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7Характеристики краудфандинговых моделей. Проблемы адаптации моделей в армянской деловой среде
Characteristics of Crowdfunding Models. Model Adaptation Issues in Armenian Business Environment
УДК 338.22(479.25)
Бахшян Геворг Арташесович
аспирант Университета финансов и экономики Донгбэйя
Gevorg A. Bakhshyan
Dongbei University of Finance and Economics
^атья посвящена изучению проблем адаптации краудфандинговых моделей в армянской деловой среде.
Цель. В быстроменяющемся мире краудфан-динговые модели могут стать важным инструментом в деловой среде. Краудфандинг имеет потенциал для создания рабочих мест и может стимулировать инновационные проекты во многих секторах экономики Армении. И лучшее понимание типологии краудфан-дингових моделей может привести к созданию благоприятного фона для разработки крауд-фандингових платформ.
Задачи. Определить последовательность действий разработки успешной модели крауд-фандинга. Данный процесс принесет положительное решение проблем для многих начинающих предпринимателей и владельцев малого и среднего бизнеса (МСБ). Методология. В данной статье рассмотрена типология краудфандингових моделей с использованием общих методов научного познания. Результаты. Выявлены проблемы адаптации, характерные для краудфандингових моделей в Республике Армения. Отсутствие последовательного доверия между сборщиками средств, а также неосведомленность большинства предпринимателей в области управления капиталом — все это наносит ущерб векторному развитию данной отрасли. Выводы. Многие предприниматели сталкиваются с препятствиями из-за ограниченного доступа к капиталу в финансовых учреждениях. В связи с этим предлагаемые принципы многих учреждений и частных лиц благодаря систематическому сотрудничеству обеспечат регулярность, прозрачность деятельности фондов, использование средств и отчет о проделанной работе. Ключевые слова: краудфандинг, краудфан-динговая платформа, малый и средний бизнес (МСБ), начальное предпринимательство, модели
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Current article is tend to study and relive the Crowdfunding model adaptation issues in Armenian business environment. Purpose. In developing world creating a better environment for working Crowdfunding models can become a useful tool. Crowdfunding has a potential to create jobs and stimulate innovation in many sectors of Armenian economy. And better understanding the typology of crowdfunding models can lead to creating better background for developing crowdfunding platforms.
Problem statement. Determine the sequence of actions for developing successful crowdfunding platform. Which will tend to solve the problem of many start-up entrepreneurs and SME owners, who faces many problems in terms of finance in developing world as well as in the Republic of Armenia.
Methodology. In this paper, using the general methods of scientific cognition in various aspects, the typology of crowdfunding models has been examined.
Results. The issues of adaptation typical for the Armenian crowdfunding models have been identified. There are many substantial problems that create a big obstacle in the way of Armenian crowdfunding platforms. The lack of consistent trust among these fundraisers, as well as the unawareness of most entrepreneurs in capital management is detrimental to necessary development.
Conclusions. Many entrepreneurs encounter obstacles due to limited access to capital at financial institutions. Through suggested guidelines in the article, many institutions and individuals, also governmental institutions can collaborate in a systematic way that allows the regularity, transparency of funds activity, use of funds and progress report. Keywords: crowdfunding, crowdfunding platforms, SME, start up entrepreneurship, models
0 Introduction
^ Crowdfunding is a growing form of funding ^ practice in an individual's project or venture by ^ raising money from a large number of citizens =jE who each contribute a relatively small amount, 5 typically via the Internet. Crowdfunding is a §: campaign of requesting donations from the gen-^ eral public, which provide startup capital for ^ new ventures. Using this method of fundrais-ty ing, entrepreneurs and SME owners can pass ^ by venture capitalists and present the ideas to < common internet users, who provide financial
1 backing. While the crowd always remains essential, the relationship between entrepreneurs and their sponsors in theory and in practice are presented in many different models. It is a range from no-strings attached donations to equity investments.
In this paper, a model of a crowdfunding system will be proposed which acts as intermediaries, among crowdfunders, volunteers, field partners, coaches, non-profit organizations and governmental or nongovernmental institutions that work together in the process of screening, supervising, and managing the use of financial recourses. This is for delivering a thorough solution to the problem of startup entrepreneurs in terms of finance and other aspects. In preview studies the role of government was not counted, but therefore "The Government of the Republic of Armenia programme 2012-17" also includes clauses to support small and medium entrepreneurships (SME), particularly directed at improving access to business education and skills, finance, access to markets and informational support to SMEs [1]. It has a purpose to endorse start-up entrepreneurs to help in the implementation of their business ideas.
According to the database of the Republic of Armenia's Ministry of Finance, as of 2012 there were 74 365 SMEs, which represented 98% of all registered legal entities. This was assessed at 99.7% as of 2015 according to estimations made by the National Statistical Service of the Republic of Armenia. The employment level in the SME sector was 80% in 2016 [2].
Importance of SME in the counties economic growth is indisputable by improving living standards, creating new jobs, building a middle class within society and establishing social and political stability inside the country. This is a great opportunity for crowdfunding platforms and as well as governmental institutions to build mutually beneficial partnership to improve efficiency and provide wider possibilities for start-up entrepreneurs. Furthermore, in Armenia there is a "Small and Medium Entrepreneurship (SME) Development National Center" Fund (SME Development National Center of Armenia) was
established by Armenian Government in 2002. SME Development National Center is authorized to implement state support to small and medium entrepreneurship in the country. State support signifies support to start-up businesses, sales and export promotions, information and consulting programs, loan guarantees provision, and training. The support is provided from state budget through implementation of annual SME State Support Programs. The support shown to start-up entrepreneurs in last 6 years has grown almost 10 times starting from 3,780 up to 13,914 shown supports. Since the year of establishment until 2016 this fund allocated about 6.7 mln USD from state budget for the implementation state support programs [3]. Some of this donations can be done through a crowdfunding platform, which should also prove its efficiency of allocating State budget.
The Relevance of SME's: Crowdfunding Platforms
During the last decades, entrepreneurship has begun to be recognized as one of the main drivers of economic growth. It increases employment opportunities, enhances the technical innovation level, and promotes economic growth. SMEs make up the majority of businesses in most of the countries and are the key private sector employment driver [4].
From a dynamic perspective, entrepreneurs are agents of change since entrepreneurship implies starting new businesses, experimenting with new technology, organization of production, introduction of new products or even creating new markets. The continued economic relevance of SME entrepreneurs is contingent on their ability to obtain finance for sustainable growth. SME access to finance tends to be a common issue confronting both developing and developed countries [5]. As being part of the developing word SME sphere is considered as one of priority directions for development of the Armenian economy. Currently, Armenia has approximately 78.000 SMEs, which is around 98% of all operating legal entities, and they contribute about 27% to the country's GDP [6]. Banks are the main source of external funding to SMEs, mostly through loans. Banks generally have better access to foreign currency funding both from domestic and external sources. However, the supply of credit gets limited due to interest rates being high, and not making much profit alongside not having funding. Non-bank finance and capital markets are under-developed. As mentioned before, SMEs and as well as developing start up entrepreneurships are the backbone of Armenian economy. The study about crowdfunding model adaptation issues in
— financial transactions ->- — pledge
— information and communications >- — bonuses and rewards distribution
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Fig. 1. The crowdfunding process involving intermediaries
Armenian business environment will benefit the involvement of non-governmental institutions in SME development also it may lead a way to find possible solutions to SME funding problems in the Republic of Armenia.
In the figure below it shown a general crowd-funding platform, that tend to be web and software based Hemmer model, presented in 2011 which plays a role of neutral coordinator for the crowd-funders and the project initiators [7]. The paragraph below describes the working mechanisms of crowdfunding intermediaries.
This figure also illustrates how the platforms function as intermediaries between the capital-seeking ventures, financial service providers and the crowd-funders themselves. They have a wide range of activity and intensity; most platforms do not do more than offer a physical (internet) platform, websites to present the projects, proven procedures and the software through which the financial pledges are collected and administered. But some platforms make greater efforts and give advice, organize public relations, make
arrangements with micro-payment providers etc. As most project initiators go through a crowd-funding process only once or only a few times in their lifetime, it is very unlikely they will gain the experience and professionalism that CF platforms develop through their routine work. Therefore, the rapid emergence of such platforms is logical and crucial for this new market to function properly.
Typology of Crowdfunding models
Below is a typology of how the operators in the market can potentially be separated. The majority of platforms can be categorized under these two types as it can be seen in figure 2, but there are several variations, such as hybrid models and those platforms that define themselves in a sectoral vertical rather than by the type of finance they provide [8].
Initially, the vast majority of CFPs were donation-based, followed by lending-based and reward-based platforms. Since then the num-
Crowdfunding model Business model Description
Donation Donation-based Crowd while donating don't expect financial compensation
Reward-based The model allows Crowd to receive non-financial rewards in return of their donation, usually operating a tiered system where the more you donate the better the reward you receive
Investing Lending-based Funders receive a debt instrument that pays a fixed rate of interest and returns principal on a specified schedule
Equity-based Funders receive equity instruments or profit sharing arrangements
Royalty-based Funders get a share of the unit trust that has an interest in the intellectual property of the fundraising company. There is a percentage of revenue payout varying depending on the periodic revenue
Fig. 2. Тypology of crowdfunding models
g ber of reward-based CFPs has grown strongly. i In this section we also provide wider descrip-| tion and examples for the different crowdfund-g ing models.
< Donation-based model. The donation model ^ of crowdfunding is a means for charities, or 5 those who raise money for social or charitable §: projects, to gather a community online and to ^ enable them to donate to a project. Popular sites " include Crowdrise and Causes.
lu Reward-based model. The most popular form ^ of crowdfunding to date has been the reward
< model which has grown significantly in the 1 funding of creative, social and entrepreneurial projects. The model often closely resembles philanthropy with the donation far exceeding the monetary value of the reward or the reward costing the fundraiser little, such as experience or recognition-related rewards. For some projects the model is similar to a presale agreement. In these cases entrepreneurs or artists crowdfund the production cost of their record, movie, game or product and allow the donors to be the first recipients once the production is complete. Popular platforms operating the reward model are Kickstarter and Indiegogo in the US and Peoplefund.it in the UK.
Lending-based model. Crowdfunded lending is largely an evolution of the peer-to-peer model of lending. Here lending bypasses traditional banks. Different from a traditional bank, the CFP does not screen between different projects [9]. Rather it lets funders decide for themselves if a particular project should be funded. Pioneered by firms such as Lendingclub and Zopa. Projects or businesses seeking debt apply through the platform uploading their pitch, with members of the crowd taking small chunks of the overall loan. Some platforms focused on social causes offer interest-free loans such as micro-lending site Kiva. Others operate more as an investment, where interest rates are decided either by those seeking the loan or using a market for loan parts, such as that used by UK platform Funding Circle.
Equity and royalty based models. On equity-, royalty-, based CFPs, funders act as investors. They have to assess the risk of the investment. Difference of this two models is that on equity-based CFPs, fundraisers offer equity stakes for the funding of a campaign, while, on royalty-based CFPs, a fraction of revenues or profits is offered. This form of the model has been the slowest to grow due to regulatory restrictions that relate to this type of activity. The most popular sites in offering this model are Crowd-Cube in the UK and Symbid in the Netherlands. Others such as Quirky offer a revenue or profitsharing model allowing you to capitalise on the success of the projects you back.
While most platforms fit relatively neatly within one of the categories above, many also do not. Examples of this are BuzzBnk a social venture focused platform that offers both the reward model and the lending model. BankTo-TheFuture aims to offer a stream of funding for businesses starting with reward-based and equity crowdfunding and then loans once they start generating revenue. Other sites target specific vertical niches such as Mobcaster for TV shows, 8bitfunding for video games and UnBound for book publishing.
Adaptation issues of Crowdfunding models in the Republic of Armenia
Crowdfunding as a tool for supporting SME and start up entrepreneurship development is not common due to many regulatory regimes currently available. The issues of various model adaptation can have also cultural problems. The reason for that can be a traditional way of thinking in decision making process of entrepreneur-ship. While there are several platforms that already provide a system for funding with different approaches. As a general rule: there is no one platform that's right for everyone. Platforms are as unique as the products raising funds, and finding the best fit for certain business is dependent on what that company needs [10]. In this paper, we study and compare some of platforms in Armenia and the problems those platforms generally face while operating.
One Armenia believes that donations in crowdfunding platforms in investing in culture and technology, not a charity. Culture and technology are universal equalizers. They know no borders and create limitless possibilities for the future. They are a mode for expression, a ticket to progress and accessible to anyone in their simplest forms. Armenia has a rich 4,500-year (and counting) history that is strongly rooted in its cultural practices and traditions. Meanwhile, its IT sector is booming, taking up a clean, corruption-free 20% of the country's annual GDP. As matter of fact technically OneArmenia is not a crowd funding platform since they use Indiegogo as their primary platform.
BoostBloom is a CFP, a crowd funding platform, aimed at helping Armenians raise money. Backers do not "invest" in Boostbloom projects to make money; they "back" projects in exchange for an exciting reward. This type of support has proven to be far more effective that simply giving money. The beauty of crowdfunding is that it creates a special relationship between crowdfunders and the project creators. Armenians inside Armenia and outside Armenia especially need that type of support implying direct
Table 1 g
The business model canvas Ï
PARTNER KEY ACTIVITIES OFFER CUSTOMER CUSTOMER
NETWORK • Risk management • Lend to RELATIONSHIP SEGMENTS
• Banks • Screening SMEs startup • Progress • Crowdfunders
• Non-government managing the entrepreneurs tracking • Startup
organizations platform/system • Give chances • Regular entrepreneurs
• Governmental to contribute progress report
organizations KEY in community DISTRIBUTION
• Universities (part of RESOURCES developments CHANNELS
community services) The platform • Loans for • The platform
(crowdfund web based startup • NGO
system) entrepreneurs • Universities
partners
COST STRUCTURE REVENUE STREAMS
• Risk management fee • optional donations
• System development/
maintenance
• Screening fee
involvement in the process and motivation to reach a goal.
HopHop is also a new CFP and is exclusively focused on the Armenian market. HopHop was created to provide a platform for Armenians looking to promote their project in an Armenian focused platform. They also provide help such as developing and marketing of the campaign in Armenia.
Global Giving is another and it accepts projects from social entrepreneurs and non-profits, and the range of projects is very broad. However, it requires a process to get there. The organization wishing to raise funds for a project through GlobalGiving will need to be nominated (self-nomination is also possible) and then submit an application. After a successful nomination and application process the organization will participate in an open challenge to raise money for the first project. If the applicant raises minimum $5000 from 40 donors during one month then the organization gets its permanent spot on the GlobalGiving web site.
RocketHub is a creative-based platform, Rock-ethub also offers the ability for individual projects to collaborate with team members for a higher success rate. Rockethub will be working with A&E on ProjectStartup to give projects television exposure. Fuelers (backers) donate money to projects via "Rocketfuel," a virtual currency. All-or-nothing approach like Kickstarter, the emphasis at Rockethub is getting funded as quickly as possible, though with deadlines ranging from 15-90 days, projects have a bit more time.
There are many substantial problems that create a big obstacle in the way of these Armenian platforms. The lack of consistent trust among these fundraisers is detrimental to necessary development. The large part of the shadow economy is a problem for CFPs, and also SME's
raised funds. The shadow economy simply causes a progress limitation. Financial markets are not well developed, which also stands as a significant issue.
Crowdfunding model criteria adaptation guidelines and suggestions in the Republic of Armenia
As it was discussed before, the models don't operate efficiently and are not well adapted in the Armenian business environment. Therefore, with the consideration of the specific issues present that have been mentioned, we would like to propose a business model, which would describe the rationale of how the system can create, deliver, and capture value (economic, social, or other forms of value). The business model is conceptualized using the Osterwalder model that is called the Business Model Canvas.
The proposed business model canvas in table 1 consists of nine business model building blocks that are: partner network, key activities, key resources, value proposition, customers segment, customer relationship, distribution channel, cost structure and revenue streams.
Typology of the proposed model involves two different parties that are not appeared in Hem-mer's model which can give a significant difference in the Armenian business environment. They are governmental organizations and field workers. Field workers can consist of NGO and Universities (as part of community service). The roles of field workers are:
a) Examine the feasibility of startup entrepreneur
b) Calculate the amount of loan required
c) Collects entrepreneur stories, pictures and loan details and uploads them to the system
d) Provide a training and knowledge's update required by the startup entrepreneur
g The strengths of the proposed model can be i described as following:
I a) The use of both web based system and social networks will gather more internet users to ^ be part of crowdfunders and field partners. ^ The weaknesses of the proposed model can be 5 described as following:
§ a) This model relies on Internet literacy among its users so that it may limit the number of users especially field partners from remote ш areas.
^ b) Despite of many advantages in involving mi-< crofinance institutions in this model, it may also increase the operational cost of maintaining the running system.
In conclusion, many entrepreneurs encounter obstacles due to limited access to capital at financial institutions. Through these suggested guidelines, many institutions and individuals, also governmental institutions can collaborate in a systematic way that allows the regularity, transparency of funds activity, use of funds and progress report. In previous studies the role of governmental support for startup entrepreneur was not consider as option for crowdsourcing. However, in small countries like Armenia, where population is just three million and around 33% of them live in capital city, support of government for small and medium enterprises is very important, and we also tend to believe that without that support, development of this sector will be slower.
The business model that can be applied should be implemented in the form of a web-based platform, which enables all institutions and individuals to interact directly without being limited by time and place. Crowdfunding, as a financial strategy, can stand as a very flexible method in this environment — which is necessary for the Armenian business environment. Following the guidelines mentioned in the Business Model Canvas, many addressed business related problems can surely be resolved.
Литература
1. EU4Business // Investing in SMEs in the Eastern Partnership Countries. May, 2017. Р. 4-20.
2. Statistical yearbook of Armenia // Armenian Statistical Service of Republic of Armenia. Yerevan, 2016. Р. 56.
3. Annual reports // Small and Medium Entrepreneur-ship Development National Center. Yerevan, 20112016.
4. Pekmezovic A., Walker G. The Global Significance of Crowdfunding: Solving the Sme Funding Problem
and Democratizing Access To Capital. 2016. Vol. 7, N 2. Р.347-456.
5. The World Bank. Crowdfunding's Potential for the Developing World / Financ. Priv. Sect. Dev. Dep. 2013. Р. 1-102.
6. SMEs in figures. Small and Medium Entrepreneur-ship Development National Center. Yerevan, 2016.
7. Hemer J. A Snapshot on Crowdfunding // Fraunhofer ISI. 2011. 43 p. Available at: http://www.legale-fiscale.it/wp-content/uploads/2016/09/StudioCrowd-fundig.pdf.
8. Belleflamme P., Omrani N., Peitz M. The economics of crowdfunding platforms // Inf. Econ. Policy. 2015. Vol. 33. Р. 11-28.
9. Cusmano L. New approaches to SME and entrepre-neurship financing: Broadening the range of instruments. Paris: OECD, 2015. 119 p. Available at: https:// www.oecd.org/cfe/smes/New-Approaches-SME-full-report.pdf.
10. Mollick E. The dynamics of crowdfunding: An exploratory study // J. Bus. Ventur. 2014. Vol. 29, N 1. Р.1-16.
References
1. Investing in SMEs in the Eastern Partnership Countries. EU4Business, May 2017, pp. 4-20.
2. Statistical Yearbook of Armenia. Yerevan: Armenian Statistical Service of Republic of Armenia, 2016. 56 p.
3. Small and Medium Entrepreneurship Development National Center Annual Reports. Yerevan: SME DNC, 2011-2016.
4. Pekmezovic A., Walker G. The global significance of crowdfunding: Solving the SME funding problem and democratizing access to capital. William & Mary Business Law Review, 2016, vol. 7, no. 2, pp. 347456.
5. Crowdfunding's Potential for the Developing World. Washington, DC: Finance and Private Sector Development Department, The World Bank, 2013. 102 p. Available at: https://www.infodev.org/in-fodev-files/wb_crowdfundingreport-v12.pdf.
6. SMEs in Figures. Yerevan: SME DNC, 2016.
7. Hemer J. A snapshot on crowdfunding. Karlsruhe: Fraunhofer Institute for Systems and Innovation Research, 2011. 43 p. Available at: http://www. legalefiscale.it/wp-content/uploads/2016/09/Stu-dioCrowdfundig.pdf.
8. Belleflamme P., Omrani N., Peitz M. The economics of crowdfunding platforms. Information Economics and Policy, 2015, vol. 33, iss. C, pp. 11-28.
9. Cusmano L. New approaches to SME and entrepre-neurship financing: Broadening the range of instruments. Paris: OECD, 2015. 119 p. Available at: https:// www.oecd.org/cfe/smes/New-Approaches-SME-full-report.pdf.
10. Mollick E. The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing, 2014, vol. 29, no. 1, pp. 1-16.
