INTRODUCTION
When you do not have the necessary funds to carry out a project or the conditions to resort to the usual means of financing, there is an alternative source to obtain it: crowdfunding or collective financing, also called collaborative, mass, participatory or patronage which worldwide, and in a few years, has become one of the most relevant sources of non-traditional financing.
Crowdfunding is a method by which individuals, non-profit organizations and companies obtain the resources required to carry out initiatives that are aimed at meeting strictly personal needs, developing projects of a social or business nature. The above through internet platforms specialized in collective financing that are responsible for collecting the economic contributions of a group of people willing to collaborate for its achievement or who are interested in lending or investing their money.
This paper aims to provide an overview of crowdfunding, particularly of models based on donations and rewards, which, according to international experience, are a useful tool to finance mainly small and medium-sized projects. For this, its relevance is highlighted, the different modalities that it has assumed, the means used for the dissemination of requests for funds and the collection of donations and financial contributions from the sponsors, the uses for which they are intended, are presented. success factors, the advantages of this model and some policy proposals to promote its development.
BACKGROUND AND IMPORTANCE OF CROWDFUNDING
It is considered that among the first cases of participatory financing in which a massive means of communication is used to invite a community to collaborate with financial resources, highlights the call launched by the New York World newspaper between 1883 and 1884 to request contributions to to be able to finish the construction of the concrete pedestal on which the Statue of Liberty would be mounted. As a reward to those who contributed, they were offered an acknowledgment of participation and a small replica of the statue to aid greater than one dollar. In five months, around the required $ 125,000 was raised, highlighting the fact that most of the donations, about 160,000 approximately, came from low-income people who contributed less than a dollar to the cause (Cejudo and Ramil, 2013).
The first case of online crowdfunding is that of the British rock band Marillion, who in 1997 carried out an internet campaign to invite her fans to financially support her to pay for her tour of the United States. She raised a total of $ 60,000 through online donations.
Years later, in 2003, the musician Brian Camelio founded the ArtistShare company considered the first platform dedicated to collective financing in order to contact artists with their public, share with them the creative process and achieve their economic collaboration for the generation of new works in the field of musical arts.
The generalization and use in the world of the term crowdfunding, derived from the English words crowd, to refer to crowdfunding, is linked to the creation and subsequent development of Kickstarter, a crowdfunding platform founded in the United States. in 2008.
In 2012, the little more than 450 existing crowdfunding platforms in the world raised $ 2.66 billion and supported nearly 1.2 million projects, mostly small and medium-sized, for-profit and non-profit. Of the total collected 60% corresponded to platforms in North America, 35% to those in Europe, 3% to those in Oceania and the remaining 2% to platforms in South America, Asia and Africa (Esponti, 2015).
A prominent example of platforms is Kickstartet which, from 2009 to September 2015, has published 253,000 projects on its website from the United States, Canada, Europe, Asia and Latin America (Mexico, Brazil and Argentina mainly). Of these, around 92 thousand have obtained the requested financing with a total collection of one thousand six hundred million dollars, which represents an average success rate of 37% of the total number of projects received (Kickstarter, 2015).
Among the aspects that have significantly influenced the evolution and current configuration of crowdfunding are the economic, social and technological aspects. The economic ones for representing a non-traditional financing alternative for the growing number of people who intend to carry out projects of various kinds and do not have sufficient resources to carry them out or the possibility of accessing bank credit. On the other hand, the rise of social movements for community involvement, cooperation, interaction and collective work and the promotion of a culture of solidarity have played a relevant role in the success of participatory financing.
Regarding technology, there is no doubt that without the development achieved by information and communication technologies, particularly digital social media such as blogs, social networks and multimedia, as well as mobile devices, e-mail and payment systems. This financing option would not be viable online due to the impossibility of accessing a wide group of potential project sponsors quickly and at low cost regardless of their territorial location, widely disseminating them, capturing their contributions and directly interacting with them (Rodríguez de las Heras, 2014).
TYPES
Depending on the nature of the exchange, crowdfunding can be divided into four types:
Crowdfunding based on donations (Donation-based crowdfund ing) . This type of non-financial crowdfunding is mainly used by individuals and civil society organizations to raise funds for social projects. Donors do not receive a tangible benefit in return for their contribution to the project or cause, but through the corresponding platform they can access detailed and timely information on the progress and results achieved.
Crowdfunding based rewards (Reward-based cowdfunding) . It is the most widely used type of non-financial crowdfunding internationally and works with projects in which sponsors are given a non-monetary reward in return for their financial contributions.
Crowdfunding based lending (Lending-based crowdfunding). It is a financial crowdfunding model in which, through an internet platform that acts as an intermediary, entrepreneurs requesting resources are put in contact with groups of people interested in seeking investment opportunities in exchange for obtaining a return on the loans granted. at rates that generally depend on the viability of the project, risk levels and expectations of success.
Investment -based crowdfunding (Equity-based crowdfunding). In this type of financial crowdfunding, company shares, participations or a percentage of the benefits expected to be obtained are offered as consideration to the group of project sponsors.
PLATFORMS OF
According to the type of crowdfunding that the platforms handle, they are classified into donation, reward, loan, investment and mixed platforms. As mentioned above, in this article we will focus on the characterization of crowdfunding based on donations and rewards. Such platforms represent just over 75% of the existing platforms worldwide and are considered particularly useful tools to finance small and medium projects.
The platforms are web portals created by companies or organizations dedicated to facilitating crowdfunding services such as the following:
- Offer the necessary infrastructure on their sites to the applicants for financing so that prior analysis, evaluation and approval of the project is published and invites the general public to make donations or financial contributions for its achievement. Promote the projects through the different means of dissemination available to the platform. In this regard, it is important to note that the communication effort of the projects to attract sponsors corresponds primarily to the applicants for financing. Provide intermediation services for the reception of donations and financial contributions made by the people who support the projects, usually through transfers to bank accounts of the platforms via credit / debit cards. Likewise,to deliver these donations and financial contributions with their corresponding invoice to the beneficiaries of the projects once the collection process is completed There are platforms that at a low cost offer complementary services for project design and campaign launch for those applicants who find it difficult its realization.
Examples of platforms to which projects generated in
Mexico are Fondeadora (fondeadora.mx), Ideame (idea.me), Kickstarter (www.kickstarter.com), Aportemos (www.aportemos.com) Indiegogo (www.indiegogo.com), play business (playbusiness.mx), Let's Make the Cow (www.hagamoslavaca.mx), GetYourCause (www.getyourcause.com), Vakita Capital (vakitacapital.com) and MiCochinito (www.micochinito.com/cochinitos) (IDB, 2014).
It is worth mentioning that there are cases in which the services of a platform are not used. Funding applicants are directly responsible for uploading projects to Internet sites, disseminating them and capturing donations and contributions from sponsors.
RANGES AND DESTINATION OF FINANCING
According to the Crowdfunding Industry Report (2012) in 2011, 35% of the financing went to projects with requirements of less than 2,500 dollars, 28% corresponded to the range of between 2,501 and 5,000 thousand dollars, 18% to that of 5,001 to 10,000 dollars, 9% to $ 7,501 to $ 10,000 and 10% to more than $ 10,000 (Massolution, 2012).
In the case of projects in which financing is requested to cover requirements of strictly personal causes, donations from sponsors are generally used to cover expenses for concepts such as attending to family emergencies or health problems, making trips with the purpose of attending various events, undertaking long journeys in different media, for training and education.
Social crowdfunding projects refer primarily to requests for funding from civil society organizations to support the development of communities in causes related to issues such as health, food, education, accommodation in social welfare residences, access to drinking water, entertainment and sports, human rights and employment. In addition, for the organization of events and celebrations and for the protection of vulnerable groups, the environment, wildlife and pets.
The contributions of people who sponsor initiatives related to small and medium business projects are mainly intended to cover requirements such as the following:
- The development of new products and services. Extension of product and service lines. Creation of new companies. Improvement of production processes. Modernization of physical facilities. Acquisition of furniture and equipment. Working capital. Marketing of products and services.
Among the categories of activities to which such business projects correspond are those described below:
- Food and beverage preparation services, Educational services, Health services, Artistic, cultural and sports services, Professional, scientific and technical services, Film, video, radio and television production, Publishing of books, magazines and newspapers, Arts plastic and photography. Information and communication technologies. Wholesale and retail trade. Manufacturing industries. Agricultural activities.
ADVANTAGES AND RISKS OF
Among the advantages and risks of this model, the following stand out:
- Being a means of filtering projects, determining which ones are most attractive and feasible, and testing their productive potential based on the number of responses obtained from the public when launching a request for funds (Zhou, 2015). Entrepreneurial Initiatives The model makes it easier for applicants to get in touch with people who could be future clients. Represent, in certain situations, a way to obtain working capital by offering those who support the consistent rewards project, for For example, in the right to be the first to receive a new good or service once it occurs or to attend a special event. In essence it is a kind of presale.If the proposed project is in perfect harmony with its public, it may exceed its financing goal, and therefore, allow it to be developed with higher quality standards or more broadly. If a project does not obtain the desired financing, there is the possibility of reviewing it, analyze the causes of failure, correct possible deficiencies and introduce improvements to subsequently start a new crowdfunding campaign.
However, the crowdfunding model is not without certain risks such as dealing with fraudulent projects, the absence of effective controls to supervise the correct application of the resources raised, the failure of initiatives that prevent the delivery of the promised rewards, possibility of piracy of ideas, particularly in the case of the development of new companies, products and services and the little existing regulation at a global level.
SUCCESS FACTORS OF THE PROJECTS OF
Among the relevant aspects that affect the success of crowdfunding projects are those detailed below:
- Present duly based and structured projects, with clear and realistic objectives that support their relevance and the requested financing. In addition, they include the necessary elements that support its viability, both in its execution and in its operation. If you want to attract people who are interested in contributing, it is not enough to present a vague idea that, in addition to being unattractive, generates mistrust regarding the applicants' capacity for development. A project properly designed for a platform must include elements such as the following:
a) Description of the idea
- Name of the project and origin of the idea. Category in which it is inserted (cultural, educational, entrepreneurs, etc.). Start and end date. Who are the promoters of the project and activities to which they are dedicated or intend to carry out. Destination of the funds to be collected. Description of the outstanding and distinctive characteristics of the venture and / or products or services. Benefits derived from its use or consumption Target audience Location of the enterprise Economic and social relevance of the project
b) Available resources
- Knowledge, skills, experience and preparation of the project promoters. Own resources that are currently available for the development of the initiative.
c) Preparation of photographs and audiovisual material
- Inclusion of photographs to support the illustration of the project. Recording of a video of no more than 3 minutes in which the central peculiarities of the idea are narrated in an attractive, convincing, enthusiastic and reliable way.
d) Financial goal
- Total sum of money to be collected for the execution of the project, considering the additional expenses for commissions, other services, the cost of rewards and a margin of safety. Alternatives for amounts of financing to be sponsored by people who wish to support the project. For example, they can go from $ 100.00 with various intermediate ranges up to a maximum of $ 10,000.00. Collection model selection: Time of permanence of the campaign during which the project will be published. For example, for a period of 30, 60, 90 or 120 days.
e) Rewards (for reward crowdfunding)
- Types of rewards according to the amount contributed. Rewards or rewards that will be offered at each level and that will be sent to the project sponsors. They include, among other aspects, recognitions of various kinds, shipping of developed products, small gifts, special invitations to events or the services to be provided, vouchers, participation in raffles and discounts on purchases.
f) Project dissemination plan
- In this phase it is required to have a preliminary plan for the dissemination of the project that contemplates the wide use of resources such as e-mail, Facebook, Twitter, You Tube, Blogs, Whats App, printed publications and organization of events for this purpose.
- Choose the most appropriate platform to publish the project based on factors such as the collection models used, levels of specialization, geographic coverage and costs.
They mainly operate with three types of collection models (Government of Spain, 2015):
- Collection model "All or Nothing". If 100% of the financing goal is not reached, the full amount will be reimbursed to the people who collaborated. Collection model "All Account or All Sum". If 100% of the economic objective is not reached and the peculiarities of the project allow it, the applicants receive the funds collected to partially execute them. “Mixed ” collection model. The crowdfunding campaign is divided into two stages: the first one works with “Todo o Nada” and if the established financing amount is reached, the “Todo Cuenta or Todo Suma” model is used.
By level of specialization they are generally divided into:
- Specialized or niche. Dedicated to promoting initiatives of an exclusive nature such as the development of startups or new products and services; scientific, social or environmental projects; promote the publication of books, micro-businesses, cinema, video, or events of specific economic activities. They house projects from different branches of activity (agricultural, industrial, commercial and services). Of general purposes. They house the previous two kinds of projects.
According to its geographical coverage, there are essentially two classes of platforms:
- Local coverage platforms. They offer their services to project proposals from any part of a country or to local initiatives: at the entity, region, city or community level. International platforms. They operate globally or with projects from a group of countries.
Regarding the cost for the use of platforms, the commissions are within a range of 5% to 8% of the total financing raised.
- That the projects refer to relevant problems, with significant economic or social impact, to people, organizations or activities with a certain media visibility, to companies with attractive economic returns, to innovative products and services or that provide innovative solutions, to those who favor the community development, promote environmental improvement, self-employment and job creation; promote culture, education, the use of local resources, fair trade, healthy food and artisan activities, among others.
- Preferably, the campaigns should not last more than 40 days due to the difficulties of keeping the public's attention. In the case of reward crowdfunding, the types of consideration to be offered should be original, attractive and different depending on the amount of contributions from the sponsors..Have the necessary resources, contact networks and capacity to carry out the dissemination of projects.
FINAL CONSIDERATIONS
Crowdfunding, based on the development of information and communication technologies, constitutes a novel non-bank financing mechanism that in recent years has registered significant growth internationally derived from various social, economic and technological factors. However, in the case of Mexico and unlike other countries, the growth of crowdfunding itself has been relatively slow, with the consequent waste of this innovative non-traditional financing tool at a time when the country is going through a long and complex situation. which requires the participation and solidarity of all sectors of society.
This is due in large part to the absence of public policies that make it possible to articulate the efforts of the government and the private and social sectors aimed at promoting participatory financing, the creation and development of platforms in their different modalities, of proposals for regulatory frameworks that regulate its operation, make its operations transparent and the use of the resources delivered to the beneficiaries; that help reduce risks and provide greater certainty to lenders and investors to strengthen their confidence.
Likewise, of policies that contribute to the implementation of programs that support the development of civil organizations that group crowdfunding service providers whose main functions are to carry out dissemination, training, continuous improvement, consulting, information, research and to promote ethical and responsible practices
Likewise, the creation of channels that allow them to participate in the design of strategies for the development of the sector and to act as consultation and liaison bodies before the different governmental and legislative bodies and the establishment of relationships and alliances with national institutions of various kinds and international organizations to carry out joint tasks.
REFERENCE SOURCES
- IDB, (2014). Crowdfunding in Mexico: how the power of digital technologies are transforming innovation, entrepreneurship and economic inclusion, Multilateral Investment Fund, Washington, DC). Cejudo, A., Ramil, X., (2013). Crowdfunding. Collective financing in the key of participation, Spanish Fundraising Association, Spain, Esponti, C., (2015). Crowdsourcing and corwdfunding. A global industry perspective. At: www.digitalmalaysia.my/b40/national-crowdsourcing-conference-2015 (Consulted 09/02/2015).Government of Spain, (2015). Collective microfinance in Spain, Ministry of Industry, Energy and Tourism, Spain, Kickstarter, (2015). Official website. At: www.kickstarter.com (Consulted 08/20/2015).Massolution, (2012). Crowdfunding Industry Report 2012, At: http://www.ncfacanada.org/wp-content/uploads/2012/10/Massolution-Full-IndustryReport (Consulted: 08/08/2015). Rodríguez de las Heras, T., (2014). "Crowdfunding as an alternative mechanism for project financing", Business Law, No. 1, pp.121-140.Zhou, Y., (2015). "New regulation on participatory financing or crowdfunding in the bill of October 17, 2014, promoting business financing", Actualidad Jurídica Uría Menéndez, No. 39, pp. 105-109.
