Entrepreneurship :Crowdfunding
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M.R.

 

Entrepreneurship is perhaps one of the hottest trends of the decade with start-ups and new ideas flourishing at a fast pace. With so many new products and services in initial phases a very important prerequisite is being able to have adequate funding for the venture but not every idea has financial backing. This gave birth to the idea of crowdfunding , which is the process of raising money for development of a project or an idea from a large number of people mostly through internet-mediated registries.

This process mainly involves 3 parties : the project initiator or the proposer , the funding individuals or groups who support the idea in financial terms and third is the moderator which acts as the central platform between the two parties. This alternate financial model has proven to be quite effective at raising money , according to a Forbes estimate crowdfunding industry collectively raised over US$ 5.1 billion in 2013 alone reaching US$ an hour in March 2014 and estimated to become a US$ 1 trillion industry by 2025 according to another estimate.

The crowd role is vital in the whole process as the crowd interest influences the ultimate value of project outcome, as they select and promote a cause/project in which they believe. Thus this process isn’t useful only for raising financial capital but it also helps in marketing the product and bringing together the community to support a common social initiative or innovative process. In some cases the donors become shareholders contributing to the further development and information dissemination later generating more contributors. The level of consumer participation is a good tool to gauge the market value or popularity of the product with added expectation of a monetary payoff.

There are various types of crowdfunding practices each with its own set of benefits. One type is rewards based in which pre-sell a product or service without incurring debt or sacrificing equity/shares .In this type between two different funds collection methods 'Keep-it-All' (KIA) where the entrepreneurial firm sets a fundraising goal and keeps the entire amount raised regardless of whether or not they meet their goal, and 'All-or-Nothing' (AON) where the entrepreneurial firm sets a fundraising goal and keeps nothing unless the goal is achieved, the latter gained more popularity .This type of funding is used for a wide range of purposes, including motion picture promotion, free software development, inventions development, scientific research, and civic projects.

In the equity crowdfunding type the backer receives shares of a company, usually in its early stages, in exchange for the money pledged. Another type is the Charity crowdfunding which is the collective effort of individuals to help charitable causes.

The idea of crowdfunding isn’t new, the interest in it is increasing at a fast pace as it introduces a possibility to convert a dream into reality which has emerged outside the current financial system .In 2014 the number of crowdfunding campaigns launched worldover daily rose to 442 even if they weren’t all promising or successful.


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