Crowdfunding. An Equity Financing Instrument E-Book

Johann Gross

• Herausgeber: GRIN Verlag
• Sprache: Englisch

Veröffentlichungsjahr: 2014

Beschreibung

Seminar paper from the year 2014 in the subject Business economics - Investment and Finance, grade: 1,3, University of applied sciences, Nürnberg (IOM), language: English, abstract: 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.

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Abstract

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 intermediaries 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

Abstract

List of Abbreviations

List of Tables

List of Figures

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

Bibliography

Online Sources

List of Abbreviations

List of Tables

Table 1: Multiplier of Crowdfunding Projects

List of Figures

Figure 1: Crowdfunding Projects in Germany

Figure 2: Types of Crowdfunding

Figure 3: Crowdfunding Participants

Figure 4: Key Words of the JOBS-Act

Figure 5: Facts about Seedmatch

1 Introduction

Since several years crowd funding is accepted as a kind of financing instrument, due to borrowers have the opportunity to receive money as a type of equity, dept, reward, or donation, mostly via Internet. As many start-ups or charitable communities do not have the possibility to receive investments from banks or investment companies, they have to look for alternatives to finance their enterprises. And that is the reason why many people are looking for crowd funding; the opportunity to access money from the individual network.[1] In Germany, the crowd funding model is relative new, but almost 4.500 projects where already initiated through online platform providers, until the 3rd quarter 2013. Figure 1 shows the amount of German crowd funding projects, classified into the German online provider. Surprisingly only 30 % of the started projects were also successfully finished. Many projects get quitted because they do not collect enough money to start up their business, which means that they do not have enough followers.[2]

Figure 1: Crowdfunding Projects in Germany

 Source: Own description, Statista (2014)

However, that data shows that collecting money via crowd funding is not that easy and that the conviction of potential non professional money lenders is the main issue during the money collecting process.

2 Problem Definition

Amongst others, crowd funding can be used to raise or establish corporate equity to start a business or finance a project. In Germany, nearly 63 % of the issued crowd funding projects were quitted before maturity as they did not collect enough money. As that type of financing is very new aged, many entrepreneurs or start ups do not know how this financial instrument really works and which challenges have to be considered for a successful initiation, as equity-based crowd funding constitutes a legally challenge.

3 Objectives

The main objectives of this work paper are to analyze the structure and process of crowd funding projects and to show how to initiate an auspicious project to collect money as equity.