An understanding approach about crowdfunding

An understanding approach about crowdfunding

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  Universidad Nacional deColombia Engineering Faculty Industrial Engineering Master Program GISTIC – Research Group on Systems and ICT in organizations Author: Danny Sierra González Email: [email protected]
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  1. Introduction 2. Definitions:from crowdsourcing to crowdfunding – Wisdom of crowds & collective intelligence – Some examples along history – Crowdfunding – stages – Important aspect in crowdfunding 3. Typologies – Actors – Form of capital provision – Crowdfunding enterprises – Patterns of crowdfunding 4. Conclusion & outlook 5. References
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  Definitely crowdfunding isa buzzword nowadays with the booming of digital startups, web 2.0 revolution and the last years where people more and more are getting used to the logic of social media interaction on the internet.
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  The objective ofthis article is to have a deeper understanding of what have been written about crowdfunding as a concept, its actors, typologies, patterns and depict some well known companies in the world and other that work locally in the country.
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  Broader concept Crowdsourcing(1/3): describes abusiness model based on internet that taps into the crowd to get creative ideas from a distributed network of individuals by an open call to benefit a single firm. Source: Howe (2006), Seltzer & Mahmoundi (2013), Brabham 2008
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  Broader concept Crowdsourcing(2/3): describe itas a strategic model that accelerate efficiently for companies to produce new products and solve problems using internet to interact with people independently where they are in a new way. Source: (Agrawal, Catalini, & Goldfarb, 2011).
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  Broader concept Crowdsourcing(3/3): The conceptis based on the egalitarian principle, “every individual possess some knowledge or talent that some other individual will find valuable.” Source: (Seltzer & Mahmoudi, 2013).
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  Wisdow of crowds: ‘‘.. . under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them’’ (p. xiii)." Source: (Surowiecki, 2005)
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  Collective intelligence: “…It hasbecome impossible to restrict knowledge and its movement to castes of specialists . . . Our living knowledge, skills, and abilities are in the process of being recognized as the primary source of all other wealth. What then will our new communication tools be used for? (p. 9)”. Source: (Lévy & Bonomo, 1999) cited by (Brabham, 2008)
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  Community as sourceof knowledge: An important aspect of crowdsourcing is that in a problem-solving situation, a firm can benefit by having a large number of individuals from different cognitively perspectives offering their ideas, even if those individuals are not deemed specialists themselves. Source: (Brabham, 2010)
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  Howe’s crowdsourcing definition atWired Magazine (2006): “Simply defined, crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call . . . The crucial prerequisite is the use of the open call format and the large network of potential laborers. (para. 5)” Source: (Brabham, 2009)
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  Crowdfunding: It is basicallyan open call instead of requesting solutions or tasks, individuals bring a portion of money to fulfill a specific purpose collectively. Usually such open calls are via online with the intention of encouraging individuals voluntarily contribute and support the funding process. Source: (Belleflamme, Lambert, & Schwienbacher, 2013; Kleemann, Voss, & Rieder, 2008).
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  Supporting statements about Crowdfunding(1/2): -There is frequently with the promise of future products or equity. (Mollick, 2014) - Financial resources are either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes”. (Lambert & Schwienbacher, 2010; Kleemann et al., 2008). - One of the biggest barriers for a business it that cannot obtain money easily from traditional venture capital institutions or banks even in very sound projects, specially innovation projects. (Adams, 2014; Cosh, Cumming, & Hughes, 2009; Kuppswamy & Bayus, 2013).
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  Supporting statements about Crowdfunding(2/2): - Crowdfunding has become for some startups a new approach for business development where the crowd becomes more and more involved with the firm as consumers, investors or both. (Belleflamme et al., 2013) - Crowdfunding happens without any intermediation but a technological web-based platform where entrepreneurs “tap the crowd” by raising the money from individuals directly. (Lambert & Schwienbacher, 2010) - It stated that all forms of crowdfunding are basically on similar principles; funders expect a successful outcome for a project and for this reason invest in it. (Mollick, 2014)
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  Some examples alonghistory - Mozart and Beethoven (c.a 1780). - Statue of Liberty in New York. (1875) - Teletón in Colombia. (1980) - President Obama’s election campaign. (2008) - Internet to rural areas by buying satellites. (2010) - … Source:. (Hemer, 2011) cited in (Kuppswamy & Bayus, 2013)
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  Source:(Hemer, 2011). Actors
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  Source:(Hemer, 2011; Bardford,2012; Belleflamme et al., 2013). Forms of capital provision Donations Sponsoring Pre-selling Lending Equity Crowd-
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  Source:(Hemer, 2011). Forms ofcapital provision vs complexity
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  Crowdfunding enterprises - Prodigy Network -IndieGOGO - Kickstarter - Little Big Money - LaChévere - Fundación Help - Afluenta - Donacción - Idbooster - Súmame - Uonet - idea.me Source: http://www.crowdfundingalacolombiana.com/ (assessed 18/2/2015)
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  Patterns of crowdfunding Basedon the experience of crowdfunding platforms, projects often do not meet the funding goals and fail big and only a few get the goal successfully. Data: Failed projects - The mean amount funded of failed projects is 10.3% of the goal. Only 10% of projects that fail raise 30% of their goal, and only 3% raise 50% of their goal. Success Projects - 25 % of projects are funded 3% or less over their goal, 50% are 10% over their goal and 1 project in 9 receives 200% of its goal. Source:(Mollick, 2014)(Kuppswamy & Bayus, 2013), (Burtch, Ghose, & Wattal, 2012)
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  - The conceptthat demonstrates that changes logic of power not only on business dynamics but people’s participation on new ventures in a more democratic basis. - Crowdfunding platforms can be a good way to not only have a cheap display to the market but also luckily a first seed-capital funding by peers. - there is still a big need in understanding of crowdfunding in terms of success of the model, backers need to feel convinced, motivated and involved of the process in order to mitigate the failure. - It is essential to know how policymakers are updating the financing law in order to adopt widely crowdfunding. - Support new projects and innovation in broader spectrum of areas such as science and politics.
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  Adams, C. (2014).Crowdfunding guidance and practice: Value added co-creation. Policy, 2012, 2010. Agrawal, Catalini, & Goldfarb. (2011). The geography of crowdfunding. Ahlers, G., Cumming, D. ., Günther, C., & Schweizer, D. (2012). Ahlers, G. K., Cumming, D. J., Günther, C., & Schweizer, D. (2012). Signaling in equity crowdfunding. Available at SSRN 2161587. Bardford, C. S. (2012). Crowdfunding and the federal securities laws. Columbia Business Law Review, 2012(1). Belleflamme, P., Lambert, T., & Schwienbacher, A. (2013). Crowdfunding -Tapping the right crowd. Journal of Business Venturing. Brabham, D. C. (2008). Crowdsourcing as a model for problem solving an introduction and cases. Convergence: the international journal of research into new media technologies, 14(1), 75-90. Brabham, D. C. (2009). Crowdsourcing Public Participation. Brabham, D. C. (2010). Moving the crowd at Threadless: Motivations for participation in a crowdsourcing application. Information, Communication & Society, 13(8), 1122-1145. doi:10.1080/13691181003624090 Burtch, G. ., Ghose, & Wattal, S. (2012). Burtch, G., A. Ghose, and S. Wattal (2012), “An Empirical Examination of the Antecedents and Consequences of Investment Patterns in Crowd-Funded Markets,” available at SSRN: http://ssrn.com/abstract=1928168, forthcoming in Information Systems Research. Cosh, A., Cumming, D., & Hughes, A. (2009). Outside Enterpreneurial Capital*. The Economic Journal, 119(540), 1494- 1533. Gummesson, E. (2006). Many-to-many marketing as grand theory." The service-dominant logic of marketing: Dialog, debate, and directions. Hemer, J. (2011). A snapshot on crowdfunding (No. R2/2011). Working papers firms and region. Howe, J. (2006). The Rise of Crowdsourcing, Wired, 14(6). Retrieved from http://www.wired.com/wired/archive/14.06/crowds.htm Kleemann, F., Voss, G. ., & Rieder. (2008). Un(der)paid innovators: The commercial utilization of consumer work through crowdsourcing.
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