Crowdfunding As A Source Of Financing For Entrepreneurs

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Crowdfunding as a source of financing for entrepreneurs

Introduction

One of the main problems that entrepreneurs have, once they have already validated their idea of the business and want to launch their project to the market, is the financing issue.

There are several traditional sources to which an entrepreneur can resort to finance a new projects;As the first instance their savings and when these do not be enough, go to the so -called “3F” (Family, Friends and Fools) (Padilla Sánchez, 2019).

If the aforementioned were not yet enough, there is still the option of requesting a loan in financial institutions. However, financial institutions to grant loans for new projects generally request sufficient guarantees to cover implicit risks. With none of these options in favor, the entrepreneur usually has only to give up his project (Padilla Sánchez, 2019)

Currently, together with the globalization, new financing alternatives are emerging among them this “crowfunding” which consists of a mass or collective effort of several individuals who join through digital platform or communication technologies in order to group funds to support newPotential projects, organizations and companies. In the development of this work we will explain more about the concepts of “crowfunding”, its different types, characteristics and operations.

Developing

Definition and characteristics of crowdfunding

Crowdfunding is a mixture of crowdsourcing and micro finance, which brings together a certain number of people who compromise money for projects and companies that wish to support, mainly online (internet) through social networks and crowdfunding platforms, andTake advantage of your networks for greater scope and exhibition.

Crowdfunding a young and rapid market and is transforming the way people behave with their money. It is also transforming the ways in which companies obtain capital.

Traditionally, if you want to obtain capital to start a business or launch a new product, you would need to build your business plan, market research and prototypes, and then show your idea to limited group of individuals or financial institutions. These groups include banks, angels and venture capital investors, which really limited their options to a few key actors. What is transformed into a funnel for the investor resulting in time and lost money.

Crowdfunding platforms, on the other hand, activate that funnel by giving the entrepreneur, a unique platform to build, show and share its new projects, this approach drastically simplifies the traditional model. Traditionally, you would spend months reviewing your personal network, investigating possible investors and spending your own time and money to put them in front of them (to obtain bank loans, look for partners, investors).

With crowdfunding, it would be easierAnother reward depending on which crowdfunding category is applied.

Several ways to make crowdfunding

Among some categories of crowfunding we can cite the following:

  1.  Crowdfunding based on rewards
  2.  Crowdfunding based on donations
  3.  Crowdfunding of actions.

 

Crowdfunding based on donations

It is crowdfunding in which there is no financial return for investors or taxpayers. Common crowdfunding initiatives based on donations include fundraising in disaster cases, beneficial organizations, non -profit organizations (Gallardo Gallardo, Torregitart Mira and Torres Tomás, 2016).

Crowdfunding based on rewards

Crowdfunding based on rewards involves people who contribute to their business in exchange for a ‘reward’ to sponsors, usually a form of the product or service offered by their company, which will vary depending on the amount of money contributed (GallardoGallardo et al.,2016).

Crowdfunding based on shares

Unlike donations -based methods and rewards, crowdfunding based on shares allows taxpayers to become co -owners of their company by exchanging capital for capital shares. As capital owners, their taxpayers receive a financial return from their investment and, ultimately, they receive a part of the profits in the form of dividend or distribution.

The consideration is not immediate must expect the new project or company of fruits (Gallardo Gallardo et al.,2016).

conclusion

In conclusion, there is much to win by including crowdfunding in the existing set of fundraising tools of organizations. The crowdfunding can be attributed to overcome financial barriers for small projects that do not have access to banks and large donors. It is definitely an evolving phenomenon, the global digitalization process allows this innovation and finance ecosystem to flourish. So there are more and more projects of different nature around the world trying to obtain money from the Internet public through multiple crowdfunding platforms that are growing at the same time.

Free Crowdfunding As A Source Of Financing For Entrepreneurs Essay Sample

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