Crowdfunding is sensitive to market risk or agency risk? please answer with explaination

Expert Solution

Crowdfunding: is a practice of funding a project or a venture by collecting money from a large number of people who contribute relatively small amount via internet.In other words, It is a way of raising money for people, businesses etc.It is worked by individuals or organisations who invest or donate money to do any project/venture for gaining maximum profit or any reward.It is a fast way to raise funds through online investment

Doing a project or a business through crowdfunding is a valuable form of marketing but of course crowdfunding is sensitive to market risk or agency risk.

Incase of any failed projects, then it affects the investors who have invested money as well as it is a loss to the business and ultimately affects the reputation of the business.

Market risk also known as systemmatic risk affects the investors by incurring into a huge loss due to the factors that affect the overall performance of the financial markets in which involved.Since it takes lot of time to run a business successfully, many investors are afraid to invest money as crowdfunding.Hence in case of market risk, crowdfunding will be a loss to the investors.

Agency risk: capacity of individuals to create a business of its own choices/decisions.Online crowdfunding directly connects the creators that is the fund raising agency for the project, product for the fund givers that is the investors with an excess funds ultimately.Now agency risk however means when the agency abuses power to benefit themselves. Those agencies may raise the fund from the investors and do the project of its own choices and it sometimes leads to a loss.

Therefore we can say that Crowdfunding is sensitive to market risk and agency risk.

jeff jeffy answered 1 year ago

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