Virtual Crowdfunding Practices

This report provides an introduction to crowdfunding and critical assessment of online crowdfunding markets with a focus on donation-based markets. It discusses the potential of crowdfunding, key ideas and frameworks shaping the sector, and primary inhibitors of growth. It also explores regulatory and other initiatives to alleviate and eliminate these inhibitors.

Virtual Crowdfunding Practices 0
Virtual Crowdfunding Practices
Abstract-This report summarizes an introduction
on Crowdfunding and critical assessment of online
Crowdfunding markets with a specific focus on
the donation-based markets. How they have been
able to fulfill the potential has been explained. A
brief overview of key ideas, principles, and
frameworks that shape the future growth of the
sector and funding dynamics have been given.
Primary inhibitors of growth and regulation and
various initiatives undertaken for alleviating and
eliminating inhibitors have been given followed by
a conclusion.
I. INTRODUCTION
Crowdfunding is a new methodology of
financing the entrepreneurial project, which
innovates utilization of the crowd as the means of
finance, and communicating via the internet and
attracting the larger group of audience.
Crowdfunding has been popular through
Crowdsourcing and Microfinance. The rewards are
given to investment firms in the form of intangible,
material and financial recompenses. A
Comprehensive review of the economic benefits and
Crowdfunding risks with a specific focus on
donation-based markets has been provided.
Crowdfunding can be distinguished into four types
according to the funding method and venture
purpose. Crowdfunding benefits different sectors by
the expansion of market participation, enhanced
funding access, economically drawing money, social
engagement and project accountability.
II. CRITICAL EVALUATION OF ONLINE
CROWDFUNDING MARKETS WITH A
SPECIFIC FOCUS ON DONATION
BASED MARKETS
Crowdfunding is an alternative form of
financing which has gained massive attention in the
health sector (Lenz, 2015). There are certain
economic risks related to Crowdfunding and this
includes increased financial risk, ineffective priority
setting, uneven regulatory policies, frauds,
intellectual property rights, and various concerns.
Crowdfunding behaviors like herding are observed in
health-related markets. There are three funding
models which characterize the Crowdfunding,
Donation-based, Reward-based and Investment-
based. Donation-based Crowdfunding takes into
account the participants that offer philanthropic
support to any project. Reward-based Crowdfunding
involves funders to contribute cash in return for
various prizes. Investment-based Crowdfunding is
distinguished through participants, which provide
financing the means of high-interest loans or equity
stake in an enterprise (Ryu and Kim, 2014).
These are larger projects as it represents
earning potential for the funding capitalists.
Donation-based Crowdfunding is a medium for
sourcing money on different projects by requesting
the contributors to independently donate the small
amount. In return, backers will be receiving the token
award, which enhances the prestige as donation
increases in size. For a small sum, the funder will not
receive anything at all. This is also referred to as the
reward Crowdfunding and token donation will
include the prep sales of goods which are to be
produced specifically with funds. This type of
Crowdfunding has been predicated on philanthropic
donations, funders will not have any access to the
project, or ownership rights as they are not the
creditors in this project. If an inventor is comprised
of great ideas for launching a new product or service
in the market, Crowdfunding provides an alternative,
method to raise funds as opposed to traditional
methods of private loans or banks by providing the
people with equity shares (Amara, Ben Cheikh and
Abdellatif, 2014).
Process of Raising Money of Donation
Crowdfunding
Donation-based platforms allows people to raise
money without any obligations on investors. Donors
come together for creating the online community and
help programs and fund services for combating with
the issues. The Individuals start trigger in
Crowdfunding process and influence outcomes in a
process. Each individual will be acting as agent and
start promoting the projects. Motivation for
individual participation stems from the feeling for
success of any project.

Virtual Crowdfunding Practices 1
Image Source: (www.statista.com)
Examples of Donation-based Crowdfunding
policies include-Indiegogo, Rocket Hub,
CrowdFunder, Kickstarter. Through the help of a
donation based Crowdfunding, an entrepreneur is
able to pre-sell the product to a huge number of
backers and they are capable of donating the sum
towards the project. In order to motivate the higher
amount of donation, an entrepreneur can provide
token rewards of higher value and retention of
complete ownership of the company or project being
funded (Zunzunegui, 2015).
III. HAVE THEY FULFILLED THEIR
POTENTIAL?
Crowdfunding is a new form of Finance
where projects are funded through investments from
small donations or a large group of people. This is
growing at a rapid pace. In the year 2015,
approximately one million people were active in
Crowdfunding and a total of 3.2 billion pounds of
investments, donations, and loans in the UK.
Moreover, there has been a vast increment in
Crowdfunding. For instance-12 percent of loans to
small enterprises and 16 percent for market and
venture stage and seed investments in UK-for good
causes (Son Turan, 2015). Formally created business
plans along with audited statements may not be
available typically. Thirdly, every investor needs to
put up a little amount. The investors need to view the
investment as the write-off and must not be fussed
regarding the maximization of return. Fourth, the risk
cannot be assessed due to minimal disclosure through
public, information asymmetries and lesser Fifth, the
numbers of people are involved in free rider options
like everyone is capable of thinking and competing
with due diligence (Moritz and Block, 2013).
Image Source: (www.evus.com)
The potential benefits of Crowdfunding for a
given sector, money has been spent on supporting the
social the project and normally given to charity. This
indicates that money has been spent and provided to
volunteers for the project being supported. The
voluntary sector and community face a number of
challenges. Reduction in community spending will
create the funding gap within organizations. In recent
years, the largest amount of a charity’s income has
increased and a lower amount of charity is
undergoing a slowdown in government contracts and
grants. The decrease in the amount of income has
been specifically detrimental to a small enterprise and
single funding grants can be the reason behind
survival and ending (Gehring, 2016).
In accumulation, different parts of the sector
have been receiving criticism for these fundraising
practices. This adds further incentives for exploring
the new methods and involving people to support the
good causes. However, Crowdfunding cannot be
termed as a remedy for the various challenges being
faced by the sector; this can play a greater role in
how enterprises and people together with a common
goal can get into the campaign and fundraising
(Matthiesen and Steininger, 2017).
Crowdfunding is a means by which active
support can be gathered for relief causes. For
instance- Disaster relief donations may involve funds
for rescue, search, treatment, and recovery of
individuals which are affected through devastating
earthquakes and storms (Zetzsche and Preiner, 2017).
There can be a launch of campaigns for different
needs like funding, clothing, and food for the disaster
areas. The donations can be sought for supporting the
construction of shelters and offering medical
supplies. Crowdfunding is also utilized for
infrastructure reconstruction and other utilities which

Virtual Crowdfunding Practices 2
will not be covered through government aided
disaster funds. Crowdfunding is a donation based act
which can be compared with micro-financing. The
requirement of safeguarding the money is not as
stringent via using the financial institution and
funding amount can be smaller than the credit
amount or the minimum amount of loan or any credit
amount which is available through a bank or
conventional investors (Bofondi, 2017).
IV. KEY IDEAS, PRINCIPLES AND
FRAMEWORKS SHAPING THE
FUTURE GROWTH OF THE SECTOR
AND ITS FUNDING DYNAMICS
The new role played by internet
communications has been mobilizing people for
common causes. This was not previously possible
due to large distances. This has enabled people,
organizations and various projects undertaken to find
effective sources for needed finance and creating
virtual communities of supporting that can promote
Crowdfunding projects. The creative sector has been
hailed as an innovator of modern based
Crowdfunding (Manuel, 2017).
The principles and frameworks which are
effective in shaping the future growth and funding
dynamics are explained below-
A. Pitch
Enterprises and Entrepreneurs those are
interested in pursuing funding pitch in their projects
to a given platform. The successful fundraiser needs
to do substantial preparation and planning for
voluntary campaigns before they start pitching
(Zenone and Snyder, 2018).
B. Screening
The undertaken projects must go through the
stringent screening to ensure that they meet with
platform criteria. The screening process varies greatly
between model type and difference of platforms in
which they are operating. There are reward based
policies like Kickstarter and Indiegogo20 which
apply very less restriction on the prohibition of
projects which are illegal, potentially dangerous and
regulated and providing the room for the crowd to
screen the projects. The projects which reach the
funding target are considered higher for the policies
which screen out as unfeasible or low-quality projects
or pitches (Lissowska, 2018).
C. Pitch is Live
The project will be made visible to the
public online through a platform. The common public
will be presented with project description and this is
typically accompanied through an image or video.
The time frame for completing the target, funding
target and amount of project funding received and
what amount of money is received by the backers
(Kazmierska, 2017).
D. People Pledge
For a given time period, the public will be able to
pledge the money towards a project. This Time frame
public will be required to fund the project, which is
highly dependent partly on policies or platform. This
can also be specified through a fundraiser. For
instance-Kickstarter provides the time of frame for
funding projects which varies from 1 to 60 days. If a
project is able to reach the target within a given time
frame, the project will receive the money and it is
raised and moves toward the development stage. In
case, if a given project does not receive the money or
no funding, except in the scenario of ‘keep it all'
model' offered through few platforms where the
money will be raised regardless, the project reaches
its target or not (Herve and Schwienbacher, 2018).
V. PRIMARY INHIBITORS OF SUCH
GROWTH
Attentiveness has been increased towards
Crowdfunding and the term enters the everyday
challenges that surround its viability.
A. Risk of Fraud
This provides for limited due diligence.
Fraud can take place in many ways. Misappropriation
can be pulled off through fraud websites. Likewise,
with a virtual financial transaction, phishing policies
are used illegally to gain access to financial and
personal information like banking and credit card
information. The funds are raised and utilized for
different purposes. The creator should also portray
that every investor must be performing the due
diligence in an idea and virtual platform. Most of the
people, who participate in Crowdfunding are not
experts, but it can be average people interested in an
idea or venture (Hauge and Chimahusky, 2016).
B. Internet Issues
Content Producers and Digital Media Developers
are reluctant to announce the projects publicly and
there is a risk of copy by competitors.
C. Guarantee of Payment
There is an ongoing concern among the
supporters without the regulatory framework, scam of
funds or abuse can be high.
D. Regulation
Failure to meet with campaign goals and
generate interest in public can result in project
failure. Crowding Out the different forms of
financing. Crowdfunding can be viewed as the
evolving business model and has the capability to
crowd out different forms of financing like venture

Virtual Crowdfunding Practices 3
capital and angel investing and conventional financial
institutions.
However, the interest of communities is
visible as a short term phenomenon. The crowd may
or may not be wise, especially when it seeks to find
out what the market demands. More often, it cannot
be said just about the idea, it's about who is
commercializing the idea. For instance-Steve Jobs is
involved with a project and people can make a lot of
money through it (Ingram and Teigland, 2013).
VI. THE REGULATORY AND OTHER
INITIATIVES AIMING TO ALLEVIATE
AND ELIMINATE SUCH INHIBITORS
An important characteristic of
Crowdfunding is fundraiser defines the exact project
focus and how much funds are required. In a few
cases, there is a difference in traditional grant
philanthropy and funding and there are few
limitations on what can be funded and how funding
projects will be applied for. Funders will be able to
set the parameters and themes of projects and what is
discretionary funding. There is a set of rules that who
will be able to apply and what are the basis and for
how much (Beier, Frrh and Wagner, 2014). On these
Crowdfunding platforms, fundraisers will be
constantly pushing projects boundaries and activities
which can be funded. Type of projects that has a
social concern through Crowdfunding include-
A. Activities and Events
Campaigns that are focused on raising the funds
through activities and one-off events.
B. Movements and Campaigns
Digital Platforms have become of the primary
methodologies for the organization and activist
campaigns. There are groups which are increasingly
turning towards virtual channels for the purpose of
funding.
C. Buildings, Infrastructure, and Restorations
There are different projects that are seeking
funding for the development and restoration of
buildings and various other infrastructure have
utilized Crowdfunding. Most of the funds are funded
through community shares like sustainable energy
initiatives. This has been set up for delivering the
community-owned renewable energy, energy supply
project, and energy efficiency (Sasaki, 2017).
D. Equipment and Tools
Campaigns that are seeking funding for the
purpose of tools or equipment for groups, projects or
individuals gain prime importance. Examples include
the campaigns that have been successful in raising
2500 pounds and providing the lady with a
wheelchair.
E. Playgrounds, Green-spaces, and Gardens
Projects that aim for the development or
creation of outdoor public spaces are gaining massive
significance (Scataglini and Ventresca, 2019).
Social Investment Tax Relief (SITR) has been
introduced the government for encouraging
investment in charities and social enterprises and
helping new financing sources. Different investors in
SITR are allowed 30 percent deduction on the total
cost of investment made in the income tax.
VII. CONCLUSION
For different organizations that show interest in
Crowdfunding and launching of multiple projects can
provide the new opportunity for curating the project’s
community that have a common theme. There are
groups of projects which have been facilitated
through different councils in the UK. By grouping the
like-minded persons in the same place, organizations
can help collect the donations for different projects in
the same place and they may also show interest in
funding.
Few Recommendations-
1. Marketing-Project initiators must show that
an audience exists and boost the reputation.
2. Profile-The compelling project will raise the
producer profile and enhance to boost the
reputation.
3. Feedback-Offering pre-release access to the
opportunity as an important part of funding
increments.
REFERENCES
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(2014). Crowdfunding: Determinants and
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Beier, M., Frrh, S. and Wagner, K. (2014).
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und Erfolgsfaktoren in der Schweiz (Crowdfunding
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Gehring, D. (2016). The depoliticized politics of
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Wilson crowdfunding campaign. First Monday,
21(10), pp.21-45.

Virtual Crowdfunding Practices 4
Hauge, J. and Chimahusky, S. (2016). Are Promises
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Image Reference-
https://www.statista.com/topics/1283/crowdfunding/
http://www.evus.com/blog/successful-crowdfunding-tips/