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Q1: Suppose you are the entrepreneur of a business in an emerging market. What are the advantages, you believe, you may derive by considering crowdfunding to raise funds for your business? What can be the disadvantages of such crowdfunding?
Q2: Is crowdfunding very much unique? How it differentiates from the traditional ways of sourcing funds?
Q3: What factors, you think, are critical to the successes of a crowdfunding program?
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Crowdfunding is a technique of raising the fund which is based on the capability to make money from people or entities with the view to convert the promising thoughts into an actual business (Christopher Charlesworth, 2015). It allows floating a small amount of capital from individuals for small businesses, having limited options for financing. It is the new concept of raising the fund, which is based on the method of the internet. This method is attractive for the entrepreneurs as it allows to raise the fund only for small businesses having limited options of financing. However, it serves as a means of marketability testing. Investors can contribute to the designs or concepts in which that believe in, even the small amount. In addition, Government value this method as it has a positive impact on the economy, such as job creation, fostering the recovery of the economy and also innovation (Christopher Charlesworth, 2015). In emerging markets, there may be capital constraints that can be overcome by crowdfunding internationally. There are various types of crowdfunding, namely; Donation-based, reward-based, debt-based and equity-based (DK Eiteman, 2016). However, the regulatory norms for equity-based crowdfunding in several countries are very strict. For example, in Denmark, equity-based crowdfunding is not possible for Danish-based businesses. The way around it is to open a pro forma address in the country of origin of a foreign crowdfunding platform. As a result, UK equity platforms have started operations in Denmark (Crowdfunding Hub, 2016). The concept of crowdfunding is currently growing significantly. However, its growth shall be probably puffed up once the projected changes in regulations are made. Because of the innovation of this approach, various fears and problems arise, that may result in an underestimation of the concept and perhaps unexploited opportunities. Kenya is one of the emerging markets; wherein there are many business start-ups, that resort to crowdfunding application in order to gain access to the capital. This report will further discuss the advantages and disadvantages, crowdfunding in comparison to traditional funding and critical success factors of crowdfunding in the light of crowdfunding Kenya. These points will be discussed in the report considering the case of Kenya, the African country, which has recently encouraged the crowdfunding method of fundraising in order to gain access to the capital for business development.
Few of the advantages of crowdfunding are discussed below (Loreta Valanciene, 2013):