Crowdfunding Theory

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The easy and trustworthy nature of crowdfunding is good for enhancing the relationship between stakeholders and the entrepreneur[s]. This relationship is necessary if the business is going to grow and operate within the confines of trust and ethical behaviors. The relationship between the stakeholder and the entrepreneur is explained using the Stakeholder Theory. According to Freeman, stakeholder theory is one that underscores the significance of each stakeholder (employer, employee, shareholder, suppliers, customers, community and the environment) to an organization as opposed to the shareholder only, the manner in which they are affected from a moral and ethical perspective (Freeman, et al. 2010). An entrepreneur’s relationship with all stakeholder…show more content…
Innovation has a big part to play in the financing process, but this does not mean that it is the sole reason. Understanding some of the reasons why financiers contribute funds may help entrepreneurs consider their approach during their campaigns. According to Vachelard, et al. (2016), individuals engage in crowdfunding or campaigns ranges from gaining new products and services, supporting new entrepreneurs, some are usually excited about a new idea, to gain social networks and for social benefit. The authors however, note that ventures that are as a result of innovation suffer from lack of certainty or information imbalance and no one knows whether the innovation will be readily accepted or rejected in the market. Startups experience high cost of capital than established enterprises and for this reason, their most important concern is financing that provides not only fiscal resources but non-pecuniary assistance. Roebuck (2011) notes that scientific studies have focused on the impact of venture capitalist on innovative startup and concluded its predominance in affording fiscal resources over conventional lenders such as banks. Undoubtedly, crowdfunding has a positive effect on the increase of innovative ventures, especially capital ventures where the financier has an active role in the management of the business. Startup…show more content…
However, some may argue that the fact that this is a relatively new phenomenon makes it both certain and risky at the same time. Certain because entrepreneurs are likely to gain resources for their startups and risky because there is little or no form of compensation for the financier, especially if that financier has some equity on the venture. It is also easy to make mistakes with crowdfunding because it does not have definite rules for governing the funding process compared to conventional means. According to Micelli, Ordanini and Parauraman (2009), an analysis of the crowd or the contemporary society as regards to their awareness and their capacity to contribute should be taken into account. The very character of the contemporary society and its knowledge of new technology alongside its involvement allows concepts such as crowdfunding possible. As internet technology increases and advances over time, this has triggered the prevalence of online social media and the ability of social networking to contribute funds for various ventures (Babu, et al. 2013). In other words, crowdsourcing and networking can be applied for the development of crowdfunding. In addition, crowdfunding can apply networking for marketing and promotions of individuals, organizations and brands. The process of crowdfunding accelerates the obtaining of funds during the first stages according to Scholz (2015) because it is
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