Financial alternatives in seeding ventures – A review of Crowdfunding

The manner in which organisations finance ventures and borrow loans is changing. Worldwide banks played a considerable role in the financial crisis directly affecting the ability of loan supply from banks. Subsequently, the... [ view full abstract ]

The manner in which organisations finance ventures and borrow loans is changing. Worldwide banks played a considerable role in the financial crisis directly affecting the ability of loan supply from banks. Subsequently, the banks have less lending ability to supply new loans, causing challenges for individuals and businesses to fund ventures. There is a growing demand to revolutionise banking and funding by using technological advances in a better manner to link those who want to invest money directly with those who need it. In light of the need to find finance for seed and early stage ventures, alternative finance channels have emerged outside of traditional finance systems. One such channel is crowdfunding. Crowdfunding is a method of alternative finance that is increasingly being employed as a means to fund new ventures. The rapid increase in crowdfunding is borne, at least in part, out of the need to find alternative finance for seed and early stage innovations in the aftermath of the financial crisis. It allows individual founders of for profit, cultural and social projects to seek funds from a large number of individuals in return for future products, rewards or equity. Fundraisers predominantly use online established platforms to directly interact with the crowd. Reward-based crowdfunding has reported continued growth in recent years. The phenomenon is in its infancy. Crowdfunding models include equity crowdfunding, donation crowdfunding, peer to peer and business lending and reward-based crowdfunding. Literature has mainly focused on equity, donation and peer to peer models of crowdfunding, however, it is reward-based crowdfunding that is experiencing continued year on year growth. Reward-based crowdfunding is the most employed by SME’S and small ventures in different countries Literature is lagging in terms of reward-based crowdfunding. This paper is a review of crowdfunding with a main focus on reward based crowdfunding. Reward-based crowdfunding concerns the exchange of monetary contributions in exchange for non-monetary reward on the part of the initiator. Studies indicate that contextual factors influence the success of campaigns, specifically nature of rewards and policy. The majority of studies focus on the United States and the UK. Consequently, a gap exists in an Irish context. There is little evidence to suggest that developed reward models will be positively received by Irish consumers. This paper reviews extant literature on financing ventures and crowdfunding. It proposes gaps that exist in an Irish context as well as a research agenda to further understand, promote and improve reward-based crowdfunding in Ireland.

Key Words: Alternative finance, alternative funding, crowdfunding, new ventures, project management, venture funding.