Crowdfunding: The Contemporary Limitation
Crowdfunding is a form of fund by small contributions of large crowds through the internet without standard financial that allows founders of for-profit, artistic, and cultural ventures to collect funds (Mollick 2014).
It is an important source of funding through the internet in donations or some form to exchange rewards and voting rights. It has successfully created transparency in financing and an easy way to transfer into real cash. This is a more modern way and more informal in co-operating financing. Crowdfunding also leads to democratisation of financing. People have the choice to help or not. This allows entrepreneurs to extend from traditional sources of funding and rejection in any investors giving them any funding type. It also provides new opportunities for people who have relatively a good amount of money to invest. This really changes the market for upcoming small businesses and entrepreneurs, but this does not change the inequalities encountered by entrepreneurs and investors in traditional financial markets. This can cause new sources of inequality and new kinds of risk for investors.
As mentioned, crowdfunding is commonly run via the Internet and social networks for funding (Borst, Ferguson and Moser 2018). Modern technology has exposed people to more opportunities and chances to make good. However, there is no doubt that limitations are still applied in any condition, no exception. Even when the Internet has allowed people to donate in its easiest way possible, there are considerations of factors that cannot be examined via the internet. Traditional funding typically is more in-depth and careful in investigating the target donation, whilst online-based funding only allows people to judge from pictures, videos, or stories that can be altered to spike interest and sympathy. The limitation has restricted people from judging the actual condition and providing unfairity to people with no access or skill to provide compelling material to grasp the crowd-founders.
Project creators were sometimes disappointed that many friends or family members (kinship relations) did not provide support, but at the same time were surprised by the number of previously unknown funders, perceptual relations (Hui et al. 2014, cited in Borst, Ferguson and Moser 2018). Also, Davidson and Poor (2014, cited in Borst, Ferguson and Moser 2018) found that the perceived proportion of known funders negatively predicts project success. However, it is still unclear how social relationships between funders and creators influence project success and how social media activities vary in mobilizing funders with whom the creator has different relationships. Prior crowdfunding studies confirm that the type of relationship between a project creator and funder affects the decision to contribute to a crowdfunding project (Agrawal et al. 2015; Davidson and Poor 2014, cited in Borst, Ferguson and Moser 2018). to ensure that crowdfunding is not exploited, we must use different tie strengths. One of them is, reaching weakly tied; it is more effective for reaching people who mainly use group-wide communication. This means that successful projects appear to have attracted higher proportions of latent tie funders. Social media also helps to reach latent ties by retweeting and commenting on Twitter and commenting on Facebook really helps crowdfund.
It is confirmed that crowdfunding has changed millions of lives and creates a broader opportunity. However, people have to be more aware of the limitation it gives and to provide an equity ground for all the participants.
Borst I, Ferguson J and Moser C (2018) ‘From friendfunding to crowdfunding: Relevance of relationships, social media, and platform activities to crowdfunding performance’, Sage Journal, 20(4):1396-1414, doi:10.1177/1461444817694599
Mollick E (2014) ‘The dynamics of crowdfunding: An exploratory study’, Journal of Business Venturing, 29(1):1-16.
Mason C, Landstrom H, Parhankangas A, (2019) ‘Why crowdfunding may not be the great democratising force in investment after all’, The conversation, accessed 8 January 2021.
Röthler D, Wenzlaff K, (2011) ‘Crowdfunding Schemes in Europe’, EENC Report, pp. 5 - 6, accessed 8 January 2021.
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