Crowdsourcing

An Example of Crowdsourcing

By distributing demands among several users and providers in order to get the best overall results, crowdsourcing is a method for obtaining finance as well as other goods and services. The process is fueled by the introduction of new technology, the web, and social media that enable worldwide connection by removing previously observed regional limitations. Crowdsourcing is used in many different businesses and at different levels (Crowdsourcing Week 2017).

Growing Connectivity

Growing connectivity has made it simple for people to work together to achieve a common purpose. Through this phenomena, businesses can more easily access innovative ideas and solutions, engage customers, optimize tasks, and cut expenses (Goodrich 2013).

Different Forms of Crowdsourcing

Open Innovation

Type of crowdsourcing where groups of people develop innovative ideas without imposing any resource or capability limitations and restrictions. The approach provides all business stakeholders including inventors, investors, marketers, and designers a platform for collaboration with the idea of profit-making. The process is facilitated through online platforms that are accessible to outsiders and the internal employees (Bratvold 2017).

Micro Tasks

Entails the breakup of work into small tasks and assigning unique assignments or work to various groups or teams based on classification and capabilities. The process can be used to solve tasks such as proofreading, audio files transcribing, and correction of the database (Bratvold 2017).The process allows entities to complete huge tasks more efficiently since any project is undertaken promptly and concurrently at different stages by qualified individuals.

Crowdsourced Design

The model is achieved when a person in need of a given design invites a group of designers to try it out and specifies the amount to be paid, design specifications, and the deadline. It improves the quality and reduces the price as compared to online freelancing (Bratvold 2017). The process can be applied in getting various designs for fashion, advertisements, furniture, and video.

Crowdfunding

Crowdfunding is the most common and entails requesting a group of individuals to donate funds or capital towards one's project. The process is usually done on a crowdfunding platform where the goal amount and deadline are set and the rewards determined to motivate contributions (Bratvold 2017). The investor is required to raise the total amount before the deadline or all the funds raised are returned to the donors (Milaap 2017). The deadlines are mostly not more than 60 days. Charities, start-ups, and artists raise funds towards their projects such as cancer research, documentary filming, manufacturing, or seed money through crowdfunding. Crowdfunding has some basic categories, which include reward-based crowdfunding where people pledge funds to an innovative project or ideas like the music album, technology product, and some art project. There other is peer-to-peer lending that involves people who take some risk to lend money to individuals. Donation-based crowdfunding incorporates small loans made available to entrepreneurs to enable them to finance their projects (Miller 2017).

Equity Crowdfunding

Equity crowdfunding is the smallest standard form of crowdsourcing that helps in the realization of real investments in private companies. The process allows people to invest in a start-up company that does not meet the requirements and capability of listing in the stock market for the company stake or other ownership agreements (syndicate Room 2017). The shareholder always has some partial ownership of the given company and benefits from the profits in the cases where the company does well. In addition, when the company fails the new investors stand to lose all their investment or a portion depending on the magnitude of the loss and the continuity of the entity. Previously, only venture capitalists, business moguls, and wealthy people could invest in the start-ups due to the high risks associated with market uncertainties that may contribute to loss of funds (On Market 2017). Equity crowdfunding has helped altered and revolutionized the investment process by offering investors with diverse financial capabilities the opportunity to invest in start-up businesses based on their financial powers.

Risks in Crowdfunding

The current laws and regulations only give room for companies that were incorporated in the United States to engage in equity crowdfunding on the platforms available in the country (Indiegogo and Micro Ventures 2017). Foreign companies are not eligible to participate in the US platforms. In addition, all the realized investments are required to be a US entity. Equity crowdfunding is often regulated to ensure the protection of the investors (Logan 2017). The developers of the given platforms may be inexperienced and lack the capability of completing the funded projects within the stipulated timelines. Also, amateur investors may be subject to fraud in situations where they fail in the verification of projects or use other investors' histories of funding to make decisions of committing their funds without proper analysis (Clifford 2016). There is also an overall danger of failure in many early, platform-driven projects. The platform should also ensure strict adherence to the law during all transactions between the investors and those seeking to be funded. There are five principle risks to consider before deciding to support any given project including dividends, capital loss, illiquidity, dilution, and diversification (Investing Zone 2016).

Oscar's Plastic Company

Oscar has a large plastics company in Spain, which has twenty full-time employees in the factory department and ten in the administration and sales department. He was always contemplating on how to expand his operations and products to other markets in Europe. To achieve the dream, he required to expand the company capacity and recruit more employees to manage and facilitate the expansion program. Oscar did calculations and deduced that he required 1.2 million (Crowdfunding Explained 2017). He had initially approached various VC and private equity funds where some had shown some interest but demanded a 30% stake in the business. The equity firms also wanted to be involved in the strategic decision-making processes, which included a proposal of a too ambitious plan of expansion which Oscar believed would put his company in great risk. He started searching for alternatives and came across equity crowdfunding. His research determined that crowdsourcing was a better way to raise the necessary capital funds without relinquishing much control of his company.

Oscar's Campaign

Oscar spent most of the time trying to determine the most relevant and direct way of presenting the numbers. He hired an advisor that was highly recommended by one of the platforms he shared with, and the advisor gave him objective and valuable feedback at every stage during the honing and designing of the whole plan. He hired professionals to help in video shooting during the day (Crowdfunding Explained 2017). The video entailed scenes for the products, commentary and factory floor. He decided to crosscheck his campaign strategy to iron out the inconsistencies and gaps. Oscar also received essential feedback regarding the campaign regarding the legal and technical aspects. He engaged with some people offline and online, and they said they were interested in his expansion plans. He also conversed with some people that were keen in investing in the project and in the end realized that most of them would bankroll his project to a start of 30% he realized the launch of the campaign was now at a ripe stage.

Successful Campaign

After the project launch, Oscar was always active on social media ensuring the promotion of the campaign to make it visible and reachable to as many people as possible. The crowdfunding project and all the stories surrounding it caught the attention of the local journalists who then featured him in a national trade journal Crowdfunding Explained 2017). It assisted much in the marketing of this noble idea hence leading to an increase in the number of people that were reached with the information. It naturally translated to an increased number of interested investors that were ready to fund the project.

Oscar quickly reached the first 50% of the entire project target from the people who were familiar with the plan and the business he runs, as they knew when the campaign kicked from. It was also easy convincing most of them as they had built some essential relationships with each other. They also believed in the potential of the business, and the entire expansion project at large thus had no many doubts (Crowdfunding Explained 2017). Within four weeks, he managed to attain his crowdfunding target. He opted to close the campaign very early, taking off the crowdfunding platform with a very successful outcome he had never imagined it happening. He contemplated on the commitment of a further equity to raise additional money after the first hitting of the target, but after consultations with the advisor, he stuck to his initial plans. He then thanked everyone who got involved in the entire project process and welcomed the new investors as the new co-owners of his company. Oscar then jointly worked with the platform staff to ensure the issuance of certificates as they had all the required systems and dealt with other formalities concerning the registration of the new investors to ensure a smooth transition of the company to many co-owners without many legal breaches.

References

Bratvold, D. (2017). What is crowdsourcing? [Online]. Available at: <https://dailycrowdsource.com/training/crowdsourcing/what-is-crowdsourcing/> [Accessed Dec 28, 2017]

Clifford, C. (2016). How does an investor make money with equity crowdfunding? [Online]. Available at: < https://www.entrepreneur.com/video/275701> [Accessed Dec 28, 2017]

Crowdfunding Explained. (2017). Equity crowdfunding – a case study. [Online]. Available at: <https://ec.europa.eu/docsroom/documents/8983/attachments/1/translations/.../native/> [Accessed Dec 28, 2017]

Crowdsourcing Week. (2017). What is crowdsourcing? [Online]. Available at: <http://crowdsourcingweek.com/what-is-crowdsourcing/> [Accessed Dec 28, 2017]

Goodrich R. (2013). What is Crowdsourcing? [Online]. Available at: <https://www.businessnewsdaily.com/4025-what-is-crowdsourcing.html/> [Accessed Dec 28, 2017]

Indiegogo and Micro Ventures. (2017). Frequently asked questions [Online]. Available at: <https://equity.indiegogo.com/entrepreneurs/> [Accessed Dec 28, 2017]

Investing Zone. (2016). what is Equity Crowdfunding? [Online]. Available at: < https://www.investingzone.com/what-is-equity-crowdfunding> [Accessed Dec 28, 2017]

Logan, S. (2017). Equity crowdfunding: What is it and how does it work? [Online]. Available at: < https://www.twine.fm/blog/equity-crowdfunding/> [Accessed Dec 28, 2017]

Milaap. (2017). What is equity crowdfunding and how does it work. [Online]. Available at: <https://milaap.org/stories/how-does-equity-crowdfunding-work> [Accessed Dec 28, 2017]

Miller, Z. (2017). What is Crowdfunding? [Online]. Available at: <https://www.thebalance.com/a-guide-what-is-crowdfunding-985100/>[Accessed Dec 28, 2017]

On Market. (2017). What is equity crowdfunding and how does it work? [Online]. Available at: < https://www.onmarket.com.au/about-us/blog/what-is-equity-crowdfunding-and-how-does-it-work/ [Accessed Dec28, 2017]

Syndicate Room. (2017). What is equity crowdfunding? [Online]. Available at: <https://www.syndicateroom.com/investors/what-is-equity-crowdfunding> [Accessed Dec 28, 2017]