Crowdfunding: Critical Evaluation of Benefits, Risks and Finance

This essay provides a critical evaluation of crowdfunding, examining its use as a method for financing new businesses and ventures through small contributions from a large number of individuals. It highlights the advantages of crowdfunding, such as setting specific fundraising targets, gaini...Read More

Running head: CROWD FUNDING
Crowd funding
Name of the Student
Name of the University
Author Note

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Critical evaluation of crowd funding
Introduction
The crowd funding process is the use of small amount of capital from a greater
number of individuals to finance a fresh business or a venture. The process makes use of the
easy accessibility of was network of people with the help of social media and the various
crowd funding websites that enable the investors and the entrepreneurs to get together and
invest funds in the business. The investors can get easy ownership the companies
(Kuppuswamy & Bayus, 2018). The Crowd funding has created a great opportunity for many
investors, today's hundreds and thousands of investors can earn money from the amount they
have invested in a particular company. It provides a forum for everyone with an idea to raise
money online.
The advantages of crowd funding is as follows:
 The business can set a target of the amount of money that they want for raising a
particular project (Agrawal, Catalini & Goldfarb, 2014).
 crowd funding that are projects get a large amount of attention on the social media
with the help of which they can raise beyond what the amount raised alone could have
done.
 Project pitching of venture through the process of crowd funding can be valuable
form of marketing.
 As part of Crowd farming process the feedback from the customers can easily be
obtained (Manchanda & Muralidharan 2014).
 The audience of the business in social media becomes its most loyal customers.

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 According to Liam Collins, “A successful crowd funding campaign can serve as a
positive signal for other funders and can help you attract more funding or funding at
better terms.
The disadvantages of crowd funding:
 As per to Anne Strachan, “crowd funding projects are visible, finite and
understandable. If your project isn't all three it's unlikely to succeed”.
 If the amount of money needed to be raised that is targeted is not reached by the
company’s potential investors get the amount back as venture goes away empty
handed (Hazam, Karimova & Olsson, 2017).
 The projects that have failed have the risk to damage the goodwill of the firm and the
individual who have pledged to fund money.
 The crowdfunding venture need the money and time to prepare the community,
publish the projects, and attract the investors before any money is raised. Thus, it is
time consuming.
 A strong established network that is existing is vital for the project without it the best
ideas will not get backing (Horvát, Uparna & Uzzi, 2015).
 As rightly said by Jude Cook, “As company has a limited network no digital or social
media presence and are a very complicated will find it harder to crowd fund”.
Conclusion
The process of crowd funding is it that is just not a way to finance the business
projects. Crowd funding helps to gather public interest before launching the new products.
Although it is a risky and a time consuming process, income would be much higher for the
new business start-ups. It promotes the products as well as attracts the investors. It can be
seen from above that the process of crowd funding has benefits, as well as limitations. The

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company’s acknowledgement of raising funds through crowd funding, needs to efficiently
analyzed before taking a decision.

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References
Kuppuswamy, V., & Bayus, B. L. (2018). Crowdfunding creative ideas: The dynamics of
project backers. In The Economics of Crowdfunding (pp. 151-182). Palgrave
Macmillan, Cham.
Agrawal, A., Catalini, C., & Goldfarb, A. (2014). Some simple economics of
crowdfunding. Innovation Policy and the Economy, 14(1), 63-97.
Hazam, D., Karimova, D., & Olsson, M. G. (2017). Crowdfunding as a Source for Social
Enterprise Financing: Advantages and Disadvantages Experienced by Social
Entrepreneurs.
Manchanda, K., & Muralidharan, P. (2014, January). Crowdfunding: a new paradigm in start-
up financing. In Global Conference on Business & Finance Proceedings (Vol. 9, No.
1, p. 369). Institute for Business & Finance Research.
Horvát, E. Á., Uparna, J., & Uzzi, B. (2015, August). Network vs market relations: The effect
of friends in crowdfunding. In Advances in Social Networks Analysis and Mining
(ASONAM), 2015 IEEE/ACM International Conference on (pp. 226-233). IEEE.