International Interdisciplinary Conference on Science Technology Engineering Management Pharmacy and Humanities Held on 22nd – 23rd April 2017, in Singapore ISBN: 9780998900001 CROWD FUNDING: A DISTINCTIVE PHENOMENON OF RAISING FUNDS Dr. Anu Sahi Faculty- School of Management Studies Apeejay Institute of Management Technical Campus Rama Mandi, Hoshiarpur Road, Jalandhar ABSTRACT for entrepreneurs trying to start their projects up With the advent of technology, role reversals in without having a large amount of capital already every field is emerging and same is the case of raised. Crowdfunding today is full of legal obstacles, financing business. Start Ups are the new it’s an easier path to funds for entrepreneurs looking to Buzzword in today’s entrepreneurial environment. grow their small business. Start Ups and fund requirements go hand in hand. Every business requires funds and as a result new vistas of fund raising are in vogue. To meet the It is the process of getting capital for businesses or fund requirements technology is playing a pivotal ideas through multiple avenues that mainly involve role and a distinctive phenomenon for raising funds networking in any possible way. In the future, it will using internet technology is Crowd Funding. likely also fund entire companies that sell equity to This paper attempts to elucidate the concept of investors. CrowdFundingBank.com Provides support crowd funding, the various categories of crowd to organizations or individuals through enlisting the funds, processes of crowd funding and associated cooperation, and funding from large number of angel benefits and risks. investors or just anyone willing to support the Keywords: Crowd funding, Process, Financing, initiative with small amount of money and/or advice. Fund raising, Start Ups 1. INTRODUCTION 1.1DIFFERENT PLAYERS IN Crowd funding is an Umbrella Term. It is a relatively CROWDFUNDING There are different players involved in crowdfunding new Phenomenon and an Initiative undertaken to raise money from multiple investors through a web-based models. First, Project Initiator who propose ideas. platform or social networking site for a specific These people want to use crowdfunding to get direct project, business venture or social cause. access to the market and to gather financial support from truly interested supporters. Secondly, Crowdfunding is a form of alternative finance, which has emerged with the traditional financial system. Individuals/ Groups, there is the crowd of people that Crowd funding has been a particularly important tool decide to financially support these projects, bearing a risk and expecting a certain payoff. These supporters 44 International Interdisciplinary Conference on Science Technology Engineering Management Pharmacy and Humanities Held on 22nd – 23rd April 2017, in Singapore ISBN: 9780998900001 co-produce the output, selecting – and sometimes site to pioneer “crowdfunding fashion”. In Cameesa, developing -- the offers they deem to be most the designers submit their T-shirt designs, and promising or interesting. A Third player is the supporters choose their favourite design and fund it Crowdfunding Organization, which brings together with a minimum amount of$10. When the cumulative those who want to deliver the new initiatives using funding for a proposed design reaches a target of $500, crowdfunding mechanisms and those who may wish to the T-shirt is produced and goes on sale on the support such initiatives through their investment website. Another example of this type is efforts. Crowdfunding has been boosted by recent Catwalkgenius, where designers can upload images technological developments – Web 2.0 in particular – of their existing collections for a wide range of that offer new opportunities and scenarios where products (clothes, jewellery, shoes, etc). Potential consumers can use, create and modify content and supporters check out the collection, choose their interact with other users through social networks. favorites and invest in them. Profits from the sales of 1.2 APPLICATIONS OF CROWDFUNDING: the chosen offerings are shared among the designer, The crowdfunding is raising money from multiple Catwalkgenius, and supporters. investors through a web-based platform or social 1.2.3 FINANCIAL SECTOR: Another application of networking site for a specific project. There are crowdfunding is in the financial sector. Trampoline various sectors, where crowdfunding is applicable. Systems, a social analytics software house, is 1.2.1 MUSIC SECTOR: In the music sector, attempting to raise 1 million pounds from up to 100 crowdfunding makes possible connections between investors through crowdfunding in order to finance the music lovers and artists. Music lovers can choose to development and commercialization of solutions and contribute funds to a favorite artist or music group, applications related to its software. Example: MyBar who can then record a professional album when the is another example of applying this innovative collective funding level reaches a specified target. approach to raise capital. The aim of this project is to Examples : SellaBand, Slicethepie and Bandstocks are build a bar in Beirut owned by a crowd of investors. examples of crowdfunding platforms for the music 2. REVIEW OF LITERATURE industry that enable new and established artists to raise Cosh et al. (2009) founded that Crowdfunding money directly from music fans. provides an alternative option for entrepreneurs to raise funds externally. Ex-ante it is unclear to the financier, whether investing into the entrepreneur and her project is a good idea. These information asymmetries (combined with cash constraints of potential entrepreneurs) may result in efficiency losses. Worthy projects would go unfunded, because financial intermediaries are unable to evaluate them Figure. 1.2.1.1 Applications of Crowdfunding respectively. As documented by, for instance, 1.2.2 FASHION SECTOR: Crowdfunding initiatives entrepreneurs indeed face difficulties to secure funding are also being used fund fashion designers. Cameesa, from the external finance options. a clothing company based in Chicago, was the first 45 International Interdisciplinary Conference on Science Technology Engineering Management Pharmacy and Humanities Held on 22nd – 23rd April 2017, in Singapore ISBN: 9780998900001 Ordanini et al. (2009) explained that Consumers have unconditional payment pledges of funders given to the recently begun to play a new role in some markets: entrepreneur. While there is no obligation for the that of providing capital and investment support to the entrepreneur to give anything in return, often some offering. This phenomenon, called crowdfunding, is a kind of reward is given to crowdfunders who donated collective effort by people who network and pool their to the project. This reward can be in the form of money together, usually via the Internet, in order to acknowledgments, for instance, in the credits of the invest in and support efforts initiated by other people crowd funded movie or a sticker/postcard of the or organizations. Successful service businesses that project. Crowd pre-selling means that the entrepreneur organize crowdfunding and act as intermediaries are promises to deliver early versions of the emerging, attesting to the viability of this means of product/service for a specified price. attracting investment. Employing a “Grounded Miceli, et al. (2011) this paper is to analyze the Theory” approach, this paper performs an in-depth emerging crowd‐funding phenomenon, that is a qualitative analysis of three cases involving collective effort by consumers who network and pool crowdfunding initiatives: SellaBand in the music their money together, usually via the internet, in order business, Trampoline in financial services, and to invest in and support efforts initiated by other Kapipal in non-profit services. These cases were people or organizations. Successful service businesses selected to represent a diverse set of crowdfunding that organize crowd‐funding and act as intermediaries operations that vary in terms of risk/return for the are emerging, attesting to the viability of this means of investor consumer and the type of consumer attracting investment. involvement. The analysis offers important insights Nava et al. (2012) This paper aims to take stock of the about investor behaviour in crowdfunding service extant knowledge on an emerging practice in the models, the potential determinants of such behaviour, entrepreneurial finance landscape: crowdfunding, and variations in behaviour and determinants across which seems to play an increasing important role for different service models. The findings have the seed financing of entrepreneurial projects. We implications for service managers interested in provide a systematization of what it is known on this launching and/or managing crowdfunding initiatives, theme, which can be useful to scholars, practitioners, and for service theory in terms of extending the and policymakers interested in the phenomenon from consumer’s role from co-production and co-creation to different angles. Adopting a phenomenon-based investment. approach, which is deemed to be appropriate when Hemer (2011) distinguishes between the following investigating new and rather unexplored phenomena, forms of crowdfunding: crowd lending, crowd equity, we first review the emergent literature on the theme to crowd donations, crowd pre-selling. The first two can single out the aspects that so far have attracted the be regarded as