Student number: 215288939
Lecturer: Mr Trollip
Module: Financial Management 3
Due date: 30 July 2018
Crowdfunding drew inspiration from concepts known as Micro-finance and concepts such as crowdsourcing but due to the developmental changes from the generation, crowdfunding became different from the other concepts that it was drawn from. Crowdfunding represents its own unique way of doing things with categories of fundraising, facilitated by an increasing number of internet sites involved in the concepts. The popularity and academic vision or conceptions of crowdfunding are in the stage of evolution that makes it very different from other concepts.
Crowdfunding is an open concept to everyone who is interested in it. Crowdfunding is where you get a lot of people around the world or anywhere in the world to invest in your idea, product or a start-up business rather than getting one person to come up with all the financial resources you need or going out to make a loan in the bank to get the resources needed to make the dream come true, all of this happens online through the internet connection.
Crowdfunding is an online programme that gives opportunities to people who wishes to get funding for their companies, product or project; this platform helps the entrepreneurs to get funds for their start-up businesses or companies. Crowdfunding gives them the hope and the opportunity for them to get funds to finance their start-up companies or businesses. Crowdfunding acts as the link in between the entrepreneurs and the donors through internet or online access, so that they can receive financial resources either in a form of donation for NGO purposes or in exchange for something else as a form of reward maybe something like shares in the company funded or a portion of ownership.
This means that crowdfunding helps owner’s or entrepreneurs to start-up companies to market their product, companies, vision and goals that they want achieve with their companies to be publicly recognised so that they can get the funding that they need.
They raise great amounts of money by receiving small amounts of money from a large number of people around the world and it is quick, easy and cheap to reach anyone connected with internet.
2. How does Crowdfunding works and its role in helping start-up companies?
Since crowdfunding is the link between the owner of a product, company or project and the donor/s this process of funding is been done online through internet on the crowdfunding site in different platforms judging on the difference of the agenda or business type of the particular person/s that have putted the product, idea or company in the crowdfunding site.
It is free to create a campaign on crowdfunding site and there are no charges if you do not raise enough funds or no funds at all. You are allowed to put your campaign in the site as much as you want, there is no amount of limited time is being placed for a campaign. You can also carry on receiving the funds or the donations as much as you want although you have already met your target that you want for your campaign. You can use crowdfunding site to manage all the collections and it gives you a central location to share your ideas and the materials and videos that explain well you campaign vision, goal, mission and whatever you are trying to achieve.
Soo the role of crowdfunding is helping the start-up companies to establish company goals and grow the companies by getting them the entrepreneurs the funding they need from people around the world. Crowdfunding provides the entrepreneurs start-up companies the platform where they can market their products or idea in order for them to get the funding they need.
In order to use crowdfunding as source of collecting funds from people/donors you must be able to provide the follow:
Get a proof of the work you have provided or you want to market.
Prototype of the work
In addition, you must be able to get people to support and verify it. The more support you get from people who view you campaign, project, idea or product the more you will be able to receive more funding from people around the whole hence it is important to get people who are going to support your product, idea, project or campaign.
2.1 Types of crowdfunding
Reward-based crowdfunding– Donors they contribute small amounts of money in exchange for a reward. The reward is often the item produced but not always is the case.
Donation crowdfunding – This is a way to collect money for a project by asking a large number of people contributing to individually donate a small amount to the project, mostly used to raise funds for charity purposes.
Equity crowdfunding – Crowdfunding is also having a different type called Equity crowdfunding. This is gaining access to number of donors or investors that in the end of the campaign they will gain a portion in the company, so this is more like an investment to the person funding the campaign.
Debt crowdfunding – This is where the lending platforms such as Funding Circle and Zopa gives the people who are funding to earn better returns than they would get from the Bank or something like building society savings account.
2.1.1 This graph below shows the statistics between these types of crowdfunding.
2.2 Top Five of crowdfunding platforms are:
Kickstarter – This is focused on creative projects like a new album of an artist or writing a book or poems, as well as products and new inventions.
Indiego-go – This was launched in 2008, it helps teams to raise money for their projects and products. This platform is fair and flexible funding because it allows the teams to keep their funds they have received even if they did not reach the goal or target amount their needed to the get campaign on the way.
Patreon – This is a 30 days (monthly) subscription platform, which means the supporters and the donors get to provide a regular monthly contributions or funding rather than a bulk of payment. It is more focused at finding support for usually the underfunded creative producers like writers, musicians and artists.
GoFindMe – This is the most causal in all crowdfunding sites, it involves of an informal tone of small-scale, personal or charity projects, rather than the innovations that are money spinning.
Rocket Hub – This is a platform that focuses at novice entrepreneurs hoping to get their business off the ground. They also show information on their website on how to market or do articles for growing and promoting your business.
This platforms help the crowdfunding users to be able to know where to put up his or her business or product, this prevents confusion and mismanaging of the campaigns this also help the donors to be able to allocate which industry side they want to donate or invest in. These platforms serve as a guideline to the users so this helps to save time and money.
Tips of using crowdfunding
You must keep it clear (idea or product)
You must know you crowd
You must always keep updating your crowd
You must be different to attract interest
You must always appreciate, say “thank you” means a lot.
You must be able to build interest
You must make sure your launch is fantastic
2.2.1 This graph below shows the number of projects funded by these platforms of crowdfunding and the grow of the platforms during these years.
Kickstarter and Indiego-go are the highly leading platforms used in crowdfunding and it has help the users of growth funding to get they products and ideas to be funding. Below is the graph showing the projects funded through these two platforms.
2.3 Equity crowdfunding
Crowdfunding is also having a different type called Equity crowdfunding. This is gaining access to number of donors or investors that in the end of the campaign they will gain a portion in the company, so this is more like an investment to the person funding the campaign.
Equity crowdfunding is also having different types such as:
Regulation crowdfunding regulation
However, crowdfunding is easy and cheap but there are challenges that crowdfunding users must go through them in order for their business, ideas and products to be a success, as they wanted to.
3.Challenges on crowdfunding
Market product selection
Getting initial pre-launch
Lack of accessibility in internet
Like most of the processes there are challenges you need to face in life generally, there are things that you cannot run away from them but you need to overcome them so that your vision and future can be as you wished for.
4. How crowdfunding can be improved.
Crowdfunding is a very useful and easy way to raise funds but most of people base on my finding they are not exposed or they are not aware about crowdfunding. This means that crowdfunding must be expanded and be advertise through communities not only on websites but face to face, because there are people who are not gaining much access to internet as other people so that means that the chances of them being exposed in crowdfunding are limited.
People must open a campaign that will visit communities and telling them about crowdfunding and also teaching them how does it work. Crowdfunding can also be posted on daily locally newspaper so that a lot of people can be aware of it because it can help a lot of people because there are people who are having great ideas, products but they do not have funds to help them to achieve the dream.
4.2 High school
I think that there must be high school campaign that can be able to teach pupils about crowdfunding this can be very helpful to the future of South Africa as a whole. These campaign can be initiated in all provinces so that everyone can be aware of it.
4.3 Tertiary level
Crowdfunding can be very useful for tertiary level students since they are in a right age to create products, companies and inventions for themselves so this will help them to be able to get funding and they are more exposed in internet because of the computer labs and libraries that are available in their campuses.