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2 pages/≈550 words
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APA
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Business & Marketing
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English (U.S.)
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Crowd Funding Case (Essay Sample)

Instructions:

One of the newest forms of financing available to entrepreneurs is something called crowdfunding. Instead of traditional routes of obtaining funding through banks, venture capital, or wealthy individuals a new breed of entrepreneurs are obtaining funding via numerous small donations using social media or new online platforms such as Kickstarter.com. A recent example of a crowdfunded venture is the movie Veronica Mars, which was funded by numerous small donations from fans of the TV show.

Until recently, crowdfunding has been limited to donations rather than actual investments. Individuals who help fund the business have not received a share of the profits of the new venture. Instead, they typically get some kind of alternative reward. For example, people who donate money to finance a new film might get a chance to meet some of the movie stars or be given a small role in the movie. The reason crowdfunding has been limited to donations rather than investments is that once you start offering a share of the profit to those who donate you are subjecting yourself to huge number of laws and regulations designed to protect investors. But these laws don’t apply if you provide alternative rewards in exchange for donations.

But in a very interesting new development, in 2012 Congress passed the JOBS Act which removed some of legal barriers to using crowdfunding and now allows entrepreneurs to offer investors actual shares in the profits of the ventures rather than the small rewards typically offered to donors. This will potentially lead to a dramatic growth of opportunities for entrepreneurial financing. However, the removal of regulation may also lead to lawsuits or allegations of fraud against entrepreneurs whose ventures fail to make a profit.

Carefully review the Pearson tutorials as well as Feldman (2013) and Seifert, et al. (2008) for an overview of traditional sources of entrepreneurial finance. Then review Strauss (2013) for a discussion of crowdfunding. Also take a look at the following articles on crowdfunding:

Mandelbaum, R. (May, 2014). Here comes everybody. Inc, 36, 110-114,120 [ProQuest]

ElBoghdady, D., & Harrison, J. D. (Oct. 24, 2013). SEC approves 'crowdfunding' plan. The Washington Post [ProQuest]

Tillotson, K. (Nov. 14, 2012). Crowdfunding gears up for a fresh start. McClatchy - Tribune News Service [ProQuest]

Case Assignment

After you’ve finished your research on crowdfunding, write a 3 to 4-page paper addressing the following questions:

  1. Do you think the JOBS Act and its new regulations regarding crowdfunding will be beneficial in the long run? Or will it only increase fraud and lawsuits?
  2. Under what circumstances do you think it would be preferable for an entrepreneur to use crowdfunding instead of more traditional forms of financing such as angel investors, bank loans, personal savings, or venture capital? Be specific in your answer regarding advantages and disadvantages of crowdfunding versus the other types of funding discussed in Feldman (2013) and Seifert, et al. (2008).
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Content:

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Introduction: Crowd funding is a significant new sector that is still under development. This source of fund is still is an exciting source of finance since it provides opportunities for small business growth. Donations and investments are mainly carried out through online platforms which in turn coordinate the fundraising process. It comprises of funding done to community-based programs for no returns or sophisticated portfolio selection with the motive of monetary gain. Some of the outcomes from this research have been reported by Feldman, (2013) who researched the various kind of crowd funding and the impact of having a product available once payment has been made in order to create something for the future.
One field that can give a clear indication on crowd funding is the discussion on crowd sourcing and also open sourcing by Tillotson,(2012) shows that both fields share some characteristics with crowd funding. In open funding placing the production and development of a certain brand is distributed to many people by providing access and also providing a common source material among the participants of in open funding (Shelters, 2012) as opposed to crowd sourcing.
One major difference between open financing and crowd funding is that all products will be available to the public in open sourcing while in crowd funding the final product belongs to the organization and this becomes more evident since capital cannot be shared. In both kinds of crowd funding some aspects in the production and design fixing of various challenges are related to marketing of the portfolio and the product in order to get funding.
Due to amendment of the JOB Act, Crowd funding ema...
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