Crowdfunding: Factors Influencing Success, MNE Effects, and Governance

This assignment analyzes crowdfunding, exploring its mechanisms, influencing factors, and impact on multinational enterprises (MNEs). The introduction defines crowdfunding, its elements, and its modern approach to fundraising. The analysis delves into factors affecting campaign success, including platform selection, target audience knowledge, marketing materials, and campaign brevity. It also addresses limiting factors such as the demanding nature of crowdfunding, lack of early traction, inadequate investor rewards, inappropriate messaging, operational structure deficiencies, and lack of emotional connection. The study further examines crowdfunding's effect on MNEs, highlighting benefits such as access to hedged risk capital, faster finance raising, increased customer loyalty, advanced sales, improved communication, brand awareness, and market testing. However, it also acknowledges associated risks. The assignment also explores corporate governance implications, discussing how crowdfunding platforms mitigate negative effects and enhance coordination. It highlights challenges in shareholder participation and proposes measures to address them. The conclusion summarizes the benefits and perils of crowdfunding, emphasizing its acceptance by entrepreneurs and the general audience.

CROWD FUNDING

Contents
INTRODUCTION......................................................................................................................................4
FACTORS INFLUENCING CROWD FUNDING...................................................................................5
EFFECT OF CROWD FUNDING ON MNE’s........................................................................................7
CORPORATE GOVERNANCE IMPLICATIONS ON ADOPTION OF CROWD FUNDING...........9
CONCLUSION........................................................................................................................................10
References.................................................................................................................................................12

EXECUTIVE SUMMARY
The project represents the meaning of crowd funding and depicts how it works in the
practical scenario. Crowd funding is one of the major developments in the finance
department that has gained intense popularity in the recent times. This is typically
conducted through the Internet. Research proves that approximately $ 34 billion were
being raised the financial year 2015 worldwide through crowd funding.
This assignment is divided into five sections. The first section deals with the introduction
part that clearly defines the concept of crowd funding, its elements and its mechanism.
The second section deals with the factors that influence the crowd funding campaign. It
triggers the success and the failure of the campaign and how the project initiators and
the investors should work to channelize their efforts in the right direction keeping in
mind the risks involved. The third section shows how the multinational enterprises are
affected by this new concept and its implications both long term and short term. The
fourth section deals with the corporate governance involved while undertaking the
project and thereafter. It reflects how the investors and the project initiators are
supposed to be responsible. It shows both the problems and the perils associated with
the topic. This last paragraph finally concludes on the topic and outlines the impact it
poses on its stakeholders both financially and morally.

INTRODUCTION
Crowd funding refers to the process of financing a project through smaller amounts from
various interested contributors. This is done typically through the electronic media, i.e.,
the Internet. This is a modern manner to raise funds and consists of three main
elements:
 The one who proposes the idea: the project initiator
 The ones supporting the project, and
 A mutual platform that brings the aforementioned parties together for
collaboration
This concept is receiving worldwide attention as it works on the two-fold principle of
supporting new ideas and innovation on one hand; and paving way away from the
traditional modes (Kuti & Madarász, 2014). It has helped entrepreneurs worldwide in
receiving financial support for their dream projects. Though there are major reasons
behind the success of such a campaign, some fail as well. There are various factors
that influence the success rate both positive and negative of such a campaign.

FACTORS INFLUENCING CROWD FUNDING
The platform of crowd funding offers several benefits and opportunities that evolve the
project initiators in terms of new ideas and thereby, promote innovation. Such benefits
range from mere small projects to larger projects, where start-up companies are the
primary ones. Due to certain factors, some crowd funding campaigns turn out be
successful while others are a downfall (Alexander, 2016).
Following are the reasons influencing a crowd funding campaign to be a success:
(Agarwal, 2018)
 Crowd funding platform: there are various platforms available for raising funds
through this campaign. While some are general, others relate to specific industry.
It is therefore considered to research about the need in complete detail and
depth to ensure that the parameters of the project are fully met.
 Complete knowledge of target audience: project initiators research about the
target audience to be aware of their desires and wants (Assenova, Best, Cagney,
& Sorenson, 2016).
 Creation of marketing materials: once target audience is familiarized, marketing
materials are created to ensure that the message contains relevant information to
reach out and attract the targeted audience. Content is the roadmap to success.
Hence, the campaign should be publicized everywhere using audios, videos,
articles, publications, etc. The core aim is to let the campaign reach the audience
as much as possible and from varied angles to help build their confidence on the
project (Arnott, Lizama, & Song, 2017).

 Campaign should be short and crisp: the crowd funding campaign should be well
written and to the point. It should speak out the motive of the project in a planned
manner to make it successful.
Although every investor wants their project to be a success, there are certain limiting
factors to this as well: (Miller, 2018)
 Crowd funding is a tough process: it involves hard work in terms of time, effort
and money. It is also difficult for such campaigns to be executed.
 Such process may fail to receive early traction: for any campaign to be
successful, it is advisable to kick start the marketing process from its initiation
and not delay. Early attention receives better results (Herciu, 2017)
 Lack of rewards for the investors: every investor needs a reward. They do not
invest for charity, hence without any proper reward program; it is difficult for a
campaign to be successful.
 Campaign to deliver an inappropriate message: funders tend to move away from
an unrealistic approach when they find the prospective campaign to have unclear
objectives (www.crowdfundinsider.com, 2017)
 Lack of proper operating structure: dedicated team members are essential to
ensure that the objectives of the campaign are essentially met. Absence of
proper operational team may lead improper execution of necessary tasks thus,
hindering work objectives (Löher, Schneck, & Werner, 2018).
 Lack of emotion: project initiators should be capable of influencing the
prospective investors and help them feel associated with the project on an
emotional count (Erik & Jan, 2017).

EFFECT OF CROWD FUNDING ON MNE’s
Crowd funding is the best alternative to raising finance rather than applying for
traditional ways like bank loans, etc. Generally, public relate this concept to charities
and donations, but practically, various large corporations especially the multinational
enterprises are benefiting from it as well. Crowd funding has effectively moved into the
phase of helping the big and large companies rather than just doing good for the
entrepreneurs at a small scale (Timothy, 2004). It is an open tool for both small and big
entities. These enterprises use crowd funding as a means to product testing by ensuring
them with early access to their offerings at significantly reduced prices. This enables
them to evaluate their feedback on the product rather than focusing on traditional
methods of conducting research and development and incurring greater costs thereon.
It thus allows them to create opportunities out of market research costs to create room
for customer acquisition. MNE’s benefit through major efficiencies and cost savings
programmes through bringing up new ideas on the public platform. They benefit largely
from such a technique. (Global, 2018)
Some of them are as follows:
 It allows them with easy access to hedged risk capital because of the
simplicity involved in raising funds. This saves their time, costs and efforts
which would otherwise be incurred on acquiring funds through traditional
routes (Ahlstrom, Cumming, & Vismara, 2018).
 Raising finance becomes a lot easier and faster than the traditional methods.
It is helpful in attracting prospective investors through their campaign and
adoption of efficient marketing skills.

 Customer confidence and loyalty increases in the pre-launch phase itself as
they can associate with the product by providing their valuable feedback. It
allows the organization to stand in the market with better foothold and grace
(Linden & Freeman, 2017).
 Crowd funding ensures advanced and progressive sales to the multinational
companies as it advances them to grow through this process. Hence, it is
effective in enabling the MNC’s for pre-sales. This idea is especially used in
betting, gambling and online business conducting enterprises where they
provide especial benefits to early birds than the rest (Hsieh, Hsieh, & Vu,
2018).
 Through better communication skills, it can ensure robustness to their internal
activities. It also ensures low cost PR to such big companies
 It helps them in building awareness of their respective brands by engaging
the customers through their campaign at their wills. It thus augments the
goodwill of the enterprise in the market and its industry (Goldmann, 2016).
 Market testing is the most important advantage of multinationals entering or
choosing to crowd fund for campaigning their products. It helps to test the
future viability of the product by checking the interest of the target audience.
Though it has some attached benefits, there are some associated risks as well. It has
become more of a marketing platform than working on its core aim of raising adequate
funds for its project. Improper marketing skills can damage the reputation of the product
and the enterprise for long term in the industry an in the eyes of the investors.

CORPORATE GOVERNANCE IMPLICATIONS ON ADOPTION OF CROWD
FUNDING
Where raising funds for start-ups through traditional modes is difficult and exhausting,
crowd funding enters the market providing the project initiators with required motivation
to fulfill their dreams and give them proper shape. Thus, internet was the relevant
chosen medium for the same.
Corporate governance refers to the mechanism that control and operate the enterprise
in a systematic manner in the interests of its stakeholders (Sithole, Chandler,
Abeysekera, & Paas, 2017). Entrepreneurs can channel their efforts in the right way by
making those decisions which might otherwise not be made by the other investors due
to lack of experience and knowledge. This channeling may enable effective and efficient
capital raising. Crowd funding platforms are capable of mitigating negative effects by
conducting effective due diligence through various inspection procedures like site visits
as well as background checks. Crowd funding may foster attachment to the crowd and
thus reduce the chances of intentional errors due to their constant support. It enhances
coordination amongst the investors that ensures that the project is monitored in a better
fashion. (Cumming, 2019)
Usually the BOD and shareholders are considered as the main organs of the entity, but
when crowd funding is considered, investors are widespread. This causes several
obstacles to arise in shareholder participation which adversely affects collective thinking
required for corporate governance of the project. These factors may perturb the
investment decisions required for the project and thus accurate and immediate actions
may sometimes be delayed unnecessarily causing harm to the stakeholders of the

project. There exists many governance programs that help to reduce and curb as much
as possible the adverse effect of such a diversified community. One of such activity
involves detection of frauds at a speeder rate than usual (Johnson, 2017). Since the
crowd funding community involves varied members, they can identify fraudsters and
business ideas with false intentions. The project initiators should take proper measures
to advertise what they mean. Any false advertisements may mislead the investors thus
causing breach to corporate governance in the enterprise (Jefferson, 2017).
CONCLUSION
This project conducts a qualitative analysis of this emerging process of crowd funding.
Though it has been in existence since the past many years, but it has lately gained
popularity in several countries to raise funds for both small and big projects. Both small
and large entrepreneurs having been gaining a chance to succeed through various
project aimed at crowd funding. They receive an opportunity typically via the Internet to
showcase their products and services to the entire world. Project initiators are probably
to develop a pool of similar minded investors who come together for a definite purpose.
The investors benefit from participating in this model by receiving a special opportunity
to have a sneak peek into the company’s products and services. Like a coin has two
sides, this fund raising model too has many promises and perils at its doorstep. It is also
gaining immense positive response from several multinationals as well, who wish to
enter this platform to avail many benefits.

To sum up, the entire phenomenon is largely accepted by the entrepreneurs as well the
general audience through its numerous benefits and because of the chance it give to
explore their dreams.

References
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