Crowdfunding as a financial instrument for startups

For the term crowdfunding the literature reveals distinct approaches of defining it. First of all of the word could be derived from the different words audience and funding. In accordance with Kozinets a crowd is defined as a large organized group who gets together online to plan, organize and carry out projects. [1] The term financing is a synonym of funding.

Both statements are available bundled in Ordaninis definition:"Crowdfunding is a collective effort by those who community and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by others or organizations. "[2]

Forms of crowdfunding

Based on the sort of rewards or service yields for the investors you will find four distinct types of crowdfunding. As revealed in source 1 these four forms can be sorted based on the complexity of the investment decision (y-axis) and also the level of security of the investment decision (x-axis).

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The contribution based crowdfunding indicates a low risk of investment as the investors don't anticipate any benefit or return on their investment. The investors are primarily driven by social thought and goodwill.

A nevertheless low cost risk can be seen in the form known as reward-based crowdfunding. Hire SEO Consultants The investors get a non-monetary reward for their investments connected to the funded projects. The benefits can be e.g. duplicates of CD's, books, games or participations in events together with the founders of their projects. The investors are mainly affectively joined to the thought and benefit by receiving the goods or services produced by the job before they are distributed on the open market to everyone.

More complicated and insecure for the investors is the kind of lending-based crowdfunding. The invested capital must be repaid with an additional interest regardless of whether the job was effective or not. This crowdfunding type reveals characteristics of debt funding.

Similar to the lending-based is your equity-based crowdfunding. In cases like this the investors also expect a return on their investment. The major difference is that the investors have the chance to get shares or to gain from the gains and value gains of the company.  Web Designing Company   In the literature this kind of crowdfunding is split to the word crowdinvesting. [4] The convergence between the expression crowdfunding and crowdinvesting is found in different sources.

Beck separates both of these phrases using the word crowdfunding to get donation-based and reward-based projects. Crowdinvesting is utilized for equity-based projects. Beck is also conscious of different understandings of the language. [5]

According to Schramm and Carstens the original term crowdfunding comes in the USA and may be globally solidified via the success of the most powerful stage Kickstarter. The term crowdinvesting accomplishes more and more popularity from the German marketplace but is generally directly linked to the equity-based crowdfunding. Organic SEO Marketing Crowdinvesting concentrates on the point of view of these shareholders and is only used in connection to the equity-based crowdfunding, meaning that crowdinvesting is one particular kind of crowdfunding. [6] This is also similarly observed by lexica. [7]

Functionality

According to Beck there are four fundamental steps how a crowdfunding effort is carried out:[8] Application: The potential founder creates persuasive documents about the job (e.g. company plan).

Selection: The platform assesses the documents. In the event of an agreement the conditions are mended along with a contract is set up. Demo, realization: The job is released and introduced on the stage. The prospective investors have access to this job and the opportunity to invest -- all within a specified time frame. Payment, begin: The startup gets the finance and begins the project. Furthermore the investors are informed about the progress of the job and depending on the arrangement the investors are paid out or rewarded. Dynamic Website Development  Before step 1 (application), the creators have to choose the appropriate platform for their project carefully. As explained in 2.2 there are different forms of crowdfunding and according to those too the programs are adapted. For instance, the platforms have different target classes, investment priorities and requirements that need to be taken into consideration. [9]

Furthermore the next step (demonstration, realization) is divided into two steps. Firstly, there's a short-term preview stage where potential investors can discover the undertaking and remove uncertainties. Second, after the beginning it is the aim to reach at least the minimum amount of the finance up to the financing limitation. Thus the job has to stay attractive for potential investors. [10]

The first idea for crowdfunding since it is known today came from the USA. In 2000 the initial crowdfunding platform ArtistShare was set up, but at that time the expression crowdfunding wasn't in use however. Just in 2003 ArtistShare started the first funding undertaking.

The crowdfunding sector has emerged as a popular option for entrepreneurs to validate their thoughts. [11] The worldwide crowdfunding earnings climbed from 1.5 billion in 2011[12] to 2.7 billion in 2012. The revenue in 2013 attained 5.1 billion . [13] The following graphs show the global distribution of financing volumes.

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According to Beck and as it can be understood in origin 1, North America is the most significant market, followed by Europe. The other markets play a little part.

The most known crowdfunding platforms are Kickstarter (founded 2009 in USA) and Indiegogo (based 2008 in USA). [15]

Kickstarter could successfully finance 54,400 projects with a whole volume of 930 countless $ in the years 2009 -- 2013. [16] Indiegogo has gotten to a sixth of the volume of Kickstarter. Email Marketing Solution  Until 15th February 2015 Kickstarter increased the successfully funded projects to a total number of 78,513 jobs with a sum of 1.526 billion .The service was attained by the expense of 7.9 million shareholders or as it's called the"backers". [18]

The initial crowdfunding business in Europe was the Dutch platform SellaBand at 2006 and in Germany the initial platform Startnext premiered in September 2010. [19]

In contrast to the prevalence of crowdfunding platforms in the united states, the German platform Startnext successfully funded 960 jobs using a volume of 16 million Euro (End of 2014). Compared to the year 2013 the amount almost doubled. It's considered as the largest crowdfunding platform in Germany. [20]

At the direct comparison of the best players the German crowdfunding market seems to be not noticeable to the US marketplace but reveals high potential and growth rates

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