The Pros And Cons Of Crowdfundinging

INTRODUCTION

Difficult access to funding is one of the most important constraints to the growth and development of SME’s. Recent developments in our country, the global economic and financial crisis has further degraded the situation in the area and increased the pressure to find alternative sources of funding. Therefore, the search for alternative sources of funding has become increasingly common in recent years. It is based on the close co-operation between investors, intermediaries and entrepreneur.

Crowdfunding is solicitation of funds which are collected in small amount from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.

It allow entrepreneurs to raise

It leads to risk of exposure as in crowd funding requires us to expose project details on the Internet, potentially giving your competitors inside information about your business. In certain situations crowd funding can even expose your company to securities violations.

6. By putting less funds of their own skin and no longer facing investors one-on-one, entrepreneurs lose out on the truly valuable step of convincing others.

Literature Review

Armin Schwienbacher & Benjamin Larralde

In this article they have discussed that when does it makes sense for SME’s to use crowdfunding rather than another source of finance.

Some major characteristics of ventures emerged in this article are as follows:-

1. Raise reasonably low amount of capital.

2. It should be interesting project to offer to the prospects.

3. They should have willingness to share their skill sets with others.

4. They should know how the controls of Web 2.0 works.

Moreover in this article it has been argued that funding was particularly difficult to raise for small business with their respect to their sizes, traditional financing methods are out of reach for these small companies as the result crowdfunding as become an important fund raising method for small entrepreneurial companies.

Elizabeth M. Gerber, Julie S. Hui ,PeI-Yi

Crowdfunding is different – entrepreneurs do not need to give away such rights. So, when a company’s capital is raised through crowdfunding, entrepreneurs do not lose the right to make company’s decisions themselves. Raising capital through crowdfunding platforms is exceptionally accessible.

1. A chance to test marketability: The whole mechanism of crowdfunding is based on attracting a big number of individuals, who find an idea interesting, worth their investment, time and attention.

2. Accessibility of capital

3. Benefits for communities.

4. Rights to make company’s decisions stay in the hands of entrepreneurs.

5. crowdfunding websites currently use to avoid broker- dealer registration

6. Perceives crowdfunding as an opportunity to fill this capital gap by connecting small businesses, which are marginalized from the traditional sources of funding, to the general public.

7. Crowdfunding is going to be a tool for people to invest in their own communities and this will help to create sustainable economic health.

Weaknesses include

1. Administrative and accounting challenges,

2. Possibility of ideas being stolen,

3. Weaker investor protection and potential for fraud, also,

4. Crowdfunding is exceptionally internet based, so investors might lack