Crowdfunding is the process of funding a business venture or a project through raising and acquiring money from a multitude of individuals on the Internet (Prive, 2012). This operation is usually done using “an online platform that allows the fundraiser to set up a public campaign for accepting donations” (Danielewicz-Betz, 2016, p. 41). According to Calic and Mosakowski (2016), the usage of crowdfunding increased remarkably since the financial crisis from 2008 and it has become an important and famous technique to earn capital as a substitute to the traditional sources of money (Hendricks, 2014).
Crowdfunding’s objective is to produce funds on the online platforms using the networks and crowds’ power (Berg et al., 2018), thus turning social media websites into an important factor when it comes to making crowdfunding campaigns popular (Barnett, 2013). The social media platforms that are usually used for crowdfunding are: Facebook, Instagram, Twitter, Youtube (Jules, 2017). The reason these networks are famous and used for this process is because they can easily spread the campaigns and messages over the internet and to the desired audience, leading to increased and expanded economic value for crowdfunding (Mollick, 2014).
A popular topic of concern regarding crowdfunding is how the obtained funds are distributedand divided and how donorscan check how money is spent, especially the ones that have contributed with significant amounts of money (Picardo, 2015). This issue represents a massive problem to sponsors that are thinking about investing capital in a crowdfunding campaign, since they have to handle and accept the idea of non-refundable donations in case they become victims in scandals (O’Brien, 2018). Even if these risks cannot be removed, actions and solutions to decrease and avoid these dangers exist in order for donors to be informed about risks (Prive, 2016).
Even though crowdfunding gives opportunities for small businesses to charitable purposes, there are problems regarding the idea of how the raised money is being used and for what, how the issue with the individuals that do not use the money correctly is handled and how the additional capital acquired is being spent (Blanding, 2017). Padgett and Rolston (2014) suggested that in order to solve the over-funding problem, firms should not receive extra donations. Yet, this task seems impossible to achieve since crowdfunding businesses usually take advantage of these campaigns and of the funds (Funds Europe, 2016). Crowdfunding can motivate and inspire unwanted donors that are not fully informed about companies (Logan, 2014). Since any individual can establish a crowdfunding campaign in order to earn money for their projects, any person can contribute with capital as well, thus getting involved without being aware of the possible risks (Adrian, 2015). Because the crowdfunding businesses have not informed people about the risks of these campaigns, they are not aware of the problems that could occur (Adrian, 2015).
Bibliography:
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