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Social Finance: How Crowd Funding is creating opportunities in a connected society

Social Finance: How Crowd Funding is creating opportunities in a connected society

Topic overview and explanation

Crowd funding refers to a collective effort by people that are networked to pull together resources through the internet. It targets to offer support to the efforts organizations or people initiate. It operates through internet platforms created to enable people create their own accounts and cookies. Crowd funding may not be very common globally but it’s growing tremendously. Prospects indicate that in the near future it will be a key channel of financial hub. Countries like Canada have however embraced it fully. Canada formed a crowd funding association called the NCFA (National Crowd funding Association of Canada).

Context and background

Crowd funding target is offering support to several activities that include political campaigns, citizen journalism, disaster relief, funding of start-up companies, free software or movie development, scientific research and fans’ support to artists[ CITATION Sound l 2057 ]. Crowd funding also refers to a company’s funding by selling little equity amounts to several investors. This kind of crowd funding has contemporarily been embraced receiving attention from the US policy makers having been mention directly in the JOBS Act. It is the legislation allows a wider small investors pool with very few restrictions. In April 2012, President Barrack signed the JOBS Act into law. Making the JOBS act law insinuates that a small business in the US can easily raise some capital from investors who are non-accredited via online platforms that are regular. The platform hence interconnects several investors to several innovative start-up businesses and projects in sectors that are diverse. The sectors include for-profit, social and cultural and it has enabled the exchange of information between business founders and funders and the entire entrepreneurship ecosystem that never existed some few years ago at the same scale. The whole description is crowd funding in a nutshell. The CMF (Canada Media Fund) commissioned Nordicity in conducting studies on Canadian crowd funding. Its mandate was to provide both global Crowd funding phenomenon overview as it relates to the industry of creative content. The term originated from the crowdsourcing concept. Crowd sourcing is a broad concept whereby a person reaches his or her goals by leveraging and receiving small contributions gotten from many other parties. Crowd funding therefore refers to the application of the crowd sourcing concept so as to collect funds via small contributions from several parties. They do so to finance a given venture or project[ CITATION Sound l 2057 ].

Issues and opportunities

There are various opportunities brought about by the Crowd funding technology. To start with, in business angels and venture capital perspective, an investor gains significant control over the decisions of a company. With crowd funding however, things are s little different. An entrepreneur doesn’t give away certain rights. The key opportunity that the crowd funding brings especially is that an entrepreneur does not lose any right of making the decisions of a company by his or herself[ CITATION Qui12 l 2057 ].

Secondly, to raise capital via a crowd funding platform is exceptionally accessible. A platform for crowd funding, can address an issue that many entrepreneurs have failed in terms of the raising venture capital. The entrepreneurs fail because first, most of them are not qualified for venture capital because their growth is not fast and they lack a large public offering potential. Second, the venture capitalists are so few compared to the entrepreneurs in need of cash. According to Quinlan (2012 ), therefore, crowd funding is an opportunity of filling the gap by establishing a connection between small businesses that are marginalised from the funding sources that are traditional to the public in general.

The ultimate thing is that an entrepreneur that seeks to raise capital via a Crowd funding platform is awarded with an opportunity of testing marketability. The most fundamental issue and mechanism of crowd funding has its basis on attracting a huge number of people. The people are those that find an interesting idea and of worth in terms of investment attention and time. In Canada for instance, when new ideas are announced by the funding portals, there is usually a set date for reaching a goal of fundraising[ CITATION Qui12 l 2057 ].

In Canada, lastly, Crowd funding has provided a lot of benefits for communities via both global and local means. Crowd funding according to Quinlan (2012 ), Crowd funding will be people’s investment tool in various communities. Sustainable economic health will hence be created as a result in the various communities. Canada values Crowd funding and has embraced to boost its entrepreneurship. If as a result came established an Association called NCFA (The National Crowd funding Association of Canada). It is no-profit and is engaged actively with both investment and social crowd funding stakeholders (Southin, nd).

The Current and potential tools

Contemporarily in Canada, crowd funding exist in two broad forms. Firstly, there is the Indiegogo hands-off model that is straightforward. It’s a system of donation where the owners of the project receive money from donors directly based on the pitch of sales. SoKap is another platform type with unique incorporating revenue distribution feature into the model. SoKap, according to its founder David Geertz is the first platform for crowd funding that can allow an individual to fund projects and at the same time making a financial return without security sell (Quinlan, 2012).

A Crowd funding is likely to improve depending on the used platform as well as other factors that are related to the campaign specifics. The media is often filled with stories that are extra ordinary on success of crowd funding. However, it is awful that many crowd funding campaigns don’t meet their utmost goals of funding. The Indiegogo and Kickstarter are two main platforms in crowd funding but they vary. The two platform’s discrepancy stems majorly from their funding models differences. Indiegogo, for instance, releases funds for even projects that partially funded. The campaigns of Kickstarter, to the contrary, have to meet their goal before receiving any kind of fund[ CITATION Sound l 2057 ].

Crowd funding model is a fundamental issue that has existed for a while now. However perceived risk of contributor of different levels and the model accessibility have significant impacts on the chances of success of the model of crowd funding. It is therefore very fundamental to perfectly choose the modes of crowd funding to be used. For instance, the equity model is a victim of unstable legal framework and regulations that are burdensome. Lending based model on the other hand has a tendency of being very successful[ CITATION Qui12 l 2057 ].

Ethical considerations

Due to the tremendous growth of crowd funding, there are several ethical issues that come along. One of the issues is to establish how to exclude and monitor the crowd funding campaigns that may be, in one way or the other, illegal or offensive. The sites only make a list of the terms and conditions to be applied to the hosted campaigns. These are sufficient in many cases but the rules fail to enforced some times. The sites for crowd funding like Indiegogo and Kickstarter requires account creation by users and signing of Terms and Conditions. This is considered privacy of data. Nevertheless, these security measures are breached time and again and the information reaches the public. There is also a threat posed by hackers who hack their way through to accounts (Aspler & Davis, 2015).

Crowd funding is very important in expressing the freedom to speak. For instance, in the US one Kickstarter has been sponsored by a certain community who are after paying to do away with a flag that is high above a city. Others want to make a creation of the flag’s new version to replace the version that is historic. It is important for people to identify and protect their valuables before entering into crowd funding. The whole process can prove difficult for whoever hasn’t protected his or her intellectual property because one could make a revelation of the ideas of their company to the public (Jueten, 2014).

Current trends and future prospects that are anticipated

Contemporarily, the crowd funding industry is still in very early stages of development- comparable to early infancy. It however has every potential of being a mainstream financial player. It enables end consumers, entrepreneurs and investors to in a transparent and more scalable way with the rewards and value being fairly shared between them rather than intermediary accruing. It is basically an inclusion and financial literacy and could be a representation of a significant channel of cash flow in the near future (CrowdBnk, 2013).

List of references

Aspler, S., & Davis, S. (22015, April 13). Funding: Privacy & Security Concerns. Retrieved October 3, 2015, from Crowdfunding 101:

CrowdBnk. (2013, October 23). Growth potential. Retrieved October 3, 2015, from

Jueten, M. (2014, Jully 10). Crowdfunding And Intellectual Property: Tips From An Entrepreneurial Attorney. Retrieved October 3, 2015, from

Quinlan , M. ( 2012 , June 22). The pros and cons of crowd funding. Retrieved October 3, 2015, from CBCnews:

Southin, T. (nd). Harnessing the Fundraising Potential of Charitable Crowdfunding in Canada. NCFA (Nationanal Crowdfunding Association of Canada) Travis Southin-Croedfunding Research. , pp. 1-25.