Question

Polly is hoping to finance her business using crowdfunding. Discuss Polly’s decision to use crowdfunding as a source of finance

Answer 1

Crowdfunding as a source of finance is rapidly increasing nowadays. Just to clarify, crowdfunding means raising funds of smaller amounts from large number of people and it is generally collected through internet

To make it happen, three elements are extremely important here

1. Fundraiser/Project initiator who proposes the idea which is Polly in this case

2.Individulas or group who supports the idea of initiator

3.Platform which brings project initiator and individuals together

This is a very fast way of raising finance

There are various types of crowdfunding like reward based , equity , debt based , donation based e.t.c  

Apart from financial benefits like low cost capital , early feedback on product e.t.c, Polly can benefit from non financial benefits also like name in industry, audience engagement, ease of marketing e.t.c

There are certain disadvantages also like if funding target not reached then all money will be returned to investors and if your business model is great if you have not protected it with patent or copyright then someone may steal it any failed project can bring a lot of bad reputation

The investors are cautious in investing in such projects but if Polly business model is great and which investors can trust upon then he should definitely go for this route as this will yield low cost of capital and various financial and non financial benefits