Crowdfunding as a Source for Social Enterprise Financing : Advantages and Disadvantages Experienced by Social Entrepreneurs
Abstract: Social Enterprises face funding challenges. As investors focus too narrowly on risk and return, social enterprises may struggle to compete with commercial enterprises for investment capital. In this context, lending and equity crowdfunding have not been sufficiently examined, and its growing importance for business financing makes it valuable to understand its implications for social enterprises. This study collects qualitative data and uses thematic analysis to identify advantages and disadvantages that social entrepreneurs experience when using lending or equity crowdfunding. By conducting six semi-structured interviews we identified nine major advantages which are Viable funding option, Publicity and marketing, Engagement creation, Access to impact-minded investors, Alignment with company principles, Higher valuation of the company, Tests market viability, Favourable power balance towards investors and Large pool of capital; and five major disadvantages which includes Higher costs, Large number of investors, Inexperienced investors, Public exposure & Efficiency concerns. We discuss that crowdfunding represents values that are attractive for social enterprises. Further, crowdfunding sometimes offer higher valuation or more capital to social enterprises, compared to other funding sources. We see that several advantages are especially important in business’s startup phase. However, crowdfunding can also cause greater stress on the management team, and require time and resources. Entrepreneurs also need to consider factors such as public embarrassment when campaigns fail.
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