Crowdfunding is a form of crowd sourcing. Crowd sourcing means applying and implementing collective wisdom to harness the collective knowledge and financial power of online users for profitable results. Crowdfunding means using collective financial power and crowdsourcing means using collective knowledge.
Crowdfunding or crowdfunding is the collective participation in a joint venture. It is often done to support the efforts of an entrepreneur and is done over the Internet. A variety of goals have been supported through crowdfunding to date, such as:
Treating a disease, releasing prisoners, publishing a book, financially supporting artists, supporting social campaigns, launching a startup or small business, etc. The reason for the emergence and expansion of organized crowdfunding in the form of providing financial capital can be attributed to the global financial crisis of 2008. Due to the low willingness of banks to lend, entrepreneurs began to look for other ways to attract capital.
The difficulties that artisans, entrepreneurs, and small investors had in raising capital led to the expansion of traditional investment by friends and family into the form of crowdfunding. In fact, crowdfunding can be described as an online method of raising financial capital that helps businesses and organizations realize their ideas through grants or investments from multiple individuals.
Crowdfunding is now recognized as one of the most important financing methods in the world. The greatest importance of microfinance is the sharing of financial risk of investment, and in addition, it helps to better distribute wealth in society. For large-scale investment projects, crowdfunding is one of the most efficient methods.
Crowdfunding models:
1. Donate : This method is often used in non-profit or humanitarian projects, and participants have no expectations in return for the financial support provided.
2. Loan: In this form of financing, the two parties, the lender and the borrower, interact with each other without intermediaries. The difference is that in this model, the lender or borrower is actually a crowd of people.
3. Reward: The provider receives some kind of reward in return for the money he has paid. Sometimes this reward is purely moral. For example, if financing has been provided for the production of a film, the person’s name will be mentioned in the list of film producers. Sometimes the reward is offered in the form of the opportunity to attend an event related to the subject (for example, a product launch ceremony), and in the most economical case, the reward can be the opportunity to purchase the product for free or under special conditions.
4. مشارکت: کاربرد این روش در تأمین بودجه مورد نظر برای تحقق یک ایده، راه اندازی یک پروژه و یا کسب و کار است. در مقابل مشارکت کننده انتظار دارد تا درصدی از درآمد پروژه به وی تعلق گیرد.
The notable point in all of the above methods is the existence of an organized platform for managing the participation of a group of people.
Crowdfunding in 2014 grew by nearly 167% compared to 2013, with approximately $16.2 billion raised in this way. The World Bank estimates this amount to be over $34.4 billion in 2015. Many countries around the world have adopted various legal frameworks and instruments to support crowdfunding methods. For example:
United States; The Jobs Act of 2012; allows small and start-up businesses to use online intermediaries to raise relatively small amounts of capital through partnerships. Financial transactions in crowdfunding are exempt from the registration and reporting requirements of the US Securities Act.
European Union; Entrepreneurship Action Plan 2020 (2013); Emphasis on alternative forms of financing for SMEs and start-ups, in particular through crowdfunding.
New Zealand; Financial Markets Conduct Act (2013), Financial Markets Conduct Regulations (2014); Companies that conduct crowdfunding through authorized online intermediaries are exempt from filing a product disclosure statement.
Canada; Crowdfunding Bill (2014); Allows small and start-up companies to raise funds by offering securities on authorized online brokerage sites
UK; FCA Policy Statement (2014); outlining the UK approach to crowdfunding regulation in the country.
Crowdfunding systems need more than just entrepreneurs and interested investors. They need supportive ecosystems such as regulations, technological solutions, cultural support, etc. to keep the wheels of the system turning.