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Crowd Funding; Investment that Gathers People Rather than Money

 

   
 
   
 
The wind of Crowd Funding is blowing through the nation. Not only domestic companies, cultural foundations and the media but also public institutions are showing their interest toward Crowd Funding and now it has became one of the most attractive social businesses. Crowd funding is the collective effort of individuals for the sake of investment and sponsorship who use online clustering of SNS (Social Network Service) such as Twitter and Facebook. This is why Crowd Funding is also known as social funding. By introducing one’s business or project on social funding sites or SNS, one can receive minimum support from up a minimum 10,000 won to hundreds of thousands of won from unspecified individuals who like those investments. This new type of donation has no limits. Its influence began from supporting culture and art, but currently, it is being used for establishing businesses, the IT industry and even collecting election campaign funds from politicians. Social funding gained its significance as SNS upgraded the culture of investment and donations in society.

 


 Crowd Funding can be divided into three types based on purpose. First, “Angel Investment” is the way of funding unique ideas. An unknown designer from Chicago, Scott Wilson can be used as an example for this type of Crowd Funding. He wanted to create an iPod nano-like watch so that people could wear it anytime they wanted. However, he was short in product development money so, he decided to make a video clip of himself explaining his idea. He then uploaded the video on the internet and requested investments from viewers. He was finally able to fulfill his idea by collecting 94,000 dollars which was 60 times higher than the money he had originally expected from 13,000 people who were interested in his unique idea.


 The second type is “Self-support Aid.” Most small start-up companies rely on bank advances for raising funds. However, it is not easy for them to get loans from the banks because banks tend to not want to take risks of lending to small companies. Thanks to Crowd Funding however, it is now possible to get small loans by using the Internet and SNS that individuals are in need of. Since all the processes are conducted through the internet, operating expense can be reduced. The money saved can then be used to increase lending rates higher than banks for the investors and decreasing the interest rate lower than private loans for the borrowers. 


 The third type is “Common Good Sponsorship.” Various projects can be supported by voluntary sponsors who feel sympathetic to the purpose of the project without wanting any kind of return costs. Youn Seung-chul, who majors in creative writing at Dongguk University, is one beneficiary of “Common Good Sponsorship.” He was looking for writing materials for his novel and wanted to gain understanding about desert marathons. He was short of budget and asked several companies to support his desert marathon project. However, his requests were all rejected. In a final attempt, he put up a notice that read “University student Youn Seung-chul, wishes to run in the desert and the Antarctic.” on a social funding website called Fundu. Within five days, he raised 5,300,000 won in funds from 20 people which was much higher than his target money of 3,000,000. As a reward, he promised his supporters that he would send post cards when he arrived at the desert. He said, “Through social funding, I not only received financial help but also was cheered on emotionally. If there is anybody who dreams of challenges but has a limited budget like me, I strongly recommend making use of social funding.”


Even though it has been less than two years since Crowd Funding was introduced in Korea, it is nominated as the No.1 promising business of 2012. This indicates the powerful growth of Crowd Funding. Recognizing the importance of Crowd Funding, the U.S. enacted a law called JOBS (Jumpstart Our Business Start) that legally permits crowd funding since last April.


By performing Crowd Funding, both investors and investees can be better off. Investors and investees can have real-time conversation through SNS on their business ideas. To make more profits from investments, investors can give helpful advice to improve upon business ideas. To attract more investments, investees should always have to be ready to reflect upon their investors’ suggestions.


Previously, it was only available for expert investors to fund businesses who had insufficient money but good ideas. However, with Crowd Funding, it has been made possible for the general public to invest directly in start-up businesses. This has lead to jobs being created and start-up businesses to develop revealing plenty of new business ideas which had previously been hidden.


In addition, when individual investors sponsor businesses, they simultaneously become consumers. In this sense, investees can secure money and conduct prior market research at the same time. Now it is becoming possible for neglected culture and art industries such as independent movies to advertise through SNS and be funded money to allow them to make the quality of their work higher.


 Researcher Hong Hyun-min from SERI (Samsung Economic Research Institute) said, “To raise funds successfully through Crowd Funding, it is important to have faithful relationships with investors. It is hard to be successful when an investee gains a bad reputation from the general public. This is why Crowd Funding is called an ‘Investment that gathers people rather than money’ Investors who take part in Crowd Funding can become strong advisors beyond just being sponsors who only provide money.”


 Crowd funding is fast and effective since it uses SNS. In the past, the word “Funding” was only used in financial markets but now with the emergence of crowd funding its meaning has broadened from plebeian to voluntary and practical sponsorship. Now and forever, the progress of Crowd Funding is expected in our society.

 

Jeon You-na  jeonuna@dongguk.edu

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