Finance and SME: Exploring Crowdfunding, Angels, and Venture Capital

This report examines various financing options available to Small and Medium Enterprises (SMEs). It explores crowdfunding, business angels, and venture capital as sources of finance. The report differentiates between equity-based and reward-based crowdfunding, discusses the advantages and disadvantages of each, and highlights the differences between angel investors and venture capital firms. Furthermore, it contrasts equity and loan financing, explaining their objectives. The report also touches upon opaque market places and their impact on interest rates and collateral requirements. Finally, it briefly discusses the advantages of equity financing and the role of agency theory in financial relationships and the advantages of lease finance.

Reflective Journal

Table of Contents
MAIN BODY..................................................................................................................................3
REFRENCES...................................................................................................................................4

MAIN BODY
Managing small and medium enterprise are important and there are many sources of finance
for SMEs are crowdfunding, peer to peer, bootstrapping, business angels, venture capitals,
private equity funds. These are some creative sources which is beneficial while taking finance
for starting SMEs. Crowdfunding can be classified in financial return and non-monetary rewards.
Financial return includes, equity based and lending based whereas for non – monetary rewards
includes, reward based and donation based. Crowdfunding equity has advantages such as, it is
good, secure long term finance, used to lever further loan finance, small amount of equity
available, it is based on business plan not security (Mochkabadi and Volkmann, 2020). Some
disadvantages are, dividend must be expected, liquidity event. Difference between angels and
formal venture capital is discussed like, angels are individuals and formal venture capital are
corporates.
Angels have low management cost whereas venture capital has high management. Further,
difference between equity and loan such as, objective of equity is to increase business valuation
whereas objective of loan is to repay amount of loan and interest is being charged. Features of
opaque market places are, higher interest rates, better terms, need for more collateral,
discrimination and evidence on credit constrained. Demand for equity has advantages like, no
interest payments, leverage other borrowing, money is patient and difficulty in accessing other
funding. Agency theory refer to relationship where in contract one or more persons to perform
some services. Lease finance has advantage that is it guarantees not required- security on assets
purchased.

REFRENCES
Books and Journals
Mochkabadi, K. and Volkmann, C. K., 2020. Equity crowdfunding: a systematic review of the
literature. Small Business Economics. 54(1). pp.75-118.