- Crowd Funding -
What are the challenges?
In generally, the openness of internet provides a really good and free environment for crowd sourcing. However, It can become more problematic for crowd funding, especially if it involves the offering of equity to the crowd. So investors will face the following types of new or heightened risks (in addition to more traditional risks):
Firtly, it becomes possible for some dishonest promoters to use the crowd funding for exploitation. Companies often use the project related to arts and humanities to promote the products for the societal goals. And this will result in blinding supporters wanting to help "do good" (Ingram, 2010)
Secondly, total amount raised is so small and each investor makes such a small investment, the cost of pursuing dishonest promoters is unrealistic and uneconomic. Generally, crowdfunding transactions is to raise a small amount of money from a large number of persons. This means that each investor’s exposure will be very small compared to the typical amount risked in a private placement (perhaps $100 compared to $25,000). (Ingram, 2010)
Furthermore, since the over spread information on the Internet, anyone and anything can be posted on these sites without digression, which leads to the problems, such as the lack of quality, confidentiality, and the reliance of crowd sourcing. Moreover, it is really necessary to notice promoter should be careful about any competitive information. crowd funding platform is a public space, so anyone can get the ideas from it, so it is necessary for promoter to keep a great idea on a public forum and never get credit for it.( Ingram, 2010)