How Crowdfunding Can Be a Source of Funding for Sme’s

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Table of Contents

Contents

Chapter – 1        2

1.        Introduction        2

1.1        Objective and Scope of the project        4

Chapter – 2        5

2.        Literature Review        5

2.1 Main Player in Crowdfunding        5

2.2 Types of Crowdfunding        9

Chapter – 3        12

3.        Research Methodology        12

References        13

Chapter – 1

1. Introduction

In today’s global economy where investment market never sleeps and is interlinked with each other in a vital way. Everywhere penny invested with a need to getting an additional penny back. Investment is not limited to any particular sector or demography in the world but exposed to a heavy risk associated with a heavy return. Similarly, on the other side, there are MNC’s, SME’s, start-ups, non-profit organization and etc. who look for an investment of initial funding to meet their capital demand, to start a company or to do a social welfare. The process of raising money can be categories into two part, one is during the early phase of a company lifecycle or start of a non-profit project and another would be during the growth or development stage of a company lifecycle. During the early stage, funding is done typically by the founder itself, by his known circle, by an angel investor or few venture capitalist who believe in the idea of the project. In a later stage, funding can be done through investment from a venture capitalist, bank loan, IPOs, and debt.

An inherent problem that every entrepreneur face at the very first stage of their career entrepreneurial initiative is to attack and gain the confidence of outside capital and funding, due to lack of collateral and new in the market it becomes of the challenging task for the people to raise fund required. Investors who invest money in start-ups or in SMEs seek equity in the company and many times not every entrepreneur is ready to do so. Equity is the most expensive source of funding for the business which any person can think of in the initial days. When a company issue equity they share the ownership of the company with the venture capitalist, hence the company is ownership is exposed to infinity until the person willing to want to dilute it. Also it exposes to the risk of management decision interference by the person and that lead to a conflict of interest by two different thought process, one wants to run the company and make it grow as the idea belong to him and the other money is investment hence, the person wants to see a higher return and may also liquidate his position when they are in need of cash. More recently, few entrepreneurs had started to rely on the internet to seek financial help directly from the public as a fundraiser but not an IPO, instead of approaching any investors. One of the best example during that era would be Trampoline Systems, a software company based out of UK plan to raise £ 1 million through crowdfunding. A first portion of the amount was successfully raised at the end of 2009, with the remaining completed in 2010. It clearly shows the potential crowdfunding has not only for small projects but for high-growth start-ups