Crowdfunding: Clearly a trend, Clearly a challenge

As for the term financial crowd funding, we understand the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. The following video explains the process:

The initiative could be a nonprofit campaign, a political campaign or a financing campaign for a start-up company. There are numerous crowdfunding platforms where consumers ask for or donate money, such as Kickstarter, Indiegogo, RocketHub and RockThePost to name just a few. The primary idea of “its not about what you do, but why you do it,” is critical in the concept of crowdfunding. By focusing on a bigger purpose, project creators will be able to create a unique community of likeminded individuals. Proponents of the crowdfunding approach argue that it allows for good ideas, which do not typically fit the pattern required by conventional financiers to break through and attract cash through the wisdom of the crowd.

Each campaign is set for a goal amount of money and a fixed number of days. Once the project is launched, each day will be counted down and the money raised will be tallied up for visitors to follow its success. If the project doesn’t reach the target, the money has to be given back to its sponsors, which can be a difficult and costly process. That's the conflict at the heart of many crowdfunding platforms: while the company policy says creators have to give refunds on failed projects, the website doesn't have a mechanism to do it.

Furthermore, there is a misconception that creating a successful crowdfunding campaign is as simple as hitting submit and waiting for it to go viral. While this has happened to projects, the vast majority of projects will require a decent amount of effort on the part of the project creator. Utilizing social media, creating email distribution lists before the project launches, contacting local media, are all necessary steps to take if you are serious about your goal. Another common misconception is that crowdfunding is just useful for small businesses and startups. While it creates a funding opportunity that certain smaller businesses may not have received in the traditional way, it also is a great outlet for established companies.

The primary reasons can be identified on why people - unconnected to a project or business - are willing to support it:

•         They connect to the greater purpose of the campaign
•         They connect to a physical aspect of the campaign like the rewards
•         They connect to the creative display of the campaign’s presentation

Crowdfunding also comes with a number of potential risks or barriers. An impact on the reputation can come up by failure to meet campaign goals. Or reaching financial goals and successfully gathering substantial public support but being unable to deliver on a project for some reason can negatively impact the reputation. IP protection: many Interactive Digital Media developers and content producers are reluctant to publicly announce the details of a project before production due to concerns about idea theft and protecting their IP from plagiarism. And also the concern among supporters, that without a regulatory framework, the likelihood of a scam of abuse of funds is high. The concern may become a barrier to public engagement.

Recently, as witnessed by one of the biggest successes and at the same time failures in the history of financial crowdfunding -  The British software company Canonical attempted to raise a record $32m (£20.5m) through crowdfunding to build top-end smartphones that run with the Canonical Ubuntu system and Google’s Android system. At the closing day it has raised an unprecedented $12m, but because it failed to hit its target it had to return all the money. 

Ubuntu Edge smartphone fails to reach $32m crowdfunding target

In sum, crowdfunding is a great opportunity for businesses and entrepreneurs. But anyone who considers using this innovation has to be aware of the upcoming challenges and know in detail about risks and misconceptions of this concept. If the evaluation is done properly and the project is convincing, crowdsourcing is one of the most promising funding sources of the future.