This work paper occupies with the issue of crowd funding as a financial instrument, by considering all types of crowd funding. The literature differs between a donation-based, a reward-based, a debt-based, and an equity-based type, whereat the law requires different claims. NPO's usually make use of donation-based crowd funding systems, whereas start-up companies try to use the equity-based or debt-based type to make an investment more attractive to the crowd. The JOBS-act enables start-up companies to collect equity or debt through crowd funding by limiting the requirements for these kind of companies to facilitate them an easier access to the financial market. Up to now, many online in-termediaries use a gap in law to provide equity-based crowd funding by building up so called angel groups through the registration of crowd funder. This club enables them investing in crowd funding without respecting the current legal requirements. Summing up, start-up companies are dependent on crowd funding as they will not get equity through the common way by asking banks or investment companies for loans. Crowd funding is an excellent opportunity and way to transform business ideas into real life business.
Table of Contents
1 Introduction
2 Problem Definition
3 Objectives
4 Methodology
5 Theoretical Background
5.1 A Theoretical Approach to the Crowdfunding Model
5.2 Types of Crowdfunding
5.3 Crowdfunding Process
6 Important Success Factors for a Crowdfunding Project
7 Requirements for Equity-Based Crowdfunding in the United States
8 Pros and Cons for Crowdfunding
9 Business Case: Cosmopol
10 Conclusion
Objectives and Themes
The primary objective of this study is to analyze the structure and operational processes of crowdfunding projects, with a specific focus on navigating legal requirements to successfully initiate equity-based funding campaigns for start-up ventures.
- Evolution and theoretical foundations of the crowdfunding model.
- Categorization of crowdfunding types: donation, reward, debt, and equity-based.
- Key success factors, including communication strategies and community engagement.
- Regulatory landscape and constraints for equity-based crowdfunding in the U.S.
- Practical application and success metrics via the Cosmopol business case.
Excerpt from the Book
5.1 A Theoretical Approach to the Crowdfunding Model
Crowd funding is not a new aged phenomenon, as the history goes back to 1885 where the statue of liberty was built. When the financial resources for this mega project went out, Josef Pulitzer started a crowd funding project to collect the remaining amount of 102.000 US$ (the equivalent of 2.3 million US$) by donators. He started a campaign, by publishing the project in his newspaper and printing flyers to invite private people donating for the huge and unique project. In less than 6 month the needed money was collected by a crowd of nearly 120.000 donators with an average spending amount of 1 US$ and the project finally got realized. This short story can be named as one of the first crowd funding activities in the newer ages. Additional, the pay in advance model of the early 17th and 18th century in the book financing industry can be enumerated as an ancestor in crowd funding. Book publisher provided additional advantages for early bookers who had ordered a book before it was actually written, to finance the enterprise and the authors promised an enumeration in the book cover or a lower price.
However, a detailed definition of crowd funding could sound like this: “Crowd funding… describes the collective cooperation, attention and trust by people who network and poll their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations.” Some scientists recline crowd funding to a similar business called crowd sourcing, which was firstly introduced by Jeff Howe and Mark Robinson in 2006. Their definition is that companies use a high number of motivated people with different knowledge and skills to cover resources and execute tasks, whereat the communication and knowledge transfer happens via the Internet.
Summary of Chapters
1 Introduction: Provides an overview of crowdfunding as a modern financing instrument and highlights the challenges start-ups face in securing investment.
2 Problem Definition: Identifies the high failure rate of crowdfunding projects and the legal complexities involved in equity-based financing.
3 Objectives: Outlines the goal to examine crowdfunding structures and the initiation of successful equity-based projects.
4 Methodology: Explains the research structure, combining theoretical background, success factor analysis, and a practical business case.
5 Theoretical Background: Defines crowdfunding and outlines the different types and processes involved in the industry.
6 Important Success Factors for a Crowdfunding Project: Discusses the necessity of communication, transparency, and the role of social networks and multipliers in project success.
7 Requirements for Equity-Based Crowdfunding in the United States: Details the regulatory environment governed by the JOBS Act, focusing on issuer and investor requirements.
8 Pros and Cons for Crowdfunding: Evaluates the benefits and potential risks of crowdfunding for both entrepreneurs and investors.
9 Business Case: Cosmopol: Analyzes the real-world success of Cosmopol using the Seedmatch platform as an equity-based crowdfunding example.
10 Conclusion: Summarizes the importance of crowdfunding as an opportunity for start-ups while acknowledging the role of regulation in market protection.
Keywords
Crowdfunding, Equity Financing, Start-ups, JOBS Act, Seedmatch, Crowdsourcing, Business Case, Investors, Securities, Online Platforms, Risk Disclosure, Capital Formation, Entrepreneurship, Financial Market, Micro-patronage.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines crowdfunding as a financial instrument, specifically investigating how it enables start-ups to raise equity and the challenges they face in doing so.
Which crowdfunding models are discussed?
The study covers four primary types: donation-based, reward-based, debt-based, and equity-based crowdfunding.
What is the primary objective regarding research?
The goal is to analyze the structure and process of crowdfunding projects and provide guidance on initiating successful projects to collect capital as equity.
Which methodology is applied to this research?
The paper utilizes a structured approach: first establishing a theoretical foundation, followed by analyzing success factors, reviewing legal requirements, and concluding with a practical business case.
What is covered in the main section of the paper?
The main section covers the history of crowdfunding, classification of project types, critical success factors such as communication and community building, and a deep dive into U.S. regulatory frameworks.
Which keywords define this work?
Key terms include Crowdfunding, Equity Financing, Start-ups, JOBS Act, Securities, and Entrepreneurship.
How does the JOBS Act impact equity-based crowdfunding?
The JOBS Act provides a legal framework that eases capital access for small start-ups while setting strict disclosure and registration requirements for intermediaries and issuers.
What role does the company Seedmatch play in the study?
Seedmatch serves as a practical business example of a German market-leading platform that facilitates equity and debt-based crowdfunding by bypassing certain regulatory hurdles.
Why is the Cosmopol case study relevant?
It illustrates the practical transition of a self-financed company into an equity-based crowdfunding success, showing how capital was raised for distribution and product expansion.
- Arbeit zitieren
- Diplom-Kaufmann (FH) Johann Gross (Autor:in), 2014, Crowdfunding. An Equity Financing Instrument, München, GRIN Verlag, https://www.grin.com/document/280938
