern concept introduced a few years ago. Thegovernment has enacted new regulations to promote crowdfunding for the smallentrepreneurs. The reason for the growth in crowdfunding popularity is that small entrepreneur hasinteresting ideas but due to their large number, traditional investors cannot invest in each oneof them. This essay will describe the procedure of crowdfunding to Howard Jones andevaluate whether it is better for him than traditional sources. Further, the essay will discussvarious theories provided by experts and analyse the role of crowdfunding in various fields.The difference between various countries regulations will also be discussed in the essay.

CROWDFUNDING2Crowdfunding Mechanism Most of the people have access to the internet which they use for their work, shopping, and entertainment. The modernisation of the internet allows people to learn and build new things. The number of entrepreneurs has grown significantly in past few decades due to the popularity of smartphones and internet-based services. Small businesses also use the internet to reach a larger audience and enchase their operations1. Increase in a number of entrepreneurs raises the requirement of funding for their operations. Traditional sources, suchas venture capitalists, wholesale investors or banking corporations, cannot invest in all the entrepreneurs which left more of the small businesses without funding. Therefore, the crowdfunding procedure has gained popularity because it connects small entrepreneurs to the public. A large number of people spend a small amount of investment in the entrepreneur’s project which helps them raise funding2. There are four different types of crowdfunding methods which entrepreneurs select accordingto their project’s requirement. The reward-based method is based upon providing various incentives to the financiers, to attract their funding in the project3. Many NGO’s uses donation-based crowdfunding procedure which allows people to donate to various social and charitable causes. The equity-based crowdfunding is used by small companies; they provide shares to the financiers as a reward for the investment provided by them. In lending-based crowdfunding, the funding provided by financiers is considered a debt which the company has to repay with interest4. To raise funding through crowdfunding method, entrepreneurs are required to follow certain guidelines. The entrepreneurs should provide all the necessary information regarding their project to the potential investors5. The information includes various aspects of the project such as price, investment requirement, time frame, specifications and incentives provided by the company to its investors. All such information must be correct and it must be accessible with the offer of crowdfunding. 1Alessandro Cordova, Johanna Dolci, and Gianfranco Gianfrate. "The determinants of crowdfunding success: Evidence from technology projects."Procedia-Social and Behavioral Sciences181 (2015): 115-124.2Jeff Fitzpatrick, et al.Business and corporations law. LexisNexis Butterworths, 2011.3Garry Bruton, et al. "New financial alternatives in seeding entrepreneurship: Microfinance, crowdfunding, and peer‐to‐peer innovations."Entrepreneurship Theory and Practice39.1 (2015): 9-26.4Ethan Mollick. "The dynamics of crowdfunding: An exploratory study."Journal of business venturing29.1 (2014): 1-16.5Carol Royal, and G. Sampath S. Windsor. "Microfinance, crowdfunding, and sustainability: A case study of telecenters in a South Asian developing country."Strategic Change23.7-8 (2014): 425-438.

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