Crowdfunding for more than money?
A study on crowdfunding from a marketing viewpoint
Written by B. Zlatan, W. N. Eddy
Business Administration>Marketing & Sales
Bachelor Thesis: Crowdfunding Crowdfunding (CF) is a descendant of crowdsourcing (CS). In order to understand the phenomenon of CF, it is necessary to explain CS first. The Cambridge Dictionary (2016) explains CS in the following way: "The act of handing over a task to a large group of people or the general public, for example, by asking for help on the Internet, rather than completing tasks within the company by employees." The idea of CS is, The company accepts a task that its employees can usually complete and outsources it to a personal network. Assign tasks to personal networks with resources such as funds, ideas, and even feedback. The concept of crowdfunding has been narrowed down. The main concept of CF is to try to collect as much money as possible from a large number of individuals. Crowdfunding differs from other types of fundraising models in that the gathered funds usually come from people who make small donations and behave like a group of people, rather than people who act as professional investors (Belleflamme et al., 2013). Another aspect peculiar to CF is that companies often use CF activities as a way to increase the visibility of the company and products, and obtain opportunities to communicate with potential customers in the process. When communicating with customers, the company may also test the market and ideas, because the success of the event will let people know how good it is. Three different participants can be defined in CF; creators, supporters, and platforms. Creators-those who choose to raise funds on the CF platform. It is usually a company or project owner that needs funding. ● Supporters-different individuals seeking to invest in the projects proposed in the CF activities. ●Platform-CF platform participates in profitable business. Participate in the web page containing CF activities. Act as a middleman between creators and supporters. What each of these three participants has as motivating and inhibiting factors will be discussed further in the motivational chapters later. When analyzing the marketing aspects that can be found, understand the reasons why these three groups choose CF and what incentives they have. 3.2 Crowdfunding models There are four main CF models, all of which are related to this research because, despite their different natures, they can all provide information that helps answer research questions. 3.2.1 Equity Crowdfunding Equity crowdfunding is a typical investment method for purchasing company shares. Each supporter will get shares and become a shareholder of the company as a return on investment. The size of the shares is the opposite of the size of the donation and is preset by the creator of the event. The security of the investment is that if the campaign goal is not reached within a certain preset time, all donations will be returned to the supporters. 3.2.2 Loan crowdfunding, also known as debt crowdfunding or loan crowdfunding, is an application by entrepreneurs on the CF platform. The application is reviewed by an automated system that determines credit risk and interest rates (Crowdfunding, 2016, April 2nd). The investor then buys the securities in the fund, and the money is then redistributed as a loan to one or more borrowers (in this case, entrepreneurs). Investors make money from interest, which is repaid by the company that borrowed the interest. The money will be repaid when the borrower's company is profitable and completed on a predetermined schedule. Platforms usually make money by charging a certain percentage of loans and charging loan fees (Crowdfunding, 2016). Loan-based CFs are mainly used by security companies because there is a process that is reviewing your business for loan activity. This CF model has become one of the most popular models (Dresner, 2014) 3.2.3 Reward-based crowdfunding This model is based on the idea that as a return on investment, supporters will receive a certain reward instead of that The reward is purely a financial issue. This reward can come in the form of a tangible product, and investors will receive a pre-order copy of the product. Rewards can also appear in some intangible form, just like the Statue of Liberty mentioned earlier, the donor’s name is printed on the printed matter in exchange for capital. What kind of reward depends on how much the supporter chooses to invest, and the entrepreneur decides how much the supporter must donate to get a specific reward. Some companies choose to set up different levels of donations. Standard reward-based activities usually include at least three levels of rewards, from small donations as a token amount to maintain good work. Or for larger amounts, investors can get the finished product before others, which is like pre-ordering, unless there is some uncertainty, because there is no guarantee that the product will enter the market. Or investors can get special offers like Flippin’ Burger did in 2011, offering two meals at the price of one meal in exchange for 150 SEK (FundedByMe, 2016). Reward-based CFs are most commonly used by entrepreneurs, artists, and companies because they can pre-sell products/services to launch business concepts without incurring debt or sacrificing equity/shares (Crowdfunding, 2016). Due to the launch of many new and exciting projects, and due to the nature of the rewards, such projects have received most of the media's attention (Dresner, 2014). Reward-based CFs are usually divided into two groups; "keep everything" and "all or nothing". 3.2.3a Keep everything and keep everything (KIA) is when entrepreneurs set a fundraising goal, regardless of whether the goal is reached within a preset time, they will maintain the entire fundraising goal fund. Read Less