Corporations As Banks Venture Capitalists

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Corporations As Banks Venture Capitalists

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Discuss About The Corporations As Banks Venture Capitalists?

Answer:

Introduction
Crowdfunding is the modern way of financing new business and start-up. It helps new start-ups by raising funds for their business operations from various sources, such as relatives, associates, financiers and family members. These peoples prefer to invest their capital in small finance projects. It allows small businesses to get investment without the help of any large corporations such as banks or venture capitalists. The popularity of crowdfunding has grown significantly in past decade and it helps finance small companies and ideas in different fields. The essay will discuss the achievement of crowdfunding in different social aspects such as charity, donations, and development of products and facilities. The Australian legislative structure for crowdfunding and structure of other countries will be discussed in the essay for evaluating various differences. Further, the essay will recommend Howard Jones regarding funding of his idea of solar power batteries through crowdfunding method and compare it to other traditional methods of funding

Crowdfunding Mechanism
Crowdfunding and crowd-sourced funding are two different methods of financing a corporation or idea. In crowd sourced funding, the entrepreneurs received funding for their ideas but the financiers take a certain part of their shares[1]. The crowdfunding is a particular part of a crowd sourced funding, in which the funding is collected through the crowd. The crowdfunding is separate from the traditional method of funding such as a loan from banks, venture capitalists, and angel investors. These investors are limited in numbers and prefer to invest in large investment projects. The crowdfunding provided the perfect platform to new entrepreneurs to present, form and share their inventive ideas, by providing them a large number of investors and high financing options. The entrepreneur and financiers connected with each other through online websites and social media platforms[2].
There are four types of crowdfunding option available such as reward, equity, charity and landing based crowdfunding[3]. In the reward centered crowdfunding, the financiers invest in the project of entrepreneurs because of the rewards provided by them. In equity centered crowdfunding, the financier’s gets share of the corporation for the investment provided by them. The charity centered crowdfunding is based on social causes; the investors did not get any monetary benefit in this crowdfunding. In case of landing centered crowdfunding, the investment provided by financiers are considered as a loan and entrepreneurs has to return it with interest.
There are some steps that must be followed by entrepreneurs for crowdfunding of their ideas. The most important step is related to providing complete and correct information to the investors regarding their idea[4]. All the necessary information must be provided to the financiers before the collection of crowdfunding. The information includes details regarding product, facilities, objectives, required investment, the time frame for the manufacturing of product and rewards provided by the company for their investors. Entrepreneurs can post their business offer on various crowdfunding websites, available online to invite financiers[5].

Commercial and Social Examples of Crowdfunding
As per David Murray, to support and promote entrepreneur’s small business ideas and start-up, the crowdfunding options is significantly useful in the Australian economy. The reward based crowdfunding attract a large number of small financiers to invest in the ideas of entrepreneurs[6]. In this method, the company gives a guarantee to its investors that they will receive rewards one the company started operating and start generating profits. The entrepreneurs and small financiers both get benefit such way because the financier invests a small amount which does not carry large risk and entrepreneurs gets their idea funded. Indiegogo and Kickstarter are the two largest online platforms for entrepreneurs to fund their ideas through crowdfunding process[7].
In 2016, an Australian game developing company called ‘Satellite Reign[8]’ raised a funding of $461,333 for their real-time strategy game, through crowdfunding website Kickstarter. In case of equity based crowdfunding, the financiers get shares of the organisation for their investment. According to Tim Heasley, who is a partner of Artesian Venture Partners, only the wholesale financiers investing 2.5 million in real estate or earning an income of $250,000 are considered in the Australian legal system. In 2013, thousands of small financiers raise a funding of $2 million, for technology corporations such as Fame & Partners and CrowdMobile[9]. In 2014, more than 22 thousand projects were funded through crowdsourcing on the Kickstarter website and the financiers contribute more than $500 million for a new project. Various small Australian companies such as Ninja Blocks and KoalaSafe raised their funding through crowdfunding from Kickstarter website.
Crowdfunding is also a popular method for raising funds for social and charitable causes. Many people donate online for different social and charitable causes. The money donated by people used by entrepreneurs into charitable work. There are several crowdfunding websites that support charity investments to help different charities of the world. Various charitable caused are funded due to such crowdsourcing websites. There are several examples of online charitable crowdsourcing campaigns that assist in raising donation for various social causes. For example, Sanfilippo syndrome is a neurological illness which tears brain cells of the patient suffering from such disorder. The patient suffering from the syndrome cannot walk and talk or eat their food themselves.
Eliza, a four-year-old girl, was suffering from such disorder. The treatment for such disorder, which only performed in Ohio, costs more than $2.5 million. Eliza’s parents made several videos about the condition of their daughter and upload them on the internet to seek help for fighting such disease. The money they raised was not enough for the treatment of Eliza. A professional filmmaker named Benjamin Von Wong saw the story of Eliza and created a short video on her condition. He titled the video ‘Saving Eliza'[10], who became significantly popular over the internet. In few months, Eliza’s parents received a donation of $380,000 through crowdfunding donations. Currently, the campaign has raised more than 1.8 million for the treatment of Eliza’s disorder.
Another example is of Melissa Smith, she was 22 years old and suffering from a dangerous disease called Hodgkin’s lymphoma. While she was suffering from Hodgkin’s lymphoma she diagnosed with cancer twice. Melissa faced another life-threatening disease when she was 29 years old, called Transverse Myelitis. She became paralysed in few weeks and lost all the sensational from her limbs. Melissa’s sister started an online campaign for raising fund for treatment of Melissa’s diseases. The story of Melissa was noticed by a popular website called Chive and they decided to help Melissa for her treatment. The company started an online campaign for crowdfunding called ‘Hope for a Home[11]’ and raised more than $413,000 in 14 months. More than twelve thousand people contributed for the treatment of Melissa.
Legislative Framework of Crowdfunding
In Australia, the crowdfunding is a new concept of raising investment for entrepreneur’s projects. The Corporations Amendment (Crowd-sourced Funding) Act 2017[12] was passed to provide various guidelines for crowdfunding in Australia. The act was accepted on 28th March 2017 and it came into existence from 29th September 2017. It is based on providing new guidelines and regulations for crowdfunding operations in Australia. The Corporations Act 2001 gets amended and added various new principles of crowdfunding. There are few changes in Australian Securities and Investments Commission Act 2001 as well. The new crowdfunding act changed the structure of Australian market license process. There are several new exceptions which can be applied by crowd sourced funding mediators and the monetary market operatives. The new market operatives have the advantage to get an exemption from the requirement of Australian market license.
The non-listed corporations with an annual turnover or market capitalisation lower than $25 million are covered under this act[13]. The corporations which are not subsidiary or did not have any connection with the listed organisation also come under this act. These corporations can raise investment through equity centered crowdfunding up to $5 million in a year. Eligible corporations can use new amendments to create a new offering of investment under fresh disclosure system. This system is significantly easier than old system provided under Corporations Act. The offer for crowdfunding should include a proposal document and it should introduce an online crowdfunding platform. The online platform must have a license of Australian financial services. The proposal document should include all the necessary detail of the proposal. A small scale financier can invest ten thousand dollars annually in crowdfunding offers. The risk of investment must be recognised and approved by the financiers in a period of five days.
The number of wholesale financiers is also limited in crowdfunding offers, but the number of projects in which they can invest is unlimited. In case of the United States and the United Kingdom, there is no fixed limit on the crowdfunding investment[14]. Without the limit, the entrepreneurs in UK and US can easily raise more funds as compared to Australian entrepreneurs. The option of crowdfunding is also limited for the unlisted corporation and not available for a private organisation.

Observations
The crowdfunding is a modern concept in Australia as compared to other countries. Various countries have adopted a legal framework for crowdfunding policies such as United States, United Kingdom, and New Zealand, but the Australian framework is comparatively strict than other countries[15]. The policies of Australian crowdfunding limit the number of businesses which can use crowdfunding method to raise investment. The policies created by the government of Australian have faced numerous criticisms from start-ups industry. The crowdfunding method cannot be used by start-ups or entrepreneurs in Australia; instead, this is available for corporations with a turnover or market capitalisation of $5 million. The United States has implemented an effective crowdfunding procedure for organisations with different products and facilities.
For example, Oculus Rift raised $2.5 million from crowdsourcing procedure through Kickstarter[16]. The company was bought by Facebook for $2 Billion in 2014. In 2015, the worldwide crowdfunding industry has raised over $34.4 billion. Australia can adopt various policies from other countries to improve their crowdfunding procedure, for enabling small entrepreneurs to raise investment for their projects. The crowdfunding has numerous benefits than compared to traditional method of raising money. Although the Australian regulations lack several benefits of crowdfunding, it is still a better option for small corporations to raise investment. The Australian government is slowly adopting the policies of crowdfunding but there is still time before they developed such as the United States or United Kingdom’s policies.
There are mixed reviews regarding the Australian crowdfunding regulation from various market experts. According to Jo Burston, the crowdfunding act passed by the Australian government is the right step towards the improvement of corporation’s funding situation but the restrictions imposed by the government over small start-ups to raise funding are wrong and against the crowdfunding objectives[17]. Howard Jones can use crowdfunding to raise investment for his project, but the regulations of Australian crowdfunding act put various restriction over single entrepreneurs. Howard Jones can open his unlisted company and then raise investment through crowdfunding. The method of crowdfunding for raising investment is significantly better than traditional methods because it provides large control to the entrepreneur.

Conclusion
From the above essay, it can be concluded that crowdfunding is a modern method of raising funds for small business. Crowdfunding can be used for raising fund for social and charitable causes as well. Various countries such as US and UK have effectively implemented crowdfunding policies which assist small entrepreneurs to raise investment for their projects. Australia has implemented the equity crowdfunding regulation, but they lack various features of crowdfunding when compared to other countries. Howard Jones should adopt crowdfunding way to raise investment due to its various benefits such as more control over operations and no pressure of venture capitalist. Crowdfunding benefits a country’s economy and helps small entrepreneurs to raise capital.

References
Belleflamme, Paul, Thomas Lambert, and Armin Schwienbacher. “Crowdfunding: Tapping the right crowd.” Journal of business venturing 29.5 (2014): 585-609.
Eastwell, Michelle, Jessica Dale, and Felicity Dunstone. “Crowd-sourced equity funding is coming to Australia.” Governance Directions 69.7 (2017): 411.
English, Rebecca. “Rent-a-crowd? Crowdfunding academic research.” First Monday 19.1 (2013).
Featherstone, Tony. “Creating opportunity.” Company Director 30.9 (2014): 18.
Firth, Niall. “Crowdfunding successes show value of small donations.” (2012): 22.
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Fumagalli, Danielle C., and Arvin M. Gouw. “Focus: Personalized Medicine: Crowdfunding for Personalized Medicine Research.” The Yale journal of biology and medicine 88.4 (2015): 413.
Juredieu, Franck, and Sébastien Mayoux. “Crowdfunding Legal Framework: An International Analysis?.” International Perspectives on Crowdfunding: Positive, Normative and Critical Theory. Emerald Group Publishing Limited, 2016. 81-97.
Khadem, N. “Crowdfunding in Australia a step closer.” The Sydney Morning Herald (2014).
Klaebe, Helen G., and Rebecca Laycock. “How to work the crowd: A snapshot of barriers and motivations to crowdfunding.” (2012).
Manzoor, Amir. “Crowdfunding for Non-Profits.” Handbook of Research on Emerging Business Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
Royal, Carol, and G. Sampath S. Windsor. “Microfinance, crowdfunding, and sustainability: A case study of telecenters in a South Asian developing country.” Strategic Change 23.7-8 (2014): 425-438.
Stanko, Michael A., and David H. Henard. “How crowdfunding influences innovation.” MIT Sloan Management Review 57.3 (2016): 15.
Stumm, Tony. “The rebirth of crowd funding in Australia!.” Governance Directions 69.2 (2017): 96.
Valanciene, Loreta, and Sima Jegeleviciute. “Valuation of crowdfunding: benefits and drawbacks.” Economics and Management 18.1 (2013): 39-48.
Vitale, Matthew. “Crowdfunding: Recent international developments and analysis of its compatibility with Australia’s existing regulatory framework.” (2013).
Weinstein, Ross S. “Crowdfunding in the US and Abroad: What to Expect When You’re Expecting.” Cornell Int’l LJ 46 (2013): 427.
[1] Paul Belleflamme, Thomas Lambert, and Armin Schwienbacher. “Crowdfunding: Tapping the right crowd.” Journal of business venturing 29.5 (2014): 585-609.
[2] Helen G. Klaebe, and Rebecca Laycock. “How to work the crowd: A snapshot of barriers and motivations to crowdfunding.” (2012).
[3] Jeff Fitzpatrick, et al. Business and corporations law. LexisNexis Butterworths, 2011.
[4] Carol Royal, and G. Sampath S. Windsor. “Microfinance, crowdfunding, and sustainability: A case study of telecenters in a South Asian developing country.” Strategic Change 23.7-8 (2014): 425-438.
[5] Franck Juredieu, and Sébastien Mayoux. “Crowdfunding Legal Framework: An International Analysis?.” International Perspectives on Crowdfunding: Positive, Normative and Critical Theory. Emerald Group Publishing Limited, 2016. 81-97.
[6] Loreta Valanciene, and Sima Jegeleviciute. “Valuation of crowdfunding: benefits and drawbacks.” Economics and Management 18.1 (2013): 39-48.
[7] Matthew Vitale. “Crowdfunding: Recent international developments and analysis of its compatibility with Australia’s existing regulatory framework.” (2013).
[8] Rebecca English. “Rent-a-crowd? Crowdfunding academic research.” First Monday 19.1 (2013).
[9] Toney Featherstone. “Creating opportunity.” Company Director 30.9 (2014): 18.
[10] Danielle C. Fumagalli, and Arvin M. Gouw. “Focus: Personalized Medicine: Crowdfunding for Personalized Medicine Research.” The Yale journal of biology and medicine 88.4 (2015): 413.
[11] Amir Manzoor. “Crowdfunding for Non-Profits.” Handbook of Research on Emerging Business Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
[12] Michelle Eastwell, Jessica Dale, and Felicity Dunstone. “Crowd-sourced equity funding is coming to Australia.” Governance Directions 69.7 (2017): 411.
[13] Tony Stumm. “The rebirth of crowd funding in Australia!.” Governance Directions 69.2 (2017): 96.
[14] Ross S. Weinstein. “Crowdfunding in the US and Abroad: What to Expect When You’re Expecting.” Cornell Int’l LJ 46 (2013): 427.
[15] Niall Firth. “Crowdfunding successes show value of small donations.” (2012): 22.
[16] Michael A. Stanko, and David H. Henard. “How crowdfunding influences innovation.” MIT Sloan Management Review 57.3 (2016): 15.
[17] N. Khadem. “Crowdfunding in Australia a step closer.” The Sydney Morning Herald (2014).

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