Virtual Crowdfunding Practices

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