According to a research paper published in the Journal of Entrepreneurship, Management and Innovation, and authored by Katarzyna Kozioł-Nadolna, who is a Professor US of the Faculty of Economics and Management at the University of Szczecin in Poland, funding innovative projects is one of the most serious problems faced by business owners in Poland.
Similarly, the European Commission ([EC], 2013) has highlighted that access to financial resources is also one of the most urgent problems for European SMEs, and that for many projects, financing needs are not met by existing sources of financing, which is defined as the funding gap.
Financial barriers are primarily manifested in the limited access to funds. It notably pertains to micro-enterprises and start-ups, the paper continues. This is due to the low degree of involvement of the banking sector in financing the development of small and medium-sized enterprises. There is also limited access to nonbanking sources of financing, such as venture capital.
The paper highlighted that due to the difficulties of obtaining external sources of financing, crowdfunding may constitute a new source of fundraising for innovative ventures. Crowdfunding may prove to be a support for entrepreneurship both in terms of improving access to funding and in the context of additional market research and marketing tools that can help entrepreneurs obtain comprehensive knowledge of their customers and promotion in the media ([EC], 2014, p. 5).
Crowdfunding has been growing rapidly in the past few years as advancements in technology and the growth of social media has made it far easier for entrepreneurs to reach large numbers of people at far less cost (Pierrakis & Collins, 2013).
The paper found that from the perspective of investors, the new form of financing allows a direct choice in terms of funds allocation and gives a sense of commitment to the implementation of the project. People involved in community financing can take another look at entrepreneurs and come into direct contact with them, which can further promote the culture of entrepreneurship. Entities funding projects often also form a kind of community to support the funded project or may provide non-financial resources in the form of social knowledge (EC, 2014).
Meanwhile, from the perspective of the company, in addition to funds received, help in obtaining other forms of co-financing is also of crucial importance. In many cases, project initiators are looking for the means to complete only a part of the project. In this situation, obtaining the expected amount on the crowdfunding platform facilitates subsequent financial negotiations with other investors or banks.
In conclusion, the paper emphasises that crowdfunding enables companies to not only obtain funding for the project but also to create an engaged community around it and, moreover, it facilitates its promotion. Crowdfunding allows one to verify an idea, check the reaction of potential consumers, and open doors for further refinement of the product, which is especially important for innovation. Crowdfunding can also bring potential benefits for innovation and research and development. It can also contribute to economic growth, community development and job creation with simultaneous financing of innovative projects that do not have the degree of advancement required by traditional financial market sources.