Crowdfunding for Rural Business Growth

Background of the study

A number of businesses in the rural areas are considered to be redundant in their growth and expansion and as such the rate of rural development in whichever country: be it already developed or developing countries is always stagnant. One of the reasons for this is the lack of funds to expand businesses as well as develop new startups that are successful (Reffell, 2018). Most startups fail due to the lack of financial planning and the owners lacking enough funds to keep the businesses going within the first phases when it has just been launched. Crowd funding represent one of the ways that funds can be generated from different sources for the purpose of rural development.

Crowd funding can be loosely defined as a way of raising money by enabling the collection of funds from colleagues, friends, family and other individual investors who may be interested in the project lined up for the money eventually collected. It is a technique that is capable of bringing a pool of investors to collect funds for financing an individual project and ensure its successful growth overtime. However, according to Thorpe (2018), crowd funding has become a loaded term meaning more than just collecting money for investment.

Crowd funding is also applied by nonprofit organizations to assist in the collection of funds for donations and charity purposes, as such it has evolved to mean different things based on which organization one hails from (Thorpe, 2018). Given the capability of different investors to pool their resources in being able to fund a project, funding businesses in the rural area provides a viable opportunity due to low competition and a guarantee for the business to grow and develop as such crowd funding can be a viable source of capital for businesses in the rural areas which will ensure not only growth and development of the business in the rural areas but also the development of the rural area as a whole and enabling its urbanization eventually.

Research Aims and Objectives

Research Aims

The topic of study aims to investigate the use of crowd funding as a source of funding for rural businesses. Basically it aims to analyze the successfulness of crowd funding in providing capital for businesses (Both startups and ongoing) in rural areas.

Research Objectives

The researcher aims to highlight whether crowd funding is a viable source of capital for such businesses and in doing so the topic was broken down into several objectives to help the process of research

To evaluate the viability of Crowd funding as a source of funds for business Projects

To explore various ways with which crowd funding can be used to finance businesses in the Rural Areas

To evaluate the profitability of rural businesses developed and run using Crowd funding.

Research Questions

Is crowd funding a viable source of funds for business projects?

What are some of the ways with which crowd funding can be used to finance businesses in rural Areas?

Are businesses in the rural areas funded by crowd funding profitable?

Rationale of the Study

Rural areas despite being reserved and less active in terms of socio economic activities account for more than a quarter of the world’s population, as such the engagement of these individuals in economic activities despite their numbers, is crucial to a particular countries economy. Most of the individuals in this area engaging in large scale farming and Agricultural activities and as such have large amounts of produce for which they need to exchange for money and other basic human needs. Enabling them develop businesses in this areas will not only provide them with their needs but also pull investors from outside the areas who intend to trade in their produce. As such the application of crowd funding in this areas can be of immense benefits to the population in the areas as well as in boosting urbanization in these areas and eventually improving standards of living. This highlights the rationale for taking up this topic of study.

Literature Review

According to Mollick (2013), Crowd funding refers to a novel method of funding different new ventures ranging from cultural, social or even economic projects. It allows founders of such projects to request for funding from individual investors with the returns mostly being future products or shares into the created ventures. It is a way to help businesspersons to embrace new and fresh tactics of undertaking entrepreneurial plans and managing ventures, which thus prompts new types of business improvements in which the "customary" crowd gets all the more firmly associated with these organizations, as dynamic customers, financial specialists, or as both (Belleflamme et al., 2014).

Crowd funding is not a modern idea, this method of generating capital dates back to early 1700s in Ireland, where Jonathan Swift who is called as “the father of microcredit” started the “Irish Loan Fund” (Strausz, 2017). Given the advancement of technology in the modern age the idea of crowd funding has been revolutionized as individuals sitting miles away from each other as well as from the site of the actual project can contribute to it making it a global phenomenon in the modern age, this further highlights why about 60% of the users of crowd funding to kick start or further their businesses are millennials.

Wolverton (2018) highlight a high magnitude of economic impact of Crowd funding in the recent years. He highlights that crowd funders raised more than 16 Billion dollars in 2014 up from only 6 billion in the previous year further predicting that the concept of crowd funding will continue to gain popularity with 34 billion dollars in crowd funds projected for 2015. This highlights the huge potential that crowd funding possess in being able to provide finances for whichever type of business in whichever location, as such applying it as a source of financing for business in the rural areas is likely to highly impact the areas and the lives of the individuals living within this areas.

Crowd funding exist in a variety of types as highlighted by Agrawal, Catalina and Goldfarb (2014) including: Donations and Rewards which may include philanthropic donations or gifts for which no returns is expected, Lending which informs issuing of capital to be repaid often with an interest, Equity which includes investment for ownership or a stake in the business developed as well as Royalties which include crowd funders investing in campaignes or ventures so as to receive a share of revenue earned from the ventures. Investors are open to pick whichever type that is suitable for them.

Among the benefits of crowd funding as outlined by Mullerleile, Joenssen and Mullerleile (2014), include enabling entrepreneurs to contract with the customers before investing this enables the screening and assessment of valuable projects which guarantee returns before actual investment is made. Among other benefits include crowd investment which ensures adequate amount of capital needed for the startup and sustainability of the business venture involved, it also provides an opportunity to crowd source and outsource ideas that help to refine the project taken up for more efficiency in execution as well as profitability. Strausz (2017) further highlights that crowd funding doubles as media and marketing exposure which assist in the development and creation of a brand and improving the overall success of the ventures that are carried out.

Crowd funding capital Advisors as highlighted by Wolverton (2018) emphasize that crowd funding has had a significant impact in the economic growth of the United States in the last Half century due to the possibility of collecting these funds on online platforms which has subsequently widened the magnitude of investor participation. They highlight that crowd funded companies increased quarterly revenues by an average of 24%. This can be Brocken down into Equity based crowd funded companies which increased revenues by 351%. This further highlight the dynamic shift of investors in participating in crowd funded ventures and as such highlight their profitability and their potential in being able to fund rural businesses.

Research Methodology

Introduction

The chapter on research methodology according to (Neuman, 2013) is quite significant in enabling the process of the research investigation. It essentially contains descriptions of different tools as well as techniques that are employed by the researcher in being able to carry out the actual research work. In the following paragraphs, aspects such as research approach, data collection, data analysis, sampling, etc. have been discussed.

Research Techniques

The research applies a qualitative research study technique aiming to collect relevant information from business investors as well as rural business people regarding the viability of applying crowd funding as a source of capital for businesses in the rural areas. The research philosophy and approach applied therefore will be interpretivism and induction which is suitable for research studies supported with the collection of first hand data. The choice of this technique is fore grounded by the fact that even though the investigation is focusing on a known premise, the expected outcomes and conclusions are rather untested (Lewis, 2015).

Target Population

The research focuses on evaluating whether crowd funding is a viable source of capital for businesses in the local regions. The target of investigation on the ground therefore will be on businesses men and women in the rural areas who are part of the economic development of the said local region as well as business investors who invest in various crowd funding ventures on a regular basis.

Sampling

According to Blaikie (2010) a researchers awareness as to the magnitude and extent for which the population of his study spans and therefore the boundaries that can define a properly spread sample is integral in the decision of which sampling technique to use. To collect primary data for this study through interviews, the researcher will use random sampling due to the infinite number of business investors and business men in rural towns across the states. This implies that both business investors for crowd funding projects as well as business men and women in local areas will be chosen at random. This further implies that the sample size taken up is open to any other restriction such as gender and only restricted by the availability of an individual on random approach to contribute to the research (Burns, 2000).

Research Methods

Considering the qualitative nature of the research seeking to establish the viability of crowd funding resources to invest in rural business men and women the research study employs the use of interviews and semi structured questionnaires. The best way to collect data for this study would be to focus on primary sources. Herein the researcher would depend on interviewing rural business men and women as well as business investors in crowd funding ventures. This method will be the most effective for the scholar. This is mainly due to reason that the researcher can obtain a significant amount of data and information regarding the subject matter (Smith, 2015). The researcher will also employ the use of secondary sources such as economic variable statistics.

Data Analysis

Braun and Clarke (2006) describe thematic analysis to be a qualitative research method of analyzing first hand data by taking into account the identification, classification and reporting of different patterns, themes and/or connections available within the data. The analysis of the primary data collected will therefore take up the form of thematic analysis.

Ethical Considerations

Due to the research obtaining information from individuals and human beings, ethical practices and concerns arise as to the relevant courtesy afforded to the participants of the study. According to the Blaikie (2010) the ethical issues present include the practice of using human beings as test subjects and subjecting them to questioning and interrogation. In managing this, random sampling will be used which means, only participants who are willing to participate out of their free will, will be considered and will effectively participate in the research study. The identities of the participants will be effectively kept private for the sake of maintaining the anonymity of individuals seeking to participate. Their opinions will therefore remain only with the researcher

References

Agrawal, A., C. Catalini, and A. Goldfarb (2014). “Some Simple Economics of Crowdfunding,” Innovation Policy and the Economy 14, 63–97.

Belleflamme, P., T. Lambert, and A. Schwienbacher (2014). “Crowdfunding: Tapping the Right Crowd,” Journal of Business Venturing 29, 585–609.

Blaikie, N. (2010) Designing Social Research (2ndedn).Cambridge: Polity

Corley, K.G. and Gioia, D.A. (2011) ‘Building theory abouttheory building: What constitutes a theoretical contribution?’,Academy of Management Review, 36(1), pp. 12–32

Lewis, S., 2015. Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice. 16(4). pp.473-475.

Mollick, E. (2014). “The Dynamics of Crowdfunding: An Exploratory Study,” Journal of Business Venturing 29, 1–16.

Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.

Smith, J.A., 2015. Qualitative psychology: A practical guide to research methods. Sage.

Straustz R. (2017). A Theory of Crowd funding: A mechanism design approach with demand uncertainty and moral hazard. Discussion Paper Number 2: Humboldt University Berlin.