Oleksii Byk

39018

Startups financing at early stages of

their lifecycle via crowdfunding
platforms: Polish experience.

Master Dissertation prepared under

Supervision of Dr. Piotr Sieradzan

Warsaw 2020
 Abstract

Author of the dissertation: Oleksii Byk

Title of the dissertation: Startups financing at early stages of their lifecycle via
crowdfunding platforms: Polish experience.

Description
This thesis aims to educate the reader on the different sources of startup funding, taking
the focus on crowdfunding as a source and Poland as a location. The thesis does this by
extensively reviewing existing literature, both on crowdfunding and on related financing
methods, as well as conducting interview with the person who has successfully launched the
campaign of Polish startup on crowdfunding platform. The authors also examine the leading
European crowdfunding markets in terms of performance, the crowdfunding platforms that
operate and legal characteristics in the crowdfunding environment.

Key words: crowdfunding, startup, venture capital, funding, financing, innovative,

investment, capital, campaign, launch, crowd investing, crowdlending.

Field code in the program “Erasmus for all”: 04300

Title of the dissertation in English: Startups financing at early stages of their lifecycle via
crowdfunding platforms: Polish experience.
Table of Contents
LITERATURE REVIEW................................................................................................ 2

CHAPTER 1: ESSENCE OF STARTUP FUNDING. ................................................ 12

1.1. What is funding? ...................................................................................................12

1.2. The importance of funding for startups. ................................................................15
1.3. Sources of funding. ...............................................................................................22

CHAPTER 2: CROWDFUNDING AS A MODERN WAY OF FINANCING

START-UPS AND PROJECTS ......................................................................................... 37

2.1. What is crowdfunding? ........................................................................................37

2.2. History of crowdfunding. .....................................................................................41
2.3. Regulations. ..........................................................................................................45
2.4. Step by step process of launching the project. .....................................................51

CHAPTER 3: CROWDFUNDING IN POLAND: INTERVIEW AND DATA

ANALYSIS .......................................................................................................................... 55

3.1. Data analysis. ........................................................................................................55

3.2. Interview: Mudita Sp. z o.o. ..................................................................................70

CONCLUSION............................................................................................................... 82

BIBLIOGRAPHY .......................................................................................................... 86

LIST OF FIGURES ....................................................................................................... 94

 Literature Review

A couple of years ago it seemed that by saying the word "crowdfunding" out loud, one
could open a portal to other worlds. In 2009, crowdfunding became popular among
entrepreneurs a new way to find financing for their projects. Both then and today, its meaning
remains the same and is related to finding a large number of people who are ready to support
a startup or any other initiative with a small amount of money. Nowadays when people think
of crowdfunding, they imagine an online platform where they donate money in beloved
projects and startups by them. But crowdfunding is a kind of funding that is very popular not
only among general consumers but also among entrepreneurs. “Crowdfunding involves an
open call, essentially through the Internet, for the provision of financial resources either in
the form of donation or in exchange for some form of reward and/or voting rights in order to
support initiatives for specific purposes” (Lambert, et al., 2010, p. 5). There are different
kinds of projects funded by crowds including sport, music, culture, art, tech startups and
plenty of interesting projects could not have been realized without such a breakthrough as
crowdfunding. Michael Sullivan may be considered as the creator of the term “crowd-
funding”. First time he used it in his own blog – fundavlog in 2006 (Sullivan, 2019).
Crowdfunding is gaining momentum today and is becoming one of the most convenient
and popular ways to collect investments for start-up projects. However, not everything is as
rosy as it may seem at first glance. Despite the fact that crowdfunding in the Internet business
has existed for about 15 years, the real success and demand for this method of attracting
investment came relatively recently. Many startup projects today attract funding through
access to crowdfunding platforms, the most popular of which are the well-known Kickstarter
and Indiegogo, and thus provide opportunities for implementation and future development.
However, despite the fairly obvious crowdfunding scheme and a huge number of advantages,
not all projects, after a successful start and raising the necessary amount for development,
are able to move forward and fulfill their promises to investors (Briggman, 2017, pp. 21-25).
Among all the most central resources for business is capital. It is recognized that one of
the core obstacles faced by startup creators in the early stage of a business initiative, is usually
how to attract external financial investments. Study on entrepreneurial finance assesses how

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startup creators garner the needed financial resources and detect the advantages and
disadvantages of various sources of funds at different stages of the new venture’s life cycle.
Entrepreneurial finance tends to involve mainly private rather than public funding. This
private financing can come as generally from family and friends, incubators and accelerators,
crowd funders, business angels, venture capital firms, and other financial institutions. These
sources may play a wider role in the history of startup companies they fund through the
providing of business guidance, know-how, and influences. Capital, in fact, is not the only
aspect necessary for startup to reach the success (Pietro, 2020, pp. 29-33).
The definition of crowdfunding is becoming more and more widespread and detectable
all over the world. The value of crowdfunding transactions globally was accounted for USD
34,4 billion in 2015 and the World Bank estimates that by the end of 2025 equity
crowdfunding will be assessed for more than USD 93 billion (WorldBank, 2016).
Poland is another market essential for the development of crowdfunding particularly
taking under consideration the existing sponsoring gap exceptionally for lesser projects up to
800 thousand PLN. Difficulties with gaining the funding could hamper the initiatives, not
occasionally – groundbreaking, of small businesspersons and development of new projects
(Mitrega-Niestroj, 2013, p. 12).
Due to the fact that donation and reward-based crowdfunding campaigns still dominate in
Polish crowdfunding market, this category of crowdfunding initiatives will be investigated
here. One of the leading and firstborn platforms on the Polish market is the reward-based
crowdfunding platform – Polakpotrafi.pl. This platform has existed since 2011 and is based
on crowdsourcing and crowdfunding and functions on the basis, that if the requested amount
is not collected, then startup lose everything they have collected before. A campaign on this
platform lasts a maximum of 75 days but most of the campaigns are smaller and do not exceed
60 days (Polakpotrafi.pl, 2020).
All campaigns on polakpotrafi.pl can be split into 20 categories: art, comics, community,
publishing, dance, design, education, events, fashion, film, video, food, games, journalism,
music, other, photography, technology, theater, travel and sport (Polakpotrafi.pl, 2020). It
can be assumed that crowdfunding in Poland is evolving rapidly but the worth and quantity
of projects is still lower than in Western Europe or the USA.

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 The development of crowdfunding has drastically increased the amount of the possibilities
of financing for different kinds of projects. The unarguable advantage of crowdfunding is
that initiators can get the required capital this way without having to go through such a
common practice as borrowing procedure to get a loan from banks, which also takes typically
some time in case of startups and new businesses without credit history. On the other hand,
all individuals interested in it should be aware of the fact that crowdfunding is not a usual
practice of financing and does not guarantee continuity, but it is an opportunity for raising
money for one (or more) campaigns rather than a recurring way of getting capital
(Kędzierska-Szczepaniak, 2018, pp. 37-38).
Different ways for classifications of crowdfunding were introduced. One of them for
instance characterizes four types of crowdfunding according to the relationships between
individuals and organizations which are connected through an Internet based platform:

1. Lending-based crowdfunding – as an example, business can borrow some money from

a group of individuals instead of a financial institution and expect their money back
plus an interest after a certain period of time. The position of the crowdfunding
platform here is to act as a middle-man and also make the payments to the lenders or
to be only the matchmaker and the borrower and lenders are connected when the
required amount of money is reached.
2. Equity-based crowdfunding – investors obtain a stake in the enterprise and become
shareholders. The enterprise raises funds from a group of individuals, instead of
financing by a business angel or financial institutions, although this practice is very
analogous to business angels. Usually, investors are eager to give some money to
startups because of such reasons as: similar views on certain things, social engagement
or jobs creation for local community.
3. Reward-based crowdfunding – patrons receive non-monetary benefits for their
contribution, a present (e.g. material object or service). The rewards are of a symbolic
value, much cheaper than the donation sum, to safeguard the enough level of capital
for the projects. Although the perception of the value for the donators can be much
greater, as they feel involved in the startup.

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 4. Donation-based crowdfunding – the enthusiasm of donators is simply philanthropic,
for their personal fulfillment. The donators are more willing to provide higher amounts
per person while they are aware of the fact that their money are used on a very specific
projects, with openhanded reason (Anon., 2012).

Crowdfunding as a fresh instrument for fundraising stands out due to certain features that
allow it to be significantly different in comparison to public collections, donations and other
established forms. The first typical feature of crowdfunding is cash contribution, practically
always in a form of transfer. There is no option of providing support in other ways, e.g. in
the form of tangible assets or others. The entire process of capital accumulation takes place
by using ICT solutions. The purpose of a project being supported by crowdfunding, the
allocation of funds and the outcomes of their spending are well-defined. Regulations and
circumstances for raising money within crowdfunding are better and more encouraging than
public market conditions. Another feature is a larger group of beneficiaries – a project
specific information is available to a very huge group of people, which involves another
characteristic, i.e. no limitations on the access to funding a project. The capacity to support
a startup is openly presented, addressed to an unnamed addressee. The last unique
characteristic of crowdfunding is a return benefit received for offering financial help. (Król,
2018)
Capital is the fundamental base for the development of innovative startups. Polish startups
creators signify that the absence of opportunity for funding innovations, both from internal
and external sources, is one of the most major obstacles to innovation – it has been confirmed
by one in four industrial companies and one in five services sector companies. Financial
obstacles are mostly expressed in the limited access to finance. It particularly affects micro-
businesses and startups. This is due to the low degree of involvement of the banking sector
in supporting the development of small and medium-sized companies. There is also limited
access to nonbanking sources of funding, such as venture capital firms. Consequently, in
view of the struggles with finding the abovementioned external sources of funding,
crowdfunding is a revolutionized source of fundraising for innovative ventures (Kozioł-
Nadolna & Prędkiewicz, 2016, pp. 7-31).

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 The general list of pros and cons is presented below. The advantages of this method of
financing are (Kuppuswamy & Bayus, 2017, p. 72–89 ):

- minimal bureaucratization - it will take a minimum of paperwork to be placed on the

crowdfunding resource of your campaign;
- conditional non-repayment of funding - remuneration for sponsors can be formal,
especially if the idea is of a social or charitable nature;
- project independence - investors invest in a promising direction without any
guarantees and, unlike venture funds, do not claim a share in the business.

On the other hand, crowdfunding has also its disadvantages:

- the project start directly depends on the amount collected and can be postponed
indefinitely;
- it is not easy to convince possible investors in the attractiveness of the idea - a lot of
time and resources will be spent on promotion and marketing;
- moral aspect - not everyone can ask for money even for the best undertakings;
- an unsecured result - a project may not get the right amount of money;
- lack of developed crowdfunding legislation.

Crowdfunding campaigns provide creators with a number of benefits, beyond the strict
financial gains. The following are non-financial benefits of crowdfunding according to
Burtch (Burtch, et al., 2014, p. 1–19):

- Profile – a convincing project can raise a creator's profile and provide a lift to his
name.
- Marketing – startup creators are able to show that there is an audience and market for
their invention. In the case of a failed campaign, it provides suitable market feedbacks.
- Audience engagement – crowdfunding creates an environment where startup inventors
can engage with their potential donators. An audience can engage in the invention

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 process by the following progress through updates from the initiators and sharing their
thoughts via comment instruments on the startup’s crowdfunding personal page.
- Feedback – providing pre-release access to the content or the chance to beta-test the
content to crowd funders as a part of the donating incentives provides the project
initiatives with well-structured and fair market testing feedbacks (Gupta, 2018, pp. 71-
73).

As regularly alike different kinds of investments bear different degree of risk, different
kinds of crowdfunding have different degrees of uncertainty and complexity. Reward-based
crowdfunding has a minimal degree of uncertainty from perspective of a backer and as
revealed in magazine reports of “crowd thieving” frauds take place sometimes, such as fake
medical scams where an individual declared to have cancer and raised $50,000 for fake
medical bills. But the matters are normally transparent as long as the donators in the crowd
carry out due diligence to ensure that the campaign is not a hoax.
Reward-based crowdfunding is complex, as it usually involves the production of a good
or services, and the financing there, is used to advance access to capital for the company to
create that good or service. The person responsible for this project should set a campaign
goal and design the motivations for different levels of commitment by various crowd funders.
Crowdlending brings more uncertainty and difficulty as the terms of the loan are to be set,
such as interest rates on loan. And there is financial information that needs to be understood
by the crowd funders.
Equity crowdfunding classically involves the most uncertainty and complexity from the
perspective of backers since the entrepreneur should set the equity share, valuation of the
company, and financial and business model of the company and then these aspects are to be
understood by the crowd funders (Cumming & Johan, 2020, pp. 8-11).
Although there are coming up new crowdfunding platforms all around the universe, there
may be discovered main pillars, which, to certain extent, are moderately comparable among
all prospects. The below mentioned list shows a shortened sketch of how a typical
crowdfunding campaign is launched and run (Danmayr, 2014, pp. 21-22):

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 - Primarily the online platform must receive an application from a startup creator who
plans to present his idea on the crowdfunding platform’s website. Crowdfunding
platforms are different in terms of publishing every idea or setting additional step such
as a preselection on their own standards. In the latter stage the startups and their
creators go through a quick criticism on the feasibility of the crowdfunding long-term
plan.
- After a project idea is accepted, the crowdfunding platform may offer a standardized
format for startup creators to present their concepts in a comprehensive way to anyone
with an access to crowdfunding platforms (the crowd). The startup initiator is
requested to create a funding goal and he is to define a period of time necessary for
reaching the goal. Another major step that has to be made by the initiator is an
interesting pitch (most of the are made in the form of a video) to convince potential
funders on a large scale.
- Throughout the campaign the crowdfunding online platform collects funds on behalf
of the project owner from people who want to donate any amount of money.
- At the final stage of the campaign it is essential if the funding goal has been achieved
or not. If the campaign is able to achieve the predetermined goal, then the project
owner is able to obtain collected funds from the crowdfunding online platform. In the
other cases most of the platforms will reimburse the funds donated to the funders.
- In the post-funding period crowdfunding online platforms deliver investment
information along with communication messages via its incorporated social network.
The crowdfunding platform keeps a role as a middleman for connecting project
initiators and people who funded so that they can stay in touch, share views and
hypothetical rewards and report startup progress (Danmayr, 2014, p. 23).

Backers are people being motivated to support a person whose project they believe in and
they want to be realized. The reasons for backers to support the startup might include (Gerber,
et al., 2012, p. 1–28):

- Personal satisfaction after supporting other people also known as philanthropy

- Rewards

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 - Similar views
- Unique design/product
- New experience, as a donator or backer

In a completely unique approach, the person might want to take the underdog angle.
“According to studies brought to light by the WNYC radio show RadioLab, 9 out of 10
individuals would stand behind an underdog story. So, if the project is trying to stand out
against a top dog, maybe a publisher or gate keeper, then bringing that into the light may help
potential backers identify with project’s individual struggle. Now, that does not provide
reason enough for an individual to back the project” (Lurig, 2012, p. 7).
Possibly the one additional reason could be just philanthropic purpose by just funding
what people like. From time to time people are ready to fund the project due to the innovative
approach or technology of the funding object. If the idea is admirable and admitted by the
backers, the glass with required amount of money may fill up without significant struggles.
Crowdfunding allows the initiator to find people who believe in the idea and will support
the initiator throughout the development process. These people are also likely to invest in
businesses with long-term future perspectives. They can also be useful to promote the product
in channels the initiator does not have access to. Rumors about interesting projects spread
quickly, and the initiator will soon find that the campaign is being discussed in the media
(Graham, 2019, pp. 19-20).
Early followers try not to miss any opportunity to participate in something new, something
that can be advanced, innovative. These are people who believe in the idea from the very
beginning, even before it becomes popular. If they find the product interesting, they want to
make sure they get early access to it and make a donation in exchange for a working prototype
of the product, mostly applicable to video games or digital products. A great example is
people who are not afraid to spend a few days in line to get a new Apple product among other
to be one of the firsts. They will do whatever it takes to touch the latest and most advanced
technology before anyone else and have an illusion of being pioneers (Stegmaier, 2015, p.
27).
There are people who feel part of the community and are somehow connected to the
entrepreneur or to what he is trying to solve. When empathy arises, they tend to feel obliged

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to help and donate money for a good cause. This act gives people a sense of satisfaction and
participation. Some people share money because they have an interest in the finished product
or they simply like the idea and want to see it succeed (Hyatt, 2016, pp. 10-14).
Managing a startup while trying to find funding for it can be quite time consuming.
Meanwhile, many startups fail just because they run out of money. If the initiator owns a
startup but lack money, the best way to find it is to crowdfund it.
Like anything else in this world, crowdfunding has its shortcomings. Most crowdfunding
platforms charge commission from successful projects, in addition, there are processing fees
of payment systems (total about 7-10%). This means that the more successful the project is,
the more the initiator will eventually pay the bills. For instance, if the goal is $20,000, and
the payments for the services of processing and the platform is 10%, the initiator will pay
$2,000. If the project attracted $50,000, the amount of deductions will reach $5,000 (Pond,
2016, pp. 31-36).
Another possible disadvantage of Crowdfunding, as opposed to angel investing, is the lack
of valuable guidance and mentoring, which are usually provided by business angels in project
management. On the other hand, Crowdfunding platforms such as Indiegogo and Kickstarter
provide a lot of background information, advice and support to the authors of the project,
which helps entrepreneurs in many ways. This is partly due to the fact that the higher the
success rate of the platform, the more attractive it becomes for both the backers and the
project authors (Dresner, 2014, pp. 18-20).
In addition, some crowdfunding platforms are looking for an opportunity to support their
alumni even after they have finished campaigns. New commercial function of Indiegogo -
InDemand - allows authors to continue selling their products on to this platform, and the
MOMA store is selling designer's products successfully funded at Kickstarter. Finally,
crowdfunding is quite limited in terms of the final amount of fees. Of course, people have
heard more than once about of millionaire campaigns, but it should be well understood that
the average amount of attracted funds is about $ 10 000 (for design and technology projects
this indicator may be higher) (Epstein, 2017, p. 41).
For entrepreneurs, the advantages of crowdfunding begin with accessibility.The author of
a crowdfunding project may not have already completed business projects, reputation,
necessary connections, start-up capital and even employees. (Melfi, 2014, pp. 29-31). There

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might be a problem in case of bank loans, when companeis trying to get a loan may not even
be allowed to get on, even if a company fullfils formal requirements, because of certain
market conditions or current policy of the bank. In a standard situation, the one who gives
money will have an influence on how the money is used. If desired, the cash flow can be shut
off and development will stop. But when the account of investors goes to thousands - a
conflict with a single person unlikely can affect the result.
The essence of crowdfunding is that both the process and the success of the project shall
lead to the win-win situation where all participants benefit, because in case of rewards-based
crowdfunding the process, the backers are exposed to newly created products as testers and
are the first people who getting access to products and to information as well. At the same
time initiators are those who benefit from populating its product among group of people even
before the launch of the production, so they use crowdfunding platforms for marketing
purposes. Crowdfunding is not supperior in all aspects over other forms of financing, but the
concept has many advantages.

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 Chapter 1: Essence of Startup Funding.

1.1 What is funding?

1.1.1 Definition of funding

When organizing any activity, funding is very important. Especially this issue is relevant
for those companies that do not have enough of their own resources for further development.
In order to avoid losses in the future, it is necessary to plan the financial budget very carefully
and, if necessary, to use reliable sources to replenish it.
At the beginning in order to understand points covered at the background of the work,
definition of the funding is to be given. Definitions of funding may be divided into different
groups depending on context. Plenty of sources explain this term in different ways. Funding
is:

 Money provided, especially by an organization or government, for a particular

purpose. (Lexico.com, 2020)
 Money which a government or organization provides for a particular purpose.
(HarperCollins Publishers, 2020)
 Money given by an organization or a government for a particular purpose.
(Cambridge University Press, 2020)
 A supply of money or pecuniary resources, as for some purpose. (RANDOM
HOUSE, INC, 2020)
 Money made available for a particular purpose. (Cambridge University Press, 2020)

Gathering all definitions and turning them into the only one may flow into other definition
which defines funding as providing the necessary financial resources for the entire economy
of the country, regions, enterprises, entrepreneurs, citizens, as well as for various economic
programs and activities. Funding is carried out from own, internal and external sources, in

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the form of appropriations from the budget, credit funds, foreign aid, contributions of other
persons.
As an outcome this term is used frequently in context of financing, budgeting or
investments. The original meaning of "funding" or "financing" fully reflected the original
meaning of the word "finance". If finance is money management, then financing is the
process of such management. But since it is not possible without the money itself, the key
word in the definition of financing has become "supply", the supply of money. In a narrower
sense, primarily at the enterprise level, financing or funding is the provision of both short-
term and long-term loans.

1.1.2 Project funding

Project funding is the financing of investment projects, where the source of debt servicing
is the cash flows generated by the project. The specificity of this type of investment is that
the assessment of costs and income is made taking into account the distribution of risk among
the project participants. The implementation of any investment project implies the necessity
of its financing. Under the financing of the project it is possible to reduce the process of its
provision with money throughout the entire horizon of its implementation. Projects can be
financed from different sources: funds, land ownership rights, patents, industrial designs, etc.
When working on a project requiring investment, it is necessary to first find sources of
financing. This is the most important goal, without which the project will fail at the start.
This term may be misleading, since project funding is sometimes used also as the synonym
of startup funding. However, in underlying context project funding is described as separate
funding field. There are different situations in which these projects exist. In first situation,
startup company which is searching for capital for a certain project is called project
financing/funding and means the same as a startups funding. In second case, company which
may be described as developing company with certain list of products with a desire to realize
new business project of innovative product creation also refers to project funding. In current
situation, company already exists with portfolio of products, rather than starts up its activity.
Project financing structures may vary depending on the specifics of the project financing,
the specifics of the project purpose, and the type of contract (contract) that is the basis for
financing. However, there are general principles underlying the project financing method.

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Project financing is used to finance a relatively "stand-alone" project (on the legal and
economic side) through a legal entity specializing in the implementation of this project (often
a separate so-called project company is established to receive and use project financing). As
a rule, project financing is applied more often to a new project than to an already created
business (usually used at debt restructuring). The source of return of the invested funds – is
profit from realization of the investment project (separate from financial results of activity of
initiators of the project).

1.1.3 Funding of startups

In case if funding is carried out with intention to finance startups, the specifics turn out to
be different. At present, the meaning of the term "startup" is narrowed to the company, which
has a relatively short history of operations. It refers to a recently established firm that is in
the process of active development of the product or at launching stage when it generates
already some revenue and has some clients or users, but it has been recently launched. The
term “startup” may be used with reference to any recently created business with no or small
sales volume, however the basis of startup companies most often are innovative technologies:
internet resources, all kinds of nanotechnology, medicine and much more.
Today, the main niche of startup creators is represented by young people in the age
category from 25 to 30 years old, who have an original view of the organization of the
company and the ability to implement creative ideas aimed at making a profit. The main and
first task of the developers of the project is to attract promising investors who are ready to
provide a financial basis for the development of the startup (Gerber, et al., 2012, pp. 1-28).
In most cases, startup companies are financed by sponsors who receive certain rights to
some part of the future company. If the startup is successful, the transaction is beneficial for
both parties.
Funding for a start-up company refers to individuals who invest in an emerging business
at an early stage. Their goal is to generate large profits in the long run, so business or
investment angels do not insist on an urgent return on capital. In addition, they do not
interfere with the business process.
Difference in definitions between startups funding and common business or project
funding is the fact that startups usually are less reliable and require small amount of funds,

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however they would need more time, since it might take months or even years for a startup
to earn first cents. A major goal is to invent a product, which consumers will like and will
take on a market. If this target will be achieved, profit of the company will be counted in
millions. In addition, in order to start one’s own business, as a rule, private savings,
investments on the part of one`s family, friends, banking credits and/or investor funds will
do, but it refers typically to seed companies, and pre-seed tech-startups. However, the goal
is to be self-sufficient, which is why the person needs to be attentive when it comes to
contracting debts as long as all this money are to be returned someday with interest. Whereas,
many startups are run by sole individual, partnerships or with the help of family members
and close ones (Greenberg & Gerber, 2014, p. 581–590). However, crowdfunding is
becoming more and more popular. Startup should reach out the stage of development, which
is why it requires additional capital before the company begins making profits. It is useful to
remember that investors expect to get desired financial return, which creates additional
pressure on the company.

1.2 The importance of funding for startups.

The need to attract external financing sooner or later faces most companies that are active
on the market. This process is considered quite natural and one should not think that it
necessarily indicates that the firm has financial difficulties. Raise of finance is treated as an
indicator of the company's development and its good prospects by professionals, because this
is an evedince of company's intention to expand into new markets or segments.

1.2.1 Why do companies need funding?

The need to attract external financing may arise at any stage of company development.
This is particularly frequent at the startup, seed and pre-seed levels, when raising finance
is necessary to implement a new business project and bring it to markets. But this stage is the
most difficult to finance, as few investors are willing to believe in an idea alone that is not
supported by any material factors (G., 2004, p. 261–283).

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 At the stage of the company's development, when the business idea is already embodied
in a certain product and there are economic calculations, the need to attract external financing
also remains. At the same time, the chances of obtaining an investment increase significantly.
When the company has already created a product and sells it on the market with some
success, it will still need additional financing for business expansion and in most cases cannot
do without attracting external capital. Specific situations when a company may need external
financing include (A., 2012, pp. 28-47):

- Meeting current business needs (working capital financing, debt fulfillment);

- Expanding (modernizing) existing production facilities (additional working capital
financing);
- Withdrawing a company from the crisis;
- Buying other businesses.

Searching for and attracting external sources of financing is one of the most common and
important tasks of any company. Companeis require funding at different stages of its
development.

1.2.2 Startups. Stages of development

Startups are commonly classified according to several characteristics, for example,
product and market characteristics. The following types of startups are distinguished
(Deakins & Whittam, 2010, pp. 115-131):

 "Successful copies". This group includes numerous projects to some extent being
clones of similar ones being already noticed by media and society. Among those
most of all, are social networks and technological products. As it turned out, such
copies can be very promising.
 "Aggressive Aliens". This group includes startups focused on capturing some
segment of the market and expelling competing companies from it. The
introduction of the product into the market can be realized through its exceptional
price advantage.

16
  "Dark Horses." This type of startups may be characterized as companies with
innovative ideas. Prospects of innovative startups are not clear at the beginning, as
a result they take a high risk, but on the other hand they may become very
successful due to its innovative services or products.

Startups can also be divided into groups by their degree of knowledge-intensive (Van
Gelderen, et al., 2005, pp. 365-380):

 High-tech-based startups. Businesses built on the latest scientific discoveries can

be very profitable, but the launch usually requires substantial funding, which only
large investors can provide. It is true especially with non-IT software ventures.
 Traditional startups. In fact, to start a successful business, person do not have to
create an innovative idea. Some startups were formed on the basis of simple, easy
to implement ideas, and as a result made their creators become wealthy people.

There are 5 stages in the development process of a startup (Manchanda & Muralidharan,
2014, pp. 369-374):

(1) The sowing phase, or Pre-Seed phase. At this stage, an idea is searched for and
technical ways to implement it are developed. The initiative group performs
market analysis, writes a business plan, and formulates the technical task. Next,
they create a prototype of the product, test its versions, study demand and search
for funding. If it is not possible to find an investor, the project "fades". Alas, with
most startups, this is exactly what happens.
(2) Launch, or Seed Stage. Seed stage starts after the investor is found and the product
can be released on the market. Once in the market conditions, the product must
prove its advantage over its analogues. But at this stage it is not so easy to get
around competitors. The creators of a startup must be persistent, show creative
thinking and business acumen. Right now, the project is at greatest risk. If the
target audience remains indifferent, its story will end there.

17
 (3) Growth, or Growth Stage. Assuming, that the project has survived the
competition. The product is in demand and slowly captures the market niche that
its developers have been targeting. It is time to reach the break-even point and
bring investors some profit.
(4) Extension, or Expansion Stage. The goals reflected in the business plan have
finally been achieved. But the developer company does not stop there - it
continues to promote its brainchild in new markets. Its position is no longer
threatened: it is recognizable, its products are in stable demand and its revenues
are gradually increasing.
(5) The exit or Exit Stage. When a company reaches its peak, the investors who
financed the project may give up their share in this business most likely in this
stage and sell it to larger players as it is done as common strategy of venture
capital firms when their exit is carried out at IPO. This step gives them a good
profit. However, individual investors may keep their share and use it as a source
of permanent income. As a result, this stage should be treated as optional for
investors.

1.2.3 Startups. Funding process

Funding process is divided into different round. Every time person gets funding, he gives
up a piece of the company. The more funding, he gets, the more company he gives up. That
“piece of a company” is defined as equity and everyone he gives it becomes a co-owner of
the company.
The basic idea behind equity is splitting of a pie. When someone starts something, the pie
is small. There is a 100% of a small, bite-size pie. When he takes outside investment and the
company grows, the pie becomes bigger. The slice of the bigger pie will be bigger than the
initial bite-size pie. When Google went public, Larry and Sergey had about 15% of the pie,
each. But that 15% was a small slice of a big pie which worth more than one small pie.
Classic stages in the funding process of any startup is presented below as the list and as
the hypothetical step by step infographics after the list (Vital & Vital, 2013):

1) Idea

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 2) Co-founder
3) Family and Friends
4) Investment Phase I, or Seed round (Business Angels)
5) Investment Phase II, or Series A (Venture Capital firms)
6) IPO

Figure 1. Startups' common lifecycle

Source: Inspired by Mark and Anna Vital, «How startup funding works», 2013, Bloomberg.com, accessed January
2020

1) First step in every startup is made by a person with an idea. Perfectly the person should
already have an idea and a concept of the startup he is going to initiate. He is
responsible for working out the business plan, and at this stage he starts to create value
for his startup. At this stage, many creators start thinking to find a partner for its
project. Since creators usually have an idea that might need more human resources for
the implementation, creators move to next stage.

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2) This step may become a starting point for many startups, since in significant number
of cases startup is initiated by partners or a group of enthusiasts. Unless the sole creator
is willing to be alone in the project and he is sure in handling the project himself or an
idea was born by number of people, this stage optionally becomes the next step in
startup development process. The owner of a startup idea, ideally, must find the person
who is ready to work with him for “sweat equity”. “Sweat equity is a non-monetary
contribution that the individuals or founders of a company make towards the company.
Cash-strapped startups and business owners typically use sweat equity to fund their
companies” (CFI Education Inc, 2020). Sometime a new partner becomes a co-
founder of the startup, if his contribution is crucial for the underlying project to be
implemented, especially if the company is not been registered yet. Initial idea-holder
benefits from sharing the ownership with another person by keeping the co-founder
interested in success of the startup. As a result, company is registered, and the owner
or owners move to next step with well-prepared business plan.

3) Step 3 starts with search of investors and first starting capital, since in majority of
cases owners do not possess enough funds to start up, therefore they have several
options where they are able to find initial capital for the beginning:
1. Accredited investors – People who either have $1 Million in the bank or make
$200,000 annually. This type of investors is allowed to make venture capital
investments in startups and other high-risk investments by government authorities.
The requirements for gaining accredited status differs in different jurisdictions.
2. Family and Friends – at the beginning co-founders can still benefit from savings of
their families or friends by giving them small share of ownership. For the beginning
any amount of money is important. This option is more likely being considered in
many cases, because of the fact that accredited investors may become less attractive,
since they are more interested in financial part of the project, while families and
friends might take into account personal relationships and they are ready to bear
higher risk in exchange for lower interest or smaller ownership share, but it is never
the rule (Kotha, 2012, pp. 525-543).

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4) When founder starts implementing the business plan, in many cases they have enough
money for the beginning to create the first prototype of their product, but money from
accredited investor or families and friend may be not enough to cover all the costs. If
startup runs out of money, it dies, therefore startup usually starts looking for the first
round of significant investments. There are two main options nowadays:
1. Incubators, accelerators, and “excubators” – these places often provide cash, working
space, and advisors. Accelerators and incubators both offer entrepreneurs good
opportunities early on. Founders get help to quickly grow their business and they
often increase their chances of attracting a top venture capital (VC) firm to invest in
their startup at a later point. Still, the programs are different frameworks for startup
success (Forrest, 2018). Incubators are focused on building the business model and a
company, while accelerators are focused on growth of an existing company.
Nowadays, they are very popular in Silicon Valley, but also could be found all over
the world. One of the examples in Poland is Arkley – the Accelerator VC.
2. Business Angels are frequently wealthy people that are giving money to new
potentially unicorn companies, similarly to accredited investors, but Business Angels
are considered to be more wealthy individuals. Sometimes Business Angels are being
part of Venture Capital firms investing their own capital or giving it to VC firm under
management, as a partner. But usually they work as sole investor and become a
“goldfish” for seed-stage startups.
3. At this stage startups unlikely, but may consider Venture Capital firms as potential
investors, as those usually are interested in startups at seed-stage of its development.
Venture Capital firms become very attractive for startups, since they help them in
different aspects of business and carrying out further investment rounds.

5) When the product is created and launched and startup generates some amount of
revenue, owners start working on preparing new round of investment, also known as
Series A. Series A investment round must be carried out only in some number of cases,
because previously companies do not attract investors to expand into new markets and
populate its product among potential clients, users or buyers, but to develop the
product itself. Usually this round of investment is carried out by VC firms or growth

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 equity funds. This stage, as well as any other stage from the list is only theoretical and
should never be considered as a rule, since many companies are able to handle their
product development and expansion without attracting external sources of capital, by
organic business growth.

6) Final step in funding of the company include IPO and further SPOs. This step is
optional and depends on desire of owners, since sometimes owners may decide to
grow organically without sharing its ownership with other people and companies as
well as sharing its financials and going through IPO process which is time-consuming
and expensive at the same time. However, usually IPO is the moment when a startup
turns into a big mature company, because IPO gives a huge inflow of capital in
exchange for equity share. If the startup has been already funded by VC firms, then
they might want the company to IPO, as this is usually the stage when venture capital
firms exit.
There is another group of people that really want startups to IPO. The investment
banks including well-known Goldman Sachs, Morgan Stanley, JP Morgan, Bank of
America, etc. They give companies a call and ask to be the lead underwriter – the bank
that prepares IPO paperwork and calls up wealthy clients to sell them company’s stock
at primary market. Since, they get 7% of all the money company raise in the IPO, they
are also interested in the success.

The steps-list presented above includes the theoretical situation in which startup gets funded
at each stage of its development and never work as a rule. Usually, funding includes
combination of steps at different stages.

1.3 Sources of funding.

1.3.1 External and internal sources of business funding

Internal sources of own funds are formed in the process of economic activity and play a
significant role in the life of any enterprise, as they determine its ability to self-financing.

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The main internal sources of financing of any commercial enterprise are earnings generated
from sales, sale or rent of unused assets, etc.
In today's environment, private enterprises independently distribute the profit that remains
at their disposal to pay dividends, invest, repay the debt, etc. When management make
decision regarding retained earnings, they might take into account such factors as plans for
further development of the enterprise from the long-term and short-term perspective, as well
as the interests of owners, investors and employees (Davila A. & Gupta, 2000, p. 689–708).
In general, the more profit is allocated to the expansion of economic activities, the less the
need for additional financing. The amount of retained profit depends on the profitability of
business operations, as well as on the policy adopted by the company regarding payments to
owners (dividend policy).
The advantages of reinvesting profits should be mentioned (Jennings, et al., 2015, pp. 113-
130):

- The absence of costs associated with the attraction of capital from external sources;
- Preservation of control over the enterprise's activity by the owners;
- Increased financial stability and more favorable opportunities for attracting funds from
external sources.

In turn, the disadvantages of using this source are its limited and changing magnitude, the
complexity of forecasting, as well as dependence on external factors beyond management's
control (e.g. market conditions, phase of the economic cycle, changes in demand and prices,
etc.).
Another important source of self-financing of enterprises is depreciation charges. They
are attributed to the costs of the enterprise, reflecting the depreciation of fixed and intangible
assets, and are received as cash for sold products and services. Their main purpose is to
ensure not only simple, but also extended reproduction.
The advantage of depreciation charges as a source of funds is that they exist at any
financial position of the enterprise and always remain at its disposal. The amount of
depreciation as a source of financing for investments depends to a large extent on the way it
is accrued, usually determined and regulated by the state. The chosen method of depreciation

23
is recorded in the accounting policy of the enterprise and is applied throughout the life of the
fixed asset (Haslem, 2015, pp. 12-14). Application of accelerated methods (reduced balance,
sum of numbers of years, etc.) allows to increase depreciation charges in the initial periods
of operation of investment objects, which, all other conditions being equal, leads to the
growth of self-financing volumes. In general, an adequate depreciation policy under certain
conditions can contribute to the release of funds that exceed the costs of investments made.
In some cases, it is possible to attract additional financial resources into the economic
turnover from internal sources by selling or renting out unused fixed and current assets. At
the same time, such transactions are ad hoc in nature and cannot be considered as a regular
source of cash.
Despite the advantages of domestic sources of financing, their volume is usually
insufficient for expanding the scale of economic activity, implementing investment projects,
introducing new technologies, etc.

External sources. Enterprises may raise their own funds by increasing their capital
through additional contributions from their founders or by issuing new shares. The
possibilities and ways of raising additional equity capital depend significantly on the legal
form of business organization.
Joint stock companies in need of investment may place additional shares by public or
private subscription (among a limited number of investors). In general, the initial public
offering of shares of an enterprise by public subscription (Initial Public Offering - IPO) is a
procedure for their implementation in the organized market to attract capital from a wide
range of investors.
In general, the IPO preparation and execution involves four stages (Loughran, et al., 2014,
pp. 165-199):

1) During the first (preparatory) stage, the company must develop a placement strategy,
select a financial adviser, transition to International Financial Reporting Standards,
audit the financial statements and internal control systems for the 3-4 years prior to
the IPO, make the necessary structural changes, create a public credit history, for
example, by issuing bonds.

24
 2) At the second stage, the key parameters of the upcoming IPO will be defined, legal
and financial due diligence procedures will be conducted, as well as independent
business evaluation (due diligence).
3) The third stage includes the preparation and registration of the prospectus, the decision
on the issue is made, information on the IPO is communicated to potential investors
and the final price of the offering is determined.
4) At the final stage, the placement itself is carried out, i.e. the company is admitted to
the stock exchange and subscribed for shares.

Financing through the issue of ordinary shares has the following advantages (Vonga &
Trigueiros, 2009, pp. 1257-1268):

 This source does not imply mandatory payments, the decision on dividends is made
by the Board of Directors and approved by the General Meeting of Shareholders,
unless it is regulated by the government;
 Shares do not have a fixed maturity date - this is permanent capital, which is non-
refundable or redeemable;
 The IPO significantly raises the company's status as a borrower (the credit rating is
raised, according to experts, the cost of borrowing and debt servicing is reduced by
2-3% per annum), shares can also serve as collateral for debt security;
 Circulation of the company's shares on stock exchanges provides more flexible
opportunities for owners to exit or partially exit the business;
 The company's capitalization increases, a market assessment of its value is formed,
and more favorable conditions are provided for attracting strategic investors;
 The issue of shares creates a positive image of the enterprise in the business
community, including international, etc.

The general disadvantages of financing through the issue of ordinary shares should be also
mentioned (Ibbotson, 1975, pp. 235-272):

25
  Granting the right to participate in the profits and management of the company to a
larger number of owners;
 The possibility of losing control of the company;
 The higher cost of capital majority of cases raised in comparison to other sources;
 The complexity of the organization and conduct of the issue, the significant costs of
its preparation;
 The additional issue may be regarded by investors as a negative signal and lead to a
fall in prices in the short term.
 Financial and not financial reporting requirements
 Confidential information regime (MARs/MADs, etc.)
 Increased reporting and auditing costs
 Increased bureaucracy connected to becoming a public company

A significant problem is the time gap between the date of the decision to place shares and
the beginning of their circulation in the secondary market. Specialists estimate that on
average it takes about six months to prepare and conduct an IPO (Gao, et al., 2013, p. 1663
– 1692).
Another significant constraint is the requirement to ensure "transparency". Disclosure of
information in the IPO is required to a much greater extent than in obtaining various types of
loans. At the same time, due to the established legal climate and business practices
(prevalence of closed transactions, "grey" payment and tax optimization schemes, non-
transparent business structure), many Russian companies react to the requirement of
"transparency" very painfully. Disclosure of information about ultimate owners, tax
reduction schemes, etc., can make a company an easy target for takeover using judicial, law
enforcement and fiscal authorities.
Owners of companies that have nevertheless decided to carry out an IPO, rebuild the
business so as to reduce possible losses from "dilution" of their shares and not to lose control.
After the public offering, many large shareholders retain a controlling stake.
The implementation of the IPO requires significant costs. The one-off costs of IPO
organization, both direct (payment for services of a financial consultant, underwriter, law and
audit firms, stock exchange, registrar, marketing agencies, etc.) and indirect (costs for

26
reorganization of management and control systems, financial flows, promotion of the
company's brand) can be quite significant - from 7 to 20% of the raised funds (Armstrong &
Wright, 2007, p. 353–380).

1.3.2 Venture Capital Funding

Attracting venture capital is one of the most common financing methods in the world.
Venture investments are investments in projects and companies that are at an early stage of
existence and are preparing for rapid growth, and they usually go along with managerial
support. Typically, they are innovative enterprises that have a new technology or business
idea, which, if successfully implemented, will provide a significant increase in revenue and
business value. In the case of venture financing, it may be a question of financing a project
from scratch (the sowing stage), when there is no income from the business or even the
company, or of investing in a working company in the expectation that its scale will grow
significantly in the near future.
Commonly used strategy of venture capital funds is long-term and lasts usually for a
period from 5 to 12 years, and the main purpose is to accumulate financial resources in their
accounts and invest them in the most interesting and promising projects gain big profits at
the IPO or earlier. Venture investments carry too high risk and uncertainty for a traditional
investor due to a number of factors (Bernstein, et al., 2017, pp. 509-538):

1) Frequently it is impossible to estimate neither sales, nor property, and the startup is not
capable to provide return of money resources at any end of the project;
2) Activity of objects of investment is based on innovative ideas, thus the potential market
of a created product, as well as properties of the product, possibility of its realization of target
audience are studied poorly, and the real information goes against that which has been
planned in the business plan;
3) Complexity of a startup when it is in a process of development may become an obstacle
for an investor. It is connected with the fact that business grows, and it entails organizational
and administrative changes. The importance of the team embodying the idea becomes higher
than the innovative idea itself.

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 In the group of venture capitalists, we can highlight individual investors, who are usually
called business angels. Business angels become the main source of financing at the very
early, seeded stage of a venture project. (Dutta & Folta, 2016, pp. 39-54) Business Angels
follow a venture capital investment mechanism with an average of 3-7 years of financing for
an equity stake in a company. The peculiarity of working with business angels is the absence
of collateral, surety and any guarantees. The basic income of business angels is usually
formed at sale of the received share in the capital of a startup at "leaving" the transaction that
is connected with that income considerably exceeds initial financial investments. Business
angels seldom advertise themselves, and often and in general prefer not to speak about the
activity publicly. This is due both to the origin of their capital and simply to the investor's
ideas about how to operate in the market. Therefore, it is difficult to judge the real total
number of business angels, and most often it is possible to reach them only through friends
and partners. A variant of alternative-native communication with business angels is various
associations and unions that offer angel financing.
What distinguishes venture funds from business angels is that they can manage not only
personal money, but also other people's investments including partners’ money. Distinctive
characteristics of venture financing from other types of financing are (Belleflamme, et al.,
2013, pp. 313-333):

 The principle of "approved risk". This means that capital investors agree in advance
with the possibility of losing funds in case of failure of the financed enterprise in
exchange for a high rate of return in case of its success;
 Long-term investment of capital, in which the investor has to wait on average from 3
to 5 years to make sure that the project is promising, and from 5 to 10 years to get a
return on the invested capital;
 A venture capitalist, unlike a strategic partner, rarely seeks to take a controlling
interest in the company. One of the reasons for this is the desire to risk less, while
avoiding the imposition of the business management. We can also note the
motivational factor, because the owners of the company should remain interested in
the development of activity;

28
  A high degree of personal interest in the success of the startup. It follows from both
high riskiness of the project and the status of co-owner. Therefore, risk investors often
do not limit themselves to providing funds, but provide various consulting,
management and other services to startups.

The main advantages of a venture capital investor's participation in doing business

(Sharma, 2015, pp. 465-470):

1. Getting connections from an investor in business, extensive experience of successful

and unsuccessful solutions. Involvement of serious specialists in the business will not only
reduce risks, but also improve results.
2. Receiving a number of resources that are difficult to access for a single project and are
offered by the investor in a ready-made form. For example, such resources may include office
provision and support, legal issues, financial accounting, logistics, etc.
3. Ensuring regular "business audit" through presence and control by the investor.
Ultimately, this will help to increase the investment attractiveness required for the next
rounds of investment.

Negative aspects of a venture investor's participation in business (Petty & Gruber, 2011,
pp. 172-188):

1. If an investor tries to participate in making operational and strategic decisions of the

company, it blurs the responsibility for decisions, prevents the entrepreneur from taking
operational actions because of the need to often coordinate their actions with the venture
partner.
2. Investments "in kind" make it difficult to determine the value of an investor's
contribution and can lead to conflicts related to the determination of shares in the business.
Even at a clear definition of shares at an input of the investor in the company the question on
distribution and antidivorce of shares necessarily will arise at the following round of
investment.

29
 3. The transfer of some vital elements of the business to the investor, such as office or
accounting, increases the company's dependence on the investor, which means that the
venture capitalist will be able to influence the company to a greater extent than his or her
share in the capital.

As for business angels' funds, they are often obtained in violation of the law. Funds
invested by some business angels can be earned illegally or even through various criminal
schemes. But even quite honestly earned money business angels do not like to disclose, as it
can attract unnecessary attention of government agencies or organized criminal groups.
Therefore, when working with some business angels should be ready for offshore companies
and unaccounted for in cash.

1.3.3 Bank Loans

Credible funding may be one of the possible options for financing start-ups. Credit
financing, according to most experts, is one of the worst funding options. When choosing
this type of financing, company need to be sure of the success of the startup. Otherwise, it
will have to repay the loan by paying its own money or lose collateral (which is often real
estate, a car or securities, such as shares). The given way of financing has certain advantages,
such as useful experience of negotiations at coordination of the credit and experience of work
on documents at working out of the business plan of a startup. Banks are reluctant to credit
business from zero for the following reasons (Gabszewicz & Wauthy, 2014):

- Difficulties in an estimation of risk of the innovative company;

- At the beginning business profit is not always important, the main thing - growth.
And if the company does not bring profit, it is problematic to credit it, as the timely
return of money may be under threat;
- Regulatory restrictions.

The process of obtaining a loan for a small business is more complicated, because if a
consumer loan can be taken by any creditworthy individual. On the other hand, in order to

30
obtain the loan, the company needs to be registered in the form of a legal entity, and the
lending process entails a system of business plan verification of the organization, which
increases the time spent on obtaining it. The company must provide all the necessary
documents to confirm the solvency of the business, then begins the process of reviewing the
credit history of the owner of the company, as well as the bank requests a certain pledge or
guarantor for the loan.
As a rule, banks are not interested in the degree of innovativeness of an idea, because it is
more important for them whether a startup has a possibility to return the money received
later. In addition, credit for starting a business is provided at a higher interest rate, which is
due to the high risk of the primary companies being created. For startups, high interest rates
and stringent credit conditions can be devastating, because if they fail, the young business
may find itself in a deep debt hole. The disadvantages of this type of credit are as follows
(Hinson, 2011, pp. 320-323):

1. There must be a stable income;

2. The limited amount of money for which the bank allows granting credit to small
innovative companies;
3. The rate might be higher than for loans to individuals;
4. The probability to get a negative credit history;
5. A lengthy processing procedure and an impressive set of documents to obtain a loan.

Another option for obtaining a bank loan under the startup is a suretyship of a solid and
profitable company, which can, in case of bankruptcy or failure of the credited business,
return to the bank the entire amount of the previously issued financial resources.
It is difficult for the bank to assess the proposed business, the market in which the
business is developing. All this is much easier to evaluate a specialized organization that has
already taken place in this market. A sponsoring organization evaluates the viability of a new
business, is responsible for it, and also receives part of the profit from the new business in
one form or another. At the same time, the bank credits the company at a lower rate.

31
1.3.4 Governmental funding and governmental support actions
The state also plays a significant role in the development of the innovation economy. The
state seeks to support needs of new companies, especially those associated with scientific
and technological innovation.
The main advantage of grants and subsidies is that they are usually free of charge, they do
not need to be returned as loans, and the guarantee does not receive a share in the financed
business as a venture capital investment.
However, there are also disadvantages to this form of financing (Sommer, et al., 2009, pp.
118-133):

1. The amounts of grants and subsidies in monetary terms are not sufficient to carry out
full-scale R&D and launch a project for a small startup company. This funding is
more stimulating;
2. The amount of paperwork that needs to be done in order to obtain a small amount of
grant funding and to complete a report on its use seems impressive. If entrepreneurs
do not have the relevant experience in preparing reports, this procedure becomes
difficult;
3. The financial and economic prospects of projects are often inadequately assessed by
independent experts, and the expertise is carried out in violation of international
standards.

32
 Figure 2. Support provided by government

Source: D.J.D. McLeish, C.M. Stewart (2012).Objectives and methods of funding defined benefit.
Journal of the Institute of Actueries, 114(2), pp. 155-225

1.3.5 Equity crowdfunding.

The name "crowd investing" comes from the English words "crowd" and "investing", i.e.
literally - "investing by crowd". This is an investment of money in a new (usually) investment
project by many small investors, who together with the right to a portion of the profits take
the risks of investing. Funds for projects are attracted through special Internet resources -
crowd investment platforms. These sites, which act as intermediaries between investors and
owners of business ideas, allow users to invest money in an attractive project and get

33
rewarded if it is successful. Crowd platforms ensure the integrity and security of transactions,
receiving a commission (Belleflamme, 2015, pp. 11-18).
As a result, entrepreneurs can raise money cheaper than through bank loans. Investors are
also interested in this: they earn more money than through deposits. This is often the way to
finance venture capital projects that need money at the inception of a business idea. The
potential profit from such projects attracts those who want to take risks. In this case, "crowd
financing" allows users to invest in risky projects an insignificant amount of capital, so as
not to lose everything in case of failure.
By registering on the Internet resource of crowd investing, user agrees with the rules
established on it. Moreover, there is no common system of rules for such sites. If anyone
wants to use the services of the site for crowd investment, start with a thorough study of the
conditions on different crowd platforms. Some sites only bring investors with entrepreneurs,
not assigning responsibility for the appropriate quality startups. Others carefully analyze and
evaluate business projects before allowing fundraising. Such platforms are guarantee of
quality, which reduces investors' risk.
Platforms do not only raise money from small private investors. They often employ
professional "business angels" - companies that invest money in projects at the stage of their
creation. Despite the lack of legislative guarantees for the safety of investments, generating
a certain distrust in crowd platforms, the market for "public investments" is growing rapidly.
If in 2013 the volume of crowd investing did not reach one billion dollars, in 2016 crowd
platforms around the world have collected more than 30 billion dollars. Moreover, half of the
deals are made on American platforms (Bi, et al., 2017, p. 10–18).
Despite the abundance of crowd investment platforms and the variety of rules on them,
there are three main "crowd investment schemes" (Ahlers, et al., 2015, pp. 955-980).

 Royalty - the right to a share of income or profit from the company's activities. An
investor can also receive non-financial benefits. Often it is participation in the
management of the firm or even in the recruitment of personnel. This model of
investment is typical for music and film projects, for software development and
games.

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 Crowdlending - the issuance of loans to legal entities and individuals through crowd
investing. This model of "people's" lending is distinguished by the usual fact that
lenders are individuals, not financial structures. Borrowers do not only get a loan on
easier and more favorable terms than in a bank. What is important to them is that
crowdfunding allows them to borrow for purposes that banks do not finance at all.
The benefit to the investor is that the interest from crowd financing is higher than that
from deposits.
 There is another option of crowdlending - interest-free loans given mostly in
developing countries also known as social crediting. Although this type of crediting
is not positioned as charity, money should be returned, it is impossible to refer this
way to investments. Any investment implies profit for the investor, which cannot be
associated with social crediting.
 Equity Crowdfunding - Investors acquire securities, becoming full shareholders of
the company they finance. This model is very beneficial for investors, because by
becoming co-owners of the company, they gain additional guarantees by taking
partial control over the company. Unfortunately, equity crowdfunding is not
widespread due to the lack of the necessary law providing for this way of acquiring
shares.

Advantages of crowd investing might include (Allison, et al., 2014, pp. 53-73):

 Crowding platforms allow investors to easily search and select projects according
to desired criteria.
 Investor can easily diversify risks by making a lot of small investments in
companies with absolutely different areas of activity.
 Crowd investing has a low entry threshold: users can invest as little as they like in
the project, they are interested in.

Disadvantages of crowd investing might include (Allison, et al., 2014, p. 53–73):

35
 Despite the control and selection carried out by crowd investment platforms, the
risk of fraud on the part of entrepreneurs is higher than in other investment
methods.
 There is a risk that the project will not start at all because it still lacks capital to
launch. It happens when businessmen do not manage to collect enough money
through a crowd investing platform. Money will be returned in this case, but there
will certainly be no profit.
 The project may turn out to be unprofitable and close, and the investment will be
"burned". Such risk is typical for any venture investments and is compensated by
a higher potential profit than for investments in traditional companies.
 Equity crowdfunding is often not legally regulated, so if problems arise, it is
impossible to resolve them through court.
 Often new equity crowdfunding platforms are closed at the initial stage due to their
unprofitability.

36
 Chapter 2: Crowdfunding as a modern way of
financing start-ups and projects

2.1 What is crowfunding?

2.1.1 Definition of crowdfunding

Crowdfunding has a large number of species and subspecies, which are described in
various sources. A person who begins to be interested in the subject faces the chaos of
materials and cannot get a general idea of the concept. This part will provide basic
information about crowdfunding, which will allow to consider its main species and analyze
current development trends.
Crowdfunding is the use of small amounts of capital from a large number of individuals
to finance a new business venture (Smith, 2019). Crowdfunding is a way of raising finance
by asking a large number of people each for a small amount of money. Traditionally,
financing a business, project or venture involved asking a few people for large sums of
money. Crowdfunding switches this idea around, using the internet to talk to thousands – if
not millions – of potential funders (Anon., 2020). Crowdfunding is when businesses,
organizations or individuals fund a project or venture with small donations from many
people. Put simply, a "crowd" funds a project or business, rather than one or two major
investors (Conlin, 2019).
Crowdfunding will avoid exchanges, funds and banks being involved in the process of
obtaining financing. This procedure has been significantly simplified and has become more
democratic. Of particular importance is the personal interest of the sponsor.
Crowdfunding platform is a platform used to place and promote relevant projects on the
Internet. It is a specialized service for placing ideas. The platform provides legal and financial
aspects. In addition, it will facilitate interaction between participants and help in promotion.
It is worth noting the three main roles of the participants on the site. They are the project
author, curator and sponsor. The crowdfunding platform allows any organization that is
interested in supporting the project to act as a curator. It implies the provision of technical
facilities, premises, equipment and sponsorship of an advertising campaign. Project

37
managers are represented by the authors of the platform (Belleflamme , et al., 2014, pp. 585-
609).
Crowdfunding platforms include a project creation system. It has data on the amount and
time of the project, its description, the availability of rewards, presentation in video format,
as well as information about the author and linking to a bank account. It should be noted that
various payment systems are integrated into the site, which depends on the specific service.
Most resources have a social component. It means that it is possible to enter the site with
the help of an account in a certain social network, and also information about friends who
are also registered on the site is automatically specified. The user can monitor the activity of
other participants, as well as receive notifications about projects created or funded by them.
The crowdfunding platform allows communicating with the author of a project the person
likes.

2.1.2 Types of crowdfunding

Crowdfunding is a mechanism for attracting financing aimed at supporting business,
product realization, events, etc. There are three models of Crowdfunding by type of reward
for the sponsor (Mollick, 2014, pp. 1-16):

 Non-rewarding donation;
 Kickstarter model - receiving non-financial reward;
 Crowdinvesting - financial reward.

When money is collected to implement a commercial idea, as a rule, it is not a non-

repayable investment, unless it is a crowdlending. People invest money in a project, hoping
that in the future they will get profit from it. It is called crowdinvesting.
Crowdinvesting can be considered a type of crowdfunding. It differs from other areas in
that donors do not give their money to the recipient free of charge, but with the prospect of
making a profit. This is sometimes considered as a type of crowdfunding, but sometimes as
entirely separate way of funding (Sauermann, et al., 2019, pp. 17-21).
There are three main crowdfunding directions:

38
 (1) Reward crowdfunding.
(2) Equity crowdfunding.
(3) Debt crowdfunding.

1. Reward crowdfunding. The most popular type of crowdfunding. Its main advantage,
ensuring such popularity, is that the donor receives a certain bonus for his investments. The
reward is rarely material. May be explained by a concrete example.
Today's creative youth strive for self-realization in every way. Often in order to implement
an idea, the person needs money, which beginners musicians or artists do not yet have. In
this situation crowdfunding comes to the aid. For example, a music band, which has several
thousand fans, decided to collect 5 thousand dollars to record a studio album.
The group members create a project on one of the crowdfunding platforms and announce
such bonuses to donors depending on the amount of the investment:

 10-50 dollars - access to the album immediately after its recording;

 50-100 dollars - disc with an autograph;
 100-200 dollars - an autographed disc and a branded T-shirt.

This is a brief description of the principle of this type of crowdfunding. Recipients will
most often be creative people, charity organizations that want to engage the public in their
activities, or sports teams looking for sponsors to hold competitions or buy equipment (Melfi,
2014, pp. 45-53).

2. Equity crowdfunding. This type of crowdfunding is treated more as an investment in

the development of a commercial enterprise, and works similarly to stock market, but the
difference is that company is usually private. The donor is offered a certain share or interest
for the invested funds. It is an excellent way for entrepreneurs to find partners and investors.
The given kind of crowdfunding for business can be applied both to already started projects,
and to those that only preparing to enter the market. In this case, the recipient does not
guarantee profit. The donor must be aware of all the risks associated with the investment and
be prepared to lose the investment.

39
 Equity crowdfunding is perfect for small and medium businesses, as they often need a
cash injection for intensive development. Many small companies do not want to rest on their
laurels and are looking to grow. To do so, they need additional funding. Crowdfunding will
solve this problem in the best possible way and attract the right number of investors
(Briggman, 2018, pp. 13-29).
3. Debt crowdfunding. This type of crowdfunding is similar to the previous one with the
only difference that the money is lent. The recipient promises investors either a return on the
investment or a share in the enterprise. At the same time, donors take great risks by investing
their money, because they cannot be fully sure that they will receive it back.
On the other hand, debt crowdfunding is a great opportunity for start-up entrepreneurs and
startups to find the necessary capital, while promising a return or a share in the company.
Implementing a new, unique idea is always a risk. There is much to be afraid of, both for
recipients and donors. However, if a project is shot, the income can be very large (Young,
2013, pp. 28-31).
Ways of funding via crowdfunding paltforms (Smith, 2018, pp. 9-22):

 "All or nothing". The project is published on a crowdfunding platform. There is a

certain period of time during which it is possible to raise funds. If during this period
of time it was not possible to collect the required amount of money, then all the money
that was raised is returned to its owners.

 "Keep it all". Even if it was not collected the entire amount, it is still transferred to
the recipient minus the commission of the site to implement the business idea.

 "Eternal funding". The recipient receives an unlimited time resource to collect the
required amount. The investment can come until the project is implemented.

 "Tipping point". The money comes in after passing the checkpoint. For example, if
half of the required amount is collected, the money is transferred to the recipient.

40
  "Deal with a floating price". The recipient puts up his product for sale, and investors
offer a price for it. In this way it is possible to raise funds to implement a new idea.

2.2 History of Crowfunding

2.2.1 Early history of crowdfunding

Collective or public funding as an economic phenomenon was known long times ago, but
today crowdfunding sites allow people to find money for almost anyone and for any ideas.
Who was the first to collect money from the population, and what sites have promoted
crowdfunding in the masses?
The main principle of raising money in crowdfunding is absolute transparency of
collections, calculations, implementation process and the final goal of the project. The author
offers for consideration of potential investors (donors) his idea or business project, and
anyone interested can transfer any amount in favor of the project.
Most often, social and charitable projects are considered gratuitous, and business projects
can offer for a certain amount of investment a share of profit, shares or lump sum payment,
if the case is successful.
Crowdfunding developed after it was possible to combine the concepts of microcredit and
crowdsourcing. In general, the history of fundraising and financing has a long history. Denis
Diderot published his Encyclopedia for the money that subscribers sent him before the books
were published. The company was a success and the brilliant Frenchman produced 17
volumes of knowledge about science, culture, politics, arts and 11 volumes of tables. So,
despite the bans and censorship and imprisonment, Diderot did a tremendous job in 30 years
and was able to publish books (Raney, 2019, pp. 3-51).
Microcredit principles were established in the 1700s, when Irishman Jonathan Swift
founded the Irish Loan Fund. This fund helped the poor with the money of the writer and all
comers to support poor provincial families. Loans were given without collateral and did not
study the previous credit history of the person. By 1800 there were several hundred such
organizations in Ireland, and all of them worked very successfully, so the project of the

41
famous philosopher and writer became the basis for overcoming poverty of the Irish people
(Ryu, 2019, pp. 26-28).
Worldwide" funding has been known since the 12th century. The famous Notre-Dame de
Paris was built for two centuries only with funds that were brought by the citizens who were
interested. Also, at the end of the 19th century, a pedestal for the Statue of Liberty was erected
for six months and spent two million dollars to gather ordinary Americans (Benna & Benna,
2018, pp. 188-211).
Crowdfunding as well known today has also come into the world economy from America.
In the middle of the last century, the securities market in the United States went through a
coup and became more open. Small business shares, like any other, could be bought by any
citizen of the country. Shares were traded almost in car parks. Buyers were able to spend
dividends in the future, and sellers were able to create and develop their business. Similarly,
money was raised to build the Statue of Jesus in Rio de Janeiro and the Nelson Column in
London (Vass, 2014, pp. 31-45).
Internet crowdfunding in its usual form was born in 1997 from an act of love of fans to
the British band Marillion. American fans were so eager to hear their idols live that they
began to look for a way to give the band a large-scale tour of cities in the United States. The
decision was not obvious at first glance - to designate on sites and forums an approximate
schedule of tours and to collect money to buy tickets in advance. As a result, fans sent
$60,000 to the musicians who initially did not take part in the adventure. The concerts took
place and Marillion later on regularly asked fans for help in recording new albums. The same
principle was later used by Radiohead.
This experience was the starting point for the ArtistShare platform in 2000. Musicians
were able to communicate directly with fans and raise funds for new projects. Everyone who
contributed to the campaign received a pass to a concert or CD of the band. The service was
in demand, and soon the Internet was filled with similar platforms (Zhao, et al., 2019, pp. 19-
21).

2.2.2 Modern history of crowdfunding

Mahammad Yunus is the father of modern microcredit, the program of which helped to
unite more than 30 thousand people into a single Grameen Bank, which stands for relations

42
with people on the principle of mutual trust between people. Such a bank has opened an
opportunity for people with low income to receive money without given any collateral in
exchange and without formalizing anything legally (Parhankangas, et al., 2019, pp. 4-18).
All this has contributed to self-employment and the opening of new small businesses. Later,
nearly six million people have applied for Grameen Bank's services, and Yunus himself won
the Nobel Prize in 2006 as a fighter against poverty and a major contributor to the social and
economic development of humanity.
These types of financing have evolved, and modern communication and information
technologies have led to people starting to unite on their own through the Internet.
Communities of interested users became a harbinger of the future appearance of large-scale
crowdfunding websites.
The beginning of the new millennium was marked by the development of lending through
specialized platforms. Such lending, also called social, popular or peer-to-peer lending, takes
place on websites where people receive money from other people without using the
intermediary of credit organizations and banks.
Kiva.org was the first company to implement a new model of financing and began using
the Internet to establish contacts between large sponsors and small entrepreneurs from the
third world. In just a few years, more than $20 million was raised for financial assistance,
and now Kiva.org has more than enough wealthy sponsors (Lawton & Marom, 2010, pp. 22-
23). P2P lending was one of the first to start using the British website Zopa.
The term “crowdfunding” was firstly used online in August 2006 by Michael Sullivan,
who at the time was trying to implement Fundavlog, a video blogging site. Starting in 2007,
crowdfunding platforms were launched every year, where private investors invested not only
in the works of musicians, film directors, but also in business ideas, research and
development and startups (Enventys Partners, 2018).
Unfortunately, today most of the websites that first offered to offer their projects to the
audience and raise funds for them, no longer work. But some of them deserve special
mention:

 ArtistShare is the first platform for developing the music business and supporting
creative people;

43
  Resource Kiva.org for the first time offered the possibility of financing entrepreneurs
from the Third World countries with the help of large European investors.
 Kickstarter still supports projects in various directions and is the most popular
crowdfunding platform in the world. The resource was created in 2009, at the moment
it conducts serious moderation of projects and boasts more than 30 000 implemented
projects.

The collapse of the housing market and financial industry in 2008 led to people having to
seek financing through alternative means. As traditional banking institutions were no longer
able or willing to provide the same loans as in the past, people turned to the Internet - and to
each other.
The launch of Kickstarter and IndieGoGo led to the explosion of niche crowdfunding
platforms. The crowdfunding industry quickly became a popular option for entrepreneurs to
confirm their ideas, attract attention and obtain funding. Revenue from crowdfunding tripled
from $530 million in 2009 to $1.5 billion in 2011 (Castrataro, 2011, p. 61).
In April 2012, President Barack Obama signed the Jumpstart Our Business Startups
(JOBS) Act. Also known as the "crowdfunding bill", the Job Act was aimed at reducing the
regulatory burden on small businesses and legalized crowdfunding on equity. This includes
lifting the ban on a general motion that prevents entrepreneurs from reporting that they are
raising money. By 2012, there were over 450 crowdfunding platforms, which attracted over
$2.7 billion worldwide. By 2015, that figure had jumped to $24.4 billion (Impact Guru ,
2017).
It so happened that the next round of crowdfunding idea popularity occurred due to bitcoin
and blockage technology in general. The idea of crowdfunding, combined with distributed
register technology, has transformed into the concept of ICO - a new highly effective way to
raise funds in the era of "decentralization". However, the essence of ICO is very different
from classic crowdfunding, with Kickstarter as its center. The backer of this platform, as we
remember, did not receive any financial benefits (Boreiko & Sahdev, 2018, pp. 1-25). A
participant of ICO-campaigns, in fact, does not sacrifice his own funds, but buys currency
(coins, tokens) of this or that project. In a sense, it is similar to buying shares in a company
that has undergone an IPO, but instead of shares – tokens (Boreiko & Risteski , 2020, pp. 7-

44
11). They, like shares, go to the stock exchange, where their price can rise, and the token
owner will profit from this, especially given the fact that within the ICO tokens are sold at a
significant discount. The difference from shares is that tokens, depending on the specific
project, may have certain functions within the framework of the project being implemented.
They can be equated to a unit of a certain physical product or can become a currency on a
certain platform - everything is limited only by the imagination of the project founders
(Mendelson, 2019, p. 14).
The history of ICO is still quite short, but a lot of events have happened in the industry
during this time, which will be remembered for a long time. So, on June 17, 2016 one of the
most large-scale attacks took place (Tormen, 2019, pp. 31-33). In one of the applications on
smart contracts we found a code vulnerability, through which, according to various data, a
hacker took out from $50 to $64 million. Immediate collapse of ETH and DAO caused instant
panic.

2.3 Regulations

2.3.1 Crowdfunding regulations in Poland.

The development of Crowdfunding in Poland is limited, due to capital market regulations
and administrative barriers primarily having to do with public money gathering. Poland has
not yet adopted any regulations that would specifically concern Crowdfunding in any of its
models (European Crowdfunding Network, 2018, pp. 5-8).
In 2014, the Polish government published its position on Crowdfunding and its potential
regulation in the future: “there is currently no need to introduce binding legal regulations,
because the Crowdfunding market in Poland is still in its early stage of development”. Since
mid-2016, the Polish Ministry of Economic Development has been working on a new kind
of company: simple joint-share company. The aim is to make this new type of a company a
convenient start-up vehicle that could be also used for raising capital through Equity-based
Crowdfunding. In 2017, the Polish Financial Supervision Authority initiated a joint market
and government working group with a task to identify legal barriers regarding financial
innovations. Among several task forces, there is one working on Crowdfunding regulations

45
and legal barriers concerning social lending. There is no clear and explicit regulation of
Crowdfunding in Poland. The framework for Crowdfunding transactions in Poland is still the
Polish Civil Code and several other acts. Certain types of Crowdfunding-related activities
may trigger the application of financial regulations (European Crowdfunding Network, 2018,
pp. 5-8):.
Under the Polish Financial Instruments Trading Act (ustawa o obrocie instrumentami
finansowymi) of 29 July 2005 (“TFIA”), investment services are regulated and require a
licence. TFIA acts also as an implementation of the MiFID directives, but includes many
other additional regulations. Crowdfunding Project Initiators can be obliged to prepare and
publish a prospectus under the Polish Public Offering, Conditions for the Introduction of
Financial Instruments to Organised Trading, and Public Companies Act. It cannot be
excluded that some Project Initiators will fall within the scope of the Polish implementation
of the AIFMD and will have to comply with the regulatory requirements.
In addition, Polish crowdfunding may go under the impact of EU regulations including
(European Crowdfunding Network, 2018, p. 9):

- PSD/PSD II;
- MiFID/MiFID II;
- AIFM Directive;
- Prospectus Regulations.

2.3.2 European Union and member state regulations.

Within the EU, there are numerous directives that directly or indirectly regulate the legal
relationship in crowdfunding. Unfortunately, special attention both to the national legislation
of the Member States and to EU law is paid only to crowdlending and crowd investing
(equity-based crowdfunding), which was noted in the report of the European Commission.
Due to various approaches of crowdfunding outlines in Europe the legal implications
change from one to another platform because of their specifics. One can detect six regulatory
areas applying in numerous degrees to the crowdfunding platforms (Röthler & Wenzlaff,
2011, pp. 11-21):

46
 1) Provision of financial payments
2) Use of copyrights and the further use of immaterial goods
3) Taxation of the sales of material goods and services and income taxation
4) Protection of investments and ownership in business
5) Distribution of loans and credits
6) Protection of user data

On 26 June 2019, the Council of the European Union published a compromise proposal
for a draft European Commission structure for the regulation of crowdfunding platforms in
the EU ("Crowdfunding Rules") (Chervyakov & Rocholl, 2019, pp. 15-17). The proposed
regulation is an attempt by the Council to improve access to new sources of funding for
investors and businesses. The published compromise proposal followed the publication by
the European Parliament of its position on the draft regulation of the European Commission
in March 2019, which enhanced investor protection in the proposed new rules.
The Council states that its position (Gajda & Brüntje, 2016, pp. 27-28):

 provides assistance to cross-border crowdfunding platforms in removing barriers;

 provides adapted rules for EU crowdfunding companies, depending on whether they
provide financing in the form of a loan or investment (through shares and bonds
issued by a fundraising company);
 provides a common set of prudential, informational and transparent requirements to
ensure that investor protection in the area of crowdfunding is of a high standard;
 defines general rules of authorization and supervision for national competent
authorities.

To achieve these objectives, the crowdfunding regulations shall (European Parliament

News, 2019, pp. 7-11):

 provide an opportunity for crowdfunding platforms to apply for a single EU

authorization to provide a cross-border crowdfunding service in the EU market;

47
  create adapted rules for EU crowdfunding service providers that recognize these new
routes to register a company in the EU - starting a small or medium enterprise to
attract financing, and covering both investment and credit business models; and
 ensure equal protection for EU investors when accessing crowdfunding investment
opportunities, e.g. providing investors with information on the risks associated with
crowdfunding and assessing their understanding of financial products before they are
allowed to invest in an EU crowdfunding company.

The Council's compromise proposal in the first reading implemented some of the
amendments proposed by members of the European Parliament, including the expansion of
the scope of the legislation to include crowdfunding proposals up to €8 million (the
Commission originally proposed that the rules apply only to proposals up to €1 million), but
the Council did not adopt all the changes. For example, proposals requiring crowdfunding
service providers to disclose annual default indicators for crowdfunding projects proposed
on their platforms were relaxed to allow the platforms to simply provide such information
and update it periodically (European Commission, 2019). Similarly, the Council did not
adopt the proposed requirement for crowdfunding platforms to include information on their
own risk of insolvency in all marketing communications.
The publication of the Council's position takes the legislative process one step further
towards the implementation of the Crowdfunding Regulation, but since the text has not yet
been agreed, there is no clear timetable for implementation (ECN, 2019). Moreover,
according to the transitional provisions in the current proposal, the rules will not come into
life not earlier than within a year from being implemented. The next step for the Council and
Parliament is to negotiate an agreed draft text.

2.3.3 Crowdfunding platforms’ regulations.

There are lists of rules provided by each crowdfunding platform that concern only their
own platform. For instance, one of the most well-known crowdfunding platforms Kickstarter
has its own set of basic rules on its website (KickStarter, 2020). In most cases, rules and
regulations on crowdfunding platforms of the same type are similar and the difference is not
significant. A significant difference is noticed when two crowdfunding platforms of different

48
types are compared. Below is presented list of rules and regulations from the most significant
crowdfunding platform nowadays, which is Kickstarter (KickStarter, 2020):

Projects must be available for other people.

Every project should have a plan for producing something and sharing it with other people
or the world. At some point, the creator should be able to say: “It’s done. Here’s what we
produced. Enjoy!”

Clearness and honesty.

The community is made based on trust and communication. Projects cannot mislead
society or falsify the facts, and creators should be honest about what they plan to achieve.
When a project involves manufacturing and distributing something complicated, like a
gadget, we demand projects to show supporters a prototype of what they are creating, and we
forbid the use of lying images.

o Prototype demonstration should reflect a product’s current state and should not
include any CGI or special effects to demonstrate functionality that does not yet exist.
If a project involves software and hardware incorporation, initiators are needed to
show that functionality and any dependency clearly or disclose that it has not yet been
developed.
o Misinforming imagery involves photorealistic renderings and significantly edited or
manipulated images or videos that could provide backers with a wrong impression of
a product’s present phase of development.

Projects cannot search for a fundraise used for charity.

While nonprofits are welcome to launch projects on Kickstarter, projects cannot guarantee
to raise funds to donate to a charity or cause. Funds raised on Kickstarter must go straight for
accelerating the project defined by the author on the project page.

49
 Projects cannot offer equity.
Any sort of investment activity is not allowed on Kickstarter. Projects cannot attract
people by offering incentives like any kind of equity, profit distribution, or investing
opportunities.

Projects cannot involve prohibited items.

 Any item claiming to diagnose, cure, treat, or prevent an illness or condition (whether
via a device, app, book, nutritional supplement, or other means).
 Contests, coupons, gambling, and raffles.
 Energy food and drinks.
 Offensive material (e.g., hate speech, encouraging violence against others, etc).
 Offering a genetically modified organism as a reward.
 Live animals. Projects cannot include live animals as a reward.
 Offering alcohol as a reward.
 Offering financial, money-processing, or credit services; financial intermediaries or
cash-equivalent instruments; travel services (e.g., vacation packages); phone services
(e.g., prepaid phone services, 900 numbers); and business marketing services.
 Political fundraising.
 Pornographic material.
 Projects that promote discrimination, bigotry, or intolerance towards marginalized
groups
 Projects that share things that already exist, or repackage a previously created
product, without adding anything new or aiming to iterate on the idea in any way.
 Resale. All rewards must have been produced or designed by the project or one of its
creators — no reselling things from elsewhere.
 Drugs, nicotine, tobacco, vaporizers and associated paraphernalia.
 Weapons, replicas of weapons, and weapon accessories.

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 2.4 Step by step process of launching the project

2.4.1 Prelaunch steps.

Before the individual places a crowdfunding campaign on the platform and begin the
efforts to attract potential sponsors, the individual will have to do a lot of preparatory work
to ensure the success of the campaign. How much preparatory work will be required and how
long it will take depends on many different factors, including the skills and the resources at
the disposal, the scope of the project idea, the target audience and the ultimate goal of the
campaign. In most cases, the preparation for a successful reward based crowdfunding
campaign will include the following steps (Andsten, 2018, pp. 18-22):

 Identifying and adjusting the project idea

 Accurate target audience identification
 Conducting a study to determine how promising the idea is and what fundraising
opportunities are offered by the different crowdfunding platforms based on it
 Choosing a suitable crowdfunding platform
 Establishing a rewards system (if required by the campaign plan)
 Development of a timeline and timeframe for the campaign, as well as a separate time
frame for the implementation of the entire project
 Setting up or expanding the network
 Creation of general marketing appeal
 Preparation of content for the crowdfunding campaign, including the creation of a
promotional video
 Prior planning of campaign promotion activities using social media, email, paid
online advertising, public relations and other marketing methods
 Provide the expertise required to set up and run the crowdfunding campaign and
identify the experts the individual will need once funding is secured to complete the
project.
 Creation of detailed budget estimates for the crowdfunding campaign and the entire
project

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 Only after preliminary research and planning the person can begin to consider issues
directly related to the creation and launch of a crowdfunding campaign for his project idea.
Each crowdfunding platform strives to develop an accurate approach to its clients, helping
them to organize and run campaigns to the maximum extent possible. Individuals should look
closely at the training programs and manuals available on the platform, then begin to fill the
campaign webpage with the right focused content.

2.4.2 Launching and running.

Attracting traffic to the campaign web page
It is impossible to attract traffic to the campaign web page without active and continuous
efforts to stimulate the project. Among other things, people visiting the webpage should
belong to the target audience and have an interest in the project idea strong enough to become
sponsors of the project.
Thus, a clear understanding is needed from the outset: planning and implementing a
comprehensive marketing plan for the crowdfunding campaign will take a lot of time and
resources, including financial resources (Assadi, 2015, p. 23). This money will have to be
spent in advance, even before the start of the campaign, but it will be refundable if the
declared financial goal is achieved, of course, it is included in the project budget as a
preliminary cost.
Active planning and organization of marketing, advertising and public relations activities,
which will attract traffic (potential sponsors) to the campaign web page after its placement
on the Internet, should begin weeks or even months before the crowdfunding campaign. A
well-organized and disciplined approach to these types of events will allow the individual to
make the best use of the time and available resources to achieve the best results.
The four fundamental strategies – mail marketing, social media promotion, paid online
advertising and public relations - represent only a small fraction of the existing methods of
work, but each of them has proved to be excellent at stimulating different types of projects
(The Staff of Entrepreneur Media, Inc., 2017).

52
 Public Relations
Public Relations is another aspect of marketing activity to promote the crowdfunding
campaign. It is about creating a targeted list of names of editors, journalists, TV show hosts
and producers who collaborate with various media serving the information needs of the target
audience (Cudmore, 2019). By supplying these media characters with press releases and
other information, the individual aim to encourage them to publish information about the
project and/or the crowdfunding campaign.
After that, the individual will face a new additional task: the individual will have to
maintain a mode of dialogue with these people, which will last even after the end of the
campaign.
Some of this continuous communication takes place via email. After a person becomes
a sponsor, he receives a personalized email with words of gratitude for their support. The
content of these messages is not limited to a mere expression of gratitude but should also
include a call to action: to disseminate information about the project and the campaign
through their own social networks (Johnson, 2020).
Updating the Page
In addition to individual communication with the sponsors, the person will need to send
regular messages to the entire group of sponsors, informing them of all the events, the
completion of the intermediate stages of the campaign and the successes. The person should
also keep his sponsors up to date with news related to overstated goals, if any. Once the
campaign is over and the person has started working directly on the project, the person will
need to keep the sponsors informed of every step the person has taken towards implementing
the project.
Producing informative and entertaining content for the weekly updates of his blog and
campaign web page can seem daunting at first glance. But when the person thinks about the
type of information the person can share with his sponsors, but it basically comes down to
deciding what kind of information to share and when. The individual should keep in mind
that each update may consist of several suggestions, accompanied by one or two relevant
photos and/or a video (Law, 2019). The person does not need to write a dozen pages each
week.

53
 Later, when it is time to send out rewards and/or products, each sponsor is sent another
personalized email explaining how and when they will receive their prize. If this is possible,
data should be sent along with the email to help track the route of the parcel.

2.4.3 Finalizing the campaign.

If the person works with a crowdfunding platform that does not have an “All or Nothing”
allocation of funds, the person will be entitled to the full amount of money raised during the
campaign, regardless of whether the stated financial objective was achieved or not. If the
goal is not reached, some part of the amount will still be transferred to the person after all
commissions have been paid to the platform and independent companies (Forbes & Schaefer,
2017, pp. 398-403).
Whether the person has achieved full funding or not, once the person has received the
money, it is his responsibility to send out promised rewards and prizes to the sponsors who
support him. Therefore, the person should have an action plan in place.
Money Delivering
Kickstarter and many other crowdfunding platforms adhere to the "All or Nothing"
principle, therefore, in order to receive money, the creators of the project need to achieve a
financial goal. Then, after the end of the campaign, startup is expected to start processes of
production and delivery of products to its backers. At this stage the person, creator of the
startup is already responsible for the development and implementation of the project.
As the person learns how “All or Nothing” platforms work, the person will find that after
the campaign is over, sometimes up to two weeks before the funds are transferred to
company’s bank account. The transfer process itself takes three to five working days, so the
person should plan his actions with the above circumstances in mind (Hagen, 2018, pp. 30-
32).
Rewards & Prizes
All prizes and rewards promised to sponsors should be sent to them immediately after the
end of the campaign. Sponsors will need to be notified in advance of the expected parcel
receipt date. If it takes some time to prepare the rewards, start working on it as soon as it is
clear that the person is achieving his financial goal. There are no ways the person may
postpone sending the promised rewards and prizes (Tran, et al., 2017, p. 41).

54
 Chapter 3: Crowdfunding in Poland: Interview and
Data Analysis

This chapter tries to give answers for following research questions:

- How successful are Polish projects able to become on local and global level?
- How performance of Polish crowdfunding practice differs from World practice?

This chapter is divided into 2 sub-chapters. Sub-chapter 3.1 will based on data analysis
available on public sources as well as carried out own research in order to answer above
mentioned questions. Each question will be answered in the same order as it is presented
above.
Sub-chapter 3.2 will serve as a complementary interview conducted for the purpose of
getting to know how crowdfunding looks like from perspective of creators.
Above mentioned questions are essential in order to understand how Polish performance
of Polish crowdfunding differs from international crowdfunding. In addition, answers for
these questions will help to understand, if Polish startups or creators are eager to launch
campaigns on local crowdfunding platforms or rather on international platforms. Moreover,
the research will help to find out reasons why some creators or startups are likely to launch
campaigns on international platforms.

3.1 Data analysis.

According to survey conducted in the period November 2018 till January 2019 by Fanea-
Ivanovici and Siemionek-Ruskan, where authors asked several questions to 185 master
students from the Faculty of Management of the University of Gdansk, Poland. The
respondents were grouped into two groups in order to advance in this survey (Fanea-
Ivanovici & Siemionek-Ruskan, 2019, pp. 182-193). These groups were chosen by asking
respondents if they have willingness to do business. These surveys should be treated as
illustrative examples and they don’t prove real perception towards crowdfunding.

55
 Figure 3. Willingness to do business
87
Yes
47%
98
No
53%
Source: Fanea-Ivanovici, M., Siemionek-Ruskan, M.
(2019). A Comparative Analysis of Crowdfunding in
Poland and Romania, Proceedings of the 13th
International Conference on Business Excellence 2019,
pp. 182-193

As it is seen on figure 3 two groups were created due to this survey. First group consists
of 87 people who are willing to do business and second group consists of 98 people who are
not willing to do business. In order to find out how many people prefer crowdfunding as
alternative way of financing the author asked first group to choose up to three preferred
alternative funding sources. Outcome of this survey is presented below.

Figure 4. Preferred alternative funding sources

34
Crowdfunding
39.08%
30
Business Angels
34.48%
37
Sponsorship/donation
42.53%
13
Venture Capital
14.94%
34
Public-private funds
39.08%
Source: Fanea-Ivanovici, M., Siemionek-Ruskan, M. (2019). A
Comparative Analysis of Crowdfunding in Poland and Romania,
Proceedings of the 13th International Conference on Business
Excellence 2019, pp. 182-193

The result of this survey illustrates, that sponsorship/donation is the most preferred way
of alternative financing among the group of 185 master students and crowdfunding and
public-private funds go along on the second-place surpassing business angels and venture
capital firms. The Venture Capital is the least preferred among this group. The next question

56
was related to the matter, if people associate sponsorship/donation with crowdfunding and
respondents’ answer for this question was “Yes” in 89.90% of cases. It means, that
crowdfunding may be dominating as a preferred alternative funding source, if taking into
account that fact, that sponsorship/donation is associated with crowdfunding among the
respondents. Except that fact, that the survey from figure 4 may be considered as an answer
for the first research question, but in order to support the final answer the author will refer to
two more surveys, which show if these two groups of people consider crowdfunding as an
effective way of project financing and what type of crowdfunding is the most preferred.

Figure 5. Opinion about effectiveness of crowdfunding

Willing to do Unwilling to do
business business
69 74
Yes
79.31% 75.51%
5 4
No
5.75% 4.08%
13 20
I do not know
14.94% 20.41%
87 98
Total
100% 100%
Source: Fanea-Ivanovici, M., Siemionek-Ruskan, M. (2019). A Comparative Analysis
of Crowdfunding in Poland and Romania, Proceedings of the 13th International
Conference on Business Excellence 2019, pp. 182-193

Figure 5 states, that both groups believe, that crowdfunding is an effective way of project
funding with answer “Yes” in more than 75% in both cases, and less than 6% in both groups
as of answer “No”. On the other hand, approximately 15% and 20% of answers are “I do not
know” in case of first group and second group respectively. This figure supports the fact, that
people in most cases prefer crowdfunding as an alternative way of financing for projects
launched by startups, as so they believe in fact that crowdfunding is proven to be effective.
As long as, crowdfunding exists, there are different types of crowdfunding and it is important
to understand what type of crowdfunding they believe is the most effective. In order to
answer this question, there was carried out another survey to identify the only one superior

57
type of crowdfunding platform which is considered to be the most efficient according to
opinion of young people.

Figure 6. Most efficient type of crowdfunding

Willing to do Unwilling to do
business business
30 28
Donation-based
34.48% 28.57%
36 33
Reward-based
41.38% 33.67%
16 25
Equity-based
18.39% 25.51%
2 8
Lending-based
2.30% 8.16%
3 4
Other
3.45% 4.08%
87 98
Total
100% 100%
Source: Fanea-Ivanovici, M., Siemionek-Ruskan, M. (2019). A Comparative Analysis of
Crowdfunding in Poland and Romania, Proceedings of the 13th International Conference on
Business Excellence 2019, pp. 182-193

As it is visible on the figure 6, reward-based crowdfunding surpasses other types of

crowdfunding in terms of efficiency from perspective of both groups according to this survey.
On the other hand, donation-based crowdfunding is also considered to be very efficient taking
second place in this survey. This survey reflects the choice of people, in case if they would
need to choose the type of crowdfunding for launching their own campaign, therefore it is
possible to state, that reward-based crowdfunding is the most attractive type of crowdfunding
for this illustrative group.
From the above lying analysis it can be stated, that based on outcomes of the survey the
illustrative group of young entrepreneurs and graduates in Poland would prefer in majority
cases reward-based crowdfunding platforms for funding purposes, than venture capital firms
or business angels. One of the factors for that lies in the figure 5, where people agree on
effectiveness of crowdfunding for project financing, which states over 75% of positive
responses.

58
 After stating that Polish young generation prefers crowdfunding as an alternative
financing source, it is important to understand how successful these projects are able to
become launching on local or international crowdfunding platforms. In context of
crowdfunding a success is identified when a campaign amount gathered equals to target
amount defined at the beginning of the campaign. With reference to Peter Baeck and Liam
Collins, international crowdfunding platforms are considered to be more effective in terms
of raising large amounts of funds, whereas local sites are effective if a startup or a project is
focused only on local market or tries to raise money for local needs including building a
kinder garden, a school, a road or to support local music-band (Baeck & Collins, 2015).

Figure 7. Most funded Polish campaigns on local crowdfunding platforms

Target
Final Amount Final Amount Number of
Project Title Amount
(PLN) as Percentage Backers
(PLN)
Zew Cthulhu RPG 60,000 1,069,469 1782% 2,317
Hejtoholik 33,300 600,410 1803% 1,187
Etap II: Biblia Audio 576,700 682,647 101% 1,644
Stworze 45,000 311,008 691% 1,588
Wirtualne Serce WOSP 20,000 301,205 1506% 7,897
Karty Magia Y v2 38,000 295,462 777% 3,100
T.I.M.E Stories 60,000 284,219 473% 567
Liski: Ojojanie 30,000 276,052 920% 1,609
Wampir: Maskarada 60,000 265,506 442% 534
Anno Domini 1666 50,000 226,709 453% 355
Wstega Pamieci 300,000 385,615 128% 1,569
Secret Service 93,000 284,110 305% 3,688
Redbook 35,000 207,172 591% 355
antyszczepionkowcy.biz 10,000 134,785 1347% 1,622
Magazyn Kosmos 93,712 131,269 140% 1,367
Bestiariusz Jeleniogorski 75,000 121,341 161% 585
Zaklad Makerspace 100,000 112,954 112% 1,580
Zrodzeni do Szabli 70,000 104,566 149% 515
Yellowbook 26,000 102,741 395% 625
Szkola w Nepalu 100,000 102,172 102% 782
Mean 93,786 299,971 619% 1,674
Max 576,700 1,069,469 1803% 7,897
Min 10,000 102,172 101% 355
Source: Author's own research

59
 In order to understand the situation on local level it is important to find out what are the
key statistics for projects on Polish crowdfunding platforms in recent years. In order to get
such a key statistic, the author has chosen 20 most funded projects from two Polish reward-
based crowdfunding platforms Polakpotrafil.pl and Wspieram.to.
In order to commit the research, the author has chosen 20 most funded projects in terms
of target amount to final amount according to internal instruments on these platforms. 10
projects were taken from Wspieram.to and other 10 projects were taken from Polakpotrafil.pl.
Then author gathers such key statistics as Target Amount the campaigns tried to raise, and
Final Amount which stands for how much company was able to raise till the end. These
number are shown in local currency which is PLN and as percentages. Complementary data
was chosen to be Number of Backers, because this statistical indicator show how much
people are able to support the projects at maximum. In order to show the scale in which most
funded projects are being under researched author sum it up with quantitative indicators such
as Mean, Max and Min. On the other hand, the research is limited to overall statistics without
narrowing down sectors of research and deviation in target amounts.
According to given research, projects are able to become as successful as to raise up to
1703% in excess of what the initial target amount it was. On the other hand, these statistics
proves that fact, that projects raising from as minimum as 10,000 PLN and up to as much as
576,700 PLN are not too huge. Only 2 out of 20 projects had target amount over 100,000
PLN. In addition, these campaigns were able to raise only up to 30% in excess if their initial
desired amount. Surprisingly, that the project which is considered to be the most funded had
tried to raise 60,000 PLN, but in the end, it raised 1,000,000 PLN in excess. In general, from
minimum number of 355 of backers to maximum number of 7,897 of backers are able to
support the project, in best case scenarios.
In order to analyze situation on international crowdfunding platforms, it is necessary to
carry out similar analysis with the same criteria and key indicators, but with only one
difference, which is researched platform – Kickstarter, the most popular international reward-
based crowdfunding platform. Only campaigns launched by Polish companies were counted.
As it is visible on figure 8, range of Target Amount goes from minimal amount of 73,800
PLN to maximal amount of 492,000 PLN. This means, that minimal amount for 20 most
funded projects on Kickstarter is higher, but the highest target amount is lower in fact. On

60
the other hand, only 1 project had target amount below 100,000 PLN. Final amounts show,
that startups are able to raise up to 25,456,833 PLN on Kickstarter, according to results from
this research. However, it is important to mention, that only 4 projects were able to gather
more, than 10,000,000 PLN. Final results show that the maximum final amount as
percentage, that has been successfully raised in excess is 12935%. This fact proves, that
campaigns with higher goals could successfully raise money according to this statistic with
a support of potential range from 1,579 to 41,939 of backers.

Figure 8. Most funded Polish campaigns on global crowdfunding platforms

Target
Final Amount Final Amount Number of
Project Title Amount
(PLN) as Percentage Backers
(PLN)
Nemesis Lockdown 196,800 25,456,833 12935% 41,907
Tainted Grail: The Fall of Avalon 196,800 24,304,948 12350% 41,939
Etherfields Board Game 196,800 19,553,861 9936% 32,582
Nemesis Board Game 246,000 15,157,698 6162% 30,553
Lords of Hellas 246,000 8,451,537 3436% 12,439
Great Wall Board Game 196,800 5,663,702 2878% 15,794
Kingdom Rush: Rift in Time 98,400 5,404,207 5492% 11,900
Aeon Trespass: Odyssey 246,000 5,326,151 2165% 8,184
The Edge: Dawnfall v1.6 246,000 3,858,500 1568% 5,621
Chronicles of Crime 492,000 4,995,045 1015% 13,353
This War of MineL The board game 196,800 3,059,310 1555% 9,627
Time of Legends: Destinies 196,800 3,085,150 1568% 8,925
The Edge: Dawnfall 196,800 2,453,825 1247% 3,608
Who's she? 73,800 2,578,159 3493% 6,745
Lobotomy Board Game 196,800 2,445,083 1242% 3,130
Beyond Humanity: Colonies 221,400 1,696,077 766% 1,579
Waste Knights: Second Edition 196,800 1,661,563 844% 4,421
Yedo Deluxe Master Set 196,800 1,623,157 825% 3,433
The Hunters A.D. 2114 418,200 1,367,376 327% 2,687
Pret-a-Porter 172,200 1,334,235 775% 4,864
Mean 221,400 6,973,821 3529% 13,165
Max 492,000 25,456,833 12935% 41,939
Min 73,800 1,334,235 327% 1,579
Source: Author's own research

This research has proven the fact, that Polish startups are able to raise more funds on
international platforms, than on local platforms. First reason for such a conclusion may state
the fact, that on average as much as twice more potential backers were able to support the
project according to historical data. Second reason is difference between the average target

61
amount and the average final amount for both cases, when projects were funded on local
level and when they were funded on international level, and the differences are equal to
206,185 PLN and 6,752,421 respectively. As a conclusion, international platforms have more
potential for raising money in comparison to local Polish crowdfunding platforms. On the
other hand, it would be fair to assume, that startups will be able to raise so much funds, in
case if the final product or service is focused on all potential backers, which also means that
the product is supposed to be produced internationally. However, in case of local small
projects, it would be enough funds from local backers to launch a project on a domestic
platform. Overall conclusion states, that Polish projects may become more successful
reaching up to potential 25,456,833 PLN by launching on international crowdfunding
platforms. The research is limited to only publicly available data gathered from internal
databases of crowdfunding platforms and other public sources. In addition, the research
doesn’t narrow down to one industry or sub-category because of the limitation of data
availability.
According to the report published by Valuates about crowdfunding industry, the global
crowdfunding market was evaluated at $10.2 billion in 2018 and is expected to reach USD
28.8 billion by the end of 2025, with a 16 percent increase from CAGR in 2018 to 2025
(QYResearch, 2019, p. 1). Following shifts in the global economy, China rapidly rose up as
a key player in the market, outstanding the United States in 2018.
Estimates regarding the development of crowdfunding in the upcoming years seem to vary
wildly in numerous crowdfunding statistics over time, depending on the organization or
analysts carrying out the research. For instance, a report on the crowdfunding market size
and forecasts published by Valuates gives a conventional estimate that the crowdfunding
market value will get up to $28.8 billion by 2025, while Forbes issued a report built on
Massolution data that forecasts 2025 volume of $300 billion (Cremades, 2019, pp. 9-11).
The reason for these significantly different forecasts in crowdfunding values on growth is
that various experts include different activities in total crowdfunding. For example,
Massolution includes P2P and crowd lending in its estimate, though most of the companies
carrying out such deeds do not consider themselves as someone who are doing crowdfunding.
Those companies account for more than 70% of the $300 billion projection (Liang, et al.,
2020, pp. 4-11).

62
 Markets grow all over the world including Polish market. Today crowdfunding is a
globally recognized tool that is able to provide project financing not only for social objectives
and business ideas of small entrepreneurs, but also for innovative projects of larger business
entities. Businesses around the world are increasingly using crowdfunding for financing. On
figure 9 the growth of crowdfunding may be observed, taking into account mainlands of
Europe in 2016 and 2017.

Figure 9. Crowdfunding in Mainland Europe by Country

2017 2016
Country
Rank Volume (EUR) Market ShareGrowth Rate RankVolume (EUR) Market Share
France 1 661,370,000 19.6% 48.96% 1 443,980,000 21.6%
Germany 2 595,410,000 17.7% 85.00% 2 321,840,000 15.7%
Netherlands 3 279,930,000 8.3% 44.15% 3 194,190,000 9.4%
I taly 4 240,660,000 7.1% 89.41% 6 127,060,000 6.2%
Finland 5 196,760,000 5.8% 38.34% 4 142,230,000 6.9%
Sweden 6 196,380,000 5.8% 127.08% 9 86,480,000 4.2%
Georgia 7 173,280,000 5.1% 68.92% 7 102,580,000 5.0%
Spain 8 160,480,000 4.8% 22.60% 5 130,900,000 6.4%
Poland 9 142,460,000 4.2% 273.52% 13 38,140,000 1.9%
I reland 10 106,790,000 3.2% 39.07% 11 76,790,000 3.7%
Latvia 11 92,200,000 2.7% 239.47% 16 27,160,000 1.3%
Belgium 12 90,900,000 2.7% 76.54% 12 51,490,000 2.5%
Estonia 13 81,240,000 2.4% -1.50% 10 82,480,000 4.0%
Switzerland 14 77,100,000 2.3% 161.18% 15 29,520,000 1.4%
Lithuania 15 61,310,000 1.8% 131.80% 17 26,450,000 1.3%
Denmark 16 43,470,000 1.3% -50.60% 8 88,000,000 4.3%
Austria 17 32,920,000 1.0% 52.48% 18 21,590,000 1.1%
Russia 18 28,440,000 0.8% 496.23% 20 4,770,000 0.2%
Czech Republic 19 26,500,000 0.8% -15.69% 14 31,430,000 1.5%
Slovenia 20 14,610,000 0.4% 212.18% 21 4,680,000 0.2%
Norway 21 11,790,000 0.3% 141.10% 19 4,890,000 0.2%
Bulgaria 22 10,660,000 0.3% 678.10% 26 1,370,000 1.1%
Romania 23 10,330,000 0.3% 782.91% 27 1,170,000 1.1%
Slovakia 24 10,170,000 0.3% 204.49% 23 3,340,000 0.2%
Portugal 25 8,730,000 0.3% 97.51% 22 4,420,000 0.2%
Source: https://p2pmarketdata.com/crowdfunding-europe/

The whole point of crowdfunding is to find potential sponsors willing to contribute

financially to your project. Without an established wide network and the ability to effectively
use the Internet to contact members of the network to achieve success in crowdfunding
campaign will be much more difficult.

63
 PolakPotrafi.pl is the largest crowdfunding platform in Poland, based on rewards. The
portal is based on two principles: they use the possibilities offered by crowdsourcing and
crowdfunding. Over its history in the Figure 10 the dynamics how crowdfunding has been
developing in Poland since it entered the market only one decade ago may be observed
according to Polakpotrfil.pl.

Figure 10. Polakpotrafi.pl historical statistics 2011 - 2017

Number of funded Percentage of Total volume of funded

Year
projects funded projects projects in PLN

2011 12 33.3% PLN 61,924.00

2012 30 25.0% PLN 268,586.00
2013 173 41.6% PLN 1,378,008.00
2014 354 52.2% PLN 4,960,638.00
2015 356 49.0% PLN 9,187,986.00
2016 370 52.9% PLN 14,609,448.00
2017 280 47.9% PLN 18,747,894.00
Source: Kędzierska-Szczepaniak, A. (2018). The Initiatives supported by reward-based crowdfunding in Poland.
Management Sciences, 23(4), 56-79

Polish crowdfunding platforms may seem to be young local phenomenon in early stage of
development. It is not a surprise that there have been founded various crowdfunding
platforms like biggest Kickstarter and Indiegogo (Adamska-Mieruszewska, et al., 2017, pp.
415-426).
Figure 11. Crowdfunding platforms by success rate

42.4%
35.8%

16.7%
12.3%
6.8%
Crowdfunder.com.uk Fundrazr I ndiegogo Kickstarter Rockethub

Source: www.thecrowdfundingcenter.com
64
 Crowdfunding in the world practice shows, that success rate may be volatile. As it is seen
on Figure 11, Kickstarter shows overall number of 35.8% of success rate. However according
to Figure 12, in 2019 this rate was slightly higher according to Crowdfunding Center.
Crowdfunding platforms tend to increase flexibility in financing of startups, still the
geography looks to play a role in defining the crowdfunding startup’s success. The majority
of startups accepted to collect donations on PolakPotrafi.pl are introduced by creators from
big cities. More than 63% of the projects were initiated by a founder from a large city with
more than 250,000 inhabitants, and 21% by founder from Warsaw – Poland’s capital. The
occurrence of project’s creator from Poland’s capital city varies drastically between
successes and failures. Over 26 percent of successful startups was started by creators situated
in Warsaw, on contrast to 18.5 percent in the case of failures (Mitrega-Niestroj, 2013, p. 8).
According to statistics collected from TheCrowdfundingCenter database in 2019 Poland
had lower performance in crowdfunding in comparison to World average performance. It is
visible if to compare average success rate of reaching the target amount in Poland and the
World that are equal to 30 percent and 37 percent respectively. However, according to the
same database only 199 projects were added during 2019 in Poland, whereas this number is
much higher in total in the World, which is 66,665 projects. With the success rate of 30
percent in Poland, it means that 60 projects out of 199 were successful. Average amount
raised is also lower, which is just $48,924 per project, thought in the World this number is
significantly higher and is amounted to $205,564.

Figure 12. Crowdfunding Statistics of Poland and the World for 2019
Location Success Rate Project Added Average Raised Total Raised
Poland 30% 199 $ 48,924.00 $ 13,175,277.00
The World 37% 66,665 $ 205,564.00 $ 1,239,832,487.00
Source: www.thecrowdfundingcenter.com

When people look at Kickstarter and Indiegogo, the greatest crowdfunding platforms on
the market, it appears that the majority of supporters are college-educated and earn less than
$60,000. According to the latest crowdfunding statistics, 40% of Kickstarter sponsors and
42% of Indiegogo sponsors have a college education. When people examine income, 54% of

65
Kickstarter sponsors earn less than $60,000 compared to 70% on Indiegogo (Gebert, et al.,
2020, p. 34).
According to world practice of crowdfunding technology, gaming, design, and publishing
are the categories with the biggest number of crowdfunding projects launched. These
categories demand major funding and allow easy-going distribution of products to their
patrons. Statistics on crowdfunding projects gathered by Crowdfunding Center show that
technology makes up 12.19% of all crowdfunding campaigns, while design accounts for
10.34% and gaming is tied with resign at 9.64%. In fact, projects from category of travel
raised the most with $237,323 on average whereas gaming category may be commended for
being one of the most supported categories with 396 backers each on average and 774 in fully
funded. But the most successful category may be considered film category with 20,761 fully
funded projects all over the world (Alegre & Moleskis, 2016, pp. 13-14). Although, due to
the fact that technological category is the most popular for creators it is also one of the most
popular categories for backers and in total all projects were backed at the amount of
approximately $1.5 billion. But according to statistics collected from Crowdfunding Center
it is proven that comics and graphic novels have highest level of success among all categories
bearing 53.3% for the success on average. Figure 13 shows the pie chart of all major
categories (The Crowdfunding Center, 2020).
Figure 13. Diversification of categories as for 2019
Charity , Technology,
Writing, 3.22% 2.47% 12.19%
Food, 4.74%

Video Games, 5.26%

Design, 10.34%
Health, 5.57%

Comics, 5.59%

Gaming, 9.64%
M usic, 7.09%

Fashion, 7.27% Publishing,

9.10%
Film, 8.74% Art, 8.79%

Source: www.thecrowdfundingcenter.com

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 Analyzing another research made by Fernandez-Blanco, Villanueva-Balsera, Rodriguez-
Montequin and Moran-Palacios, crowdfunding average success rate is equal to 51.46%
despite the limitation to only 23,941 projects researched. In addition, this researched
concerns 2009-2012, therefore may not reflect current situation. On the other hand, according
to the research made by same music is one of the most popular categories of projects and
with the biggest number of backers. Even though games category is nor as popular as music
with only 929 projects launched, among backers this category is almost as popular as music
category. Another indicator however shows, that average success rate of music category is
above the average and is close to the maximum success rate among all categories, whereas
games category is other way around close to the minimal success rate among all projects and
according to statistics games category is significantly below the average and the median,
even though the median and the average percentages are very close to each other according
to statistics.

Figure 14. Main features of the categories on Kickstarter

Category Number of Projects Success Rate Number of backers
Art 3,304 57.35% 132,920
Comics 868 53.69% 77,752
Dance 590 72.71% 21,922
Design 1,416 47.81% 317,998
Fashion 927 33.55% 29,437
Food 1,167 51.67% 69,866
Games 929 36.49% 379,453
Music 7,238 66.37% 387,692
Photography 1,266 45.97% 39,479
Publishing 3,631 41.23% 145,083
Thechnology 700 39.71% 97,696
Theater 1,905 71.02% 78,703
Total 23,941 - -
Average 1,995 51.46% 148,167
Median 1,217 49.74% 88,200
Min 590 33.55% 21,922
Max 7,238 72.71% 387,692
Source: Fernandez-Blanco, A., Rodriguez-Montequin, V., Villanueva-Balsera, J., Moran-Palacios, H. (2020). Key Factors
for Projects Crowdfunding Succes: An Empirical Study, 6-14

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 Polish crowdfunding is indeed still developing, but the research conducted by Agnieszka
Szewczyk shows, that the Polish practice differs from world practice (Szewczyk, 2019, pp.
116-120). In Poland according to the authors’ research the most popular category for creators
based on number of campaigns launched is Music, which is similar to the world practice, but
Initiatives category is the most popular among backers. By initiatives author means social-
local projects such as building a school in Nepal, or restoration of cultural heritage, etc. The
most successful category of campaigns is analogue games category with success rate of
77.31%, whereas Music which was very successful according to global practice performs
worse with only 48.89% of success rate.

Figure 15. Main features of the categories in Poland

Number of Percentage of
Number of Number of Number of
Category successful successful
capmaigns payments backers
campaigns campaigns
Music 225 110 22,408 14,044 48.89%
Book/ periodical 145 62 11,185 9,482 42.76%
Comic books 25 18 3,462 1,767 72.00%
Computer games 44 13 4,130 3,412 29.55%
Analogue games 119 92 35,116 9,224 77.31%
I nitiatives 143 74 30,261 26,065 51.75%
Event 63 28 6,046 4,178 44.44%
Movies/ photography 71 24 4,754 4,334 33.80%
Design 34 8 6,187 5,242 23.53%
Cosplay 6 4 195 198 66.67%
Education 44 16 2,504 2,005 36.36%
Fashion 26 4 411 399 15.38%
Theatre/dance 35 14 1,919 1,466 40.00%
Technologies 43 8 2,107 1,896 18.60%
Expeditions 69 27 3,866 2,981 39.13%
Sport 122 33 4,874 3,926 27.05%
Start-up 53 6 4,567 3,396 11.32%
Total 1,267 541 143,992 94,015 42.70%
Average 75 32 8,470 5,530 39.91%
Median 53 18 4,567 3,412 39.13%
Min 6 4 195 198 11.32%
Max 225 110 35,116 26,065 77.31%
Source: Szewczyk, A. (2019). Social financing – capital for projects of the example of crowdfunding platforms in Poland ,
116-120

Despite the facts referring to lower success rate, Poland still remains one of the most
attractive countries for foreign direct investments. According to a new report published by

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fDi Interligence, where investments of total $21.8 billion are mentioned to be made in 373
greenfield projects, and this fact makes Poland the third biggest destination for investments
that are coming into the Europe (Wilczek, 2020). One of the reasons for that is its constant
growth of economy in recent decade with CAGR of 3.6%, which proves Polish potential for
SMEs and startups (World Bank, 2020). Polish remains being an important market for the
development of crowdfunding, especially for small projects up to 800,000 PLN according to
Krystyna Mitrega-Niestroj (Mitrega-Niestroj, 2013, pp. 91-93). However, the world practice
shows, that Polish market is still developing considering that fact, that majority of huge
projects are launched on international crowdfunding platforms and success rate is still higher
as well as potential number of backers. Top 3 most successful categories by success rate of
projects according to Polish and World practices are Analogue games, Comic Books,
Cosplay and Dance, Theater, Music respectively. By number of backers top 3 categories from
perspectives of Polish and World practices are Initiatives, Music, Book/Periodical and Music,
Games, Design respectively. As a result, Music is considered to be popular category both in
Poland and in the World based on number of backers.
The Polish crowdfunding differs from international crowdfunding (which is dominated by
music, art and publishing markets in terms of number of campaigns) by popularity of certain
categories, success rate, number of backers and average success rate per category. Even
though both in Poland and internationally Music is the most popular category in terms of
number of campaigns launched, it is proven to be less successful in Poland in terms of
percentage of successful campaigns then in the World. is the success rate for Poland is 66%
and 49% for the World (research limited to the most popular crowdfunding platform world
widely – Kickstarter) and Poland respectively, than Dance category with 72% success rate
for the World and Analogue Games category with 77% success rate for Poland. One more
important difference is average overall success rate for all categories which amounts to 40%
and 51% for Poland and World respectively. It would be fair to assume, that based on overall
success rate mean indicators Kickstarter would be more attractive, but in terms of certain
categories in theory Poland-based platforms would be more attractive than Kickstarter given
some examples such as: analogue games, comic books, cosplay.

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 3.2 Interview: Mudita Sp. z o.o.

The interview hase been conducted via mail chatting. The person who has been
interviewed is working for Mudita Company as Marketing Manager. Company is operting in
technological sector producing B2C gadgets for daily life such as alarm clocks, phones and
recentely they have begun to produce breathing mask due to raising issue of shortage of
masks in pharmacies. Only one of their projects was funded via crowdfunding, which is
Mudita Pure, a smartphone used in daily life. The interview is presented below with
complementory analysis and statistics.

Q: Could you tell me briefly about the history of your company? How and when was it
founded? Why did you choose this sector and how did you come up with an idea to produce
this product?
A: Mudita is a new kind of tech company, it exists to benefit the future of humankind. A
future where people live more conscious and fulfilled lives. Where ethics and doing the right
thing is more important than money. Where knowledge about how to live mentally and
physically healthy lives is widely known and incorporated in everyday life.
The word ‘mudita’ comes from Pali, a Middle Indo-Aryan language native to the Indian
subcontinent and has no counterpart in English. We can describe it as pleasure, that comes
from the unselfish joy of witnessing the well-being of others. We were inspired by this
Buddhist concept of developing a more compassionate relationship with yourself and others.
Working on our ability to share the happiness of others helps us convert jealousy and worry
into calmness and optimism.
We’ve gathered experts in research and development, engineering, software development,
product management and marketing, driven by a mission to create unique and minimalistic
products. Right now we are in the product development phase with the first prototypes that
we continue to test and improve. Every day is a milestone that brings us closer to the final
product. We’ve also patented the technology (patent US 9,900,411 B2, EU 3185352) which
allows us to deliver the phone with the world’s lowest Specific Absorption Rate (SAR) level.

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The SAR shows the amount of radio frequency (RF) energy that is absorbed by the body
while using the device.
At Mudita, we design devices that give you back the control over your privacy and
relationship with technology. Phones should be a tool for connecting people, but overusing
them isolates us. Smartphones can also do harm, to our sight and posture. Long-term
consequences of our constant exposure to artificial sources of radiation haven’t been
thoroughly studied yet, but initial results make us cautious. Our products are supposed to be
both neutral and simple, not attention grabbing, not needlessly interfering with life (Anon.,
2020).
Author's Comments: Company was founded in 2013. Interviewing person refered as
answers for questions to their web-site where the information was taken from. Company is
relatively young, not having products sold, or produced before.

Q: Why did you decide to use crowdfunding as a method of financing?

A: Crowdfunding campaign was a great way of validating our product. We did this
campaign for a few reasons: 1. We obviously wanted to raise some funds for production, 2.
We wanted to see and understand market's needs and expectations better (we received plenty
of feedback from our backers and from potential backers) 3. We wanted to use our campaign
to show off in global media and the successful campaign was a great starting point.
Author's Comments: Crowdfunding is indeed used for these 2 reasons, however there
are much more reasons: marketing purposes, pre-orders collecting, covering extraordinary
costs, attracting new clients, etc.

Q: When did the last crowdfunding campaign start and what was the duration of the
campaign?
A: Our Kickstarter campaign was launched on September 24th and was live for 30 days.
Then we moved to Indiegogo Indemand (which is a stage between crowdfunding and E-
commerce stage).
Author's Comments: 30 days is meant to be an optimal time for the campaign according
to suggestion by Kickstarter platform while launching the project (Kickstarter, 2020). After
the campaign on Kickstarter they moved to Indiegogo. In early 2015, Indiegogo launched the

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InDemand for all who want to create a project, which enables crowdfunding compaign
creators to continue funds raising and amass sponsors long after campaigns end. Even if the
creator raised funds and met his aims on another platform like Kickstarter, he can still
transition to InDemand to keep the momentum going. InDemand is founded to be flexible
tool. There are no predetermined timelines and creators can change rewards and continue to
take pre-orders anytime, as InDemand is not built on unchangeable fundraising goals. They
keep raising money even as they start to produce and deliver the product to backers (Enventys
Partners, 2017).

Q: Could you describe the product you lastly created with money from crowdfunding?
A: It's still work in progress and will be delivered in October. This is a phone product
«Mudita Pure» with remarkable minimalistic design, E Ink display, Ultralow SAR and no
internet connection. Smartphones help in many ways but too often they become a time-
consuming burden we carry with us all the time. We decided to build Mudita Pure to deliver
a premium feature phone that helps to enhance offline time and look after wellbeing and
minimized mobile radiation exposure. Also it includes Harman loudspeakers.
Author's Comments: The phone is promoted by a company as the one having unique
minimalistic design being inspired by Japan philosophy and design solutions. Supposed to
be competitive in the market of low-price phones for «social-network» aversed people who
find a phone as a gadget for calls, rather than a portable computer, a magazine, a notepad, an
alarm clock, a weather checker, a blog writing tool, a camera and a watch in one thing.

Q: At what stage of development was the product when you started the crowdfunding
campaign?
A: We had working prototypes. Working prototype is a requirement for Kickstarter to run
a campaign. It took us around 18 months to find the final look and included the creation of
more than 40 different proposals.
Author's Comments: If the product is from technology sector, it is exposed to the risk of
being copied by others, since there are a lot of people who are following news and campaigns
on crowdfunding platforms and make attempts to use the idea or a concept of interesting
projects with the purpose to begin mass production before the original product or project

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being crowdfunded and started being produced. The entire process turns into the race of who
is the first to start the production. That is also the reason why optimal amount of time for
crowdfunding campaigns suggested is 30 days. In that case, chances for such a race decrease,
and as an additional preventive measure Kickstarter has introduced such a rule. Also, in case
of inventions, it is extremely important to protect the invention with a patent application
before using crowdfunding to raise capital. If the company is going to produce something it
must create prototype first, so it would be able to register it under intellectual right law.

Q: What platform did you use to raise money? Why this platform?
A: Kickstarter and then Indiegogo Indemand - two the biggest platforms with the biggest
audience and biggest chances to run a successful campaign.
Author's Comments: They have used two biggest crowdfunding platforms for the raise
of capital. Kickstarter specializes mainly in financing various creative projects: shooting
independent movies, creating video games, comics, music, technologies, gadgets, etc. As a
service fee Kickstarter takes 5% of the raised funds. Unlike Kickstarter, IndieGoGo gives the
author of the project all the funds collected by a certain date, even if the target amount is not
achieved. Only the commission amount changes: if the goal of the fundraising project is
reached, the resource holds 4%. But if not, then 9%. In addition, as previously mentioned
Indiegogo is useful for those projects that succeeded Kickstarter to continue its campaign on
Indiegogo InDemand.

Q: What do you think of Polish crowdfunding platforms in comparison to its biggest

competitors such as Kickstarter and Indiegogo?
A: We never considered it, so I have no comparison. Perhaps it is a good choice for those
who want to launch a product for Polish market only.
Author's Comments: Though projects on local level are crowdfunded via Polish
platforms, the number is decreasing, addressing the problem of diminishing popularity. The
answer refers to that problem, and proves, that the company did not consider Polish
crowdfunding platforms, possibly because of limitations associated with number of potential
backers. Another reason may be the focus of the company to sell the product internationally,
therefore local platforms were not even considered. According to the data analysis in sub-

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chapter 3.1 international platforms such as Kickstarter does surpass local ones by potential
number of backers and success rate, which means, that most of projects may be launched on
Kickstarter instead of local alternatives, because creators believe in better exposure to
backers and international marketing.

Q: How many projects did you manage to crowdfund in total?

A: Mudita Pure - one project.
Author's Comments: Company was registered in 2013, and since then this was the major
project which company has been working on. Due to trends, companies are just getting used
to crowdfunding, as an option for project funding. Most of companies still prefer venture
capital firms, bank loans and other old-fashioned ways of project funding. As it is seen in
previous sub-chapter young generation might prefer crodfunding over other options in future.

Q: How much did you try to raise during the campaign? What was the final result?
A: Most of the final result is an effect of months long preparations. Our goal was
$100,000, however the result we achieved was $262,506 as for 24 October 2019. However it
is still on a run on Indiegogo.
Author's Comments: According to information from Indiegogo and Kickstarter
company successfuly reached its goal on Kickstarter raising $262,506 on Kickstarter with a
support of 1,042 backers. After that, company moved to Indiegogo where it has already raised
additional $71,514 from 204 backers. Average pledge as for Kickstarter for Mudita company
is around $252 per backer, whereas this amount is drastically higher for Indiegogo and the
average pledge is equal to around $350 per backer.

Q: According to your personal experience, how simple is getting the crowdfunding

campaign started?
A: It's easy to start a campaign, but it's a lot of effort of many people to make it successful.
Author's Comments: Crowdfunding is not only about creating a page on Kickstarter or
Indiegogo and waiting for the money to get raised itself somehow. However even before the
launch, global practice includes a lot of other steps in preparation and running the campaign.
Authors have to keep the backers up to date and attracted, if they want to receive more funds,

74
as it is believed, after first donation the backer may will to donate more just for support
purposes, as it is seen now in other donation-based service – online streaming (Twitch, Mix,
Youtube, etc). On the other hand it is still disputable what is the ultimate reason why people
donate money (for entertaining purposes) from psychological point of view.

Q: How important rewards are for backers in your personal opinion?

A: From our experience, backers are there mainly for the rewards which are your final
products. Other types of rewards are not very popular (at least in consumer electronics
segment. It may be different to other segments).
Author's Comments: According to crowdfundig platforms where the product is placed,
the company decided to use only one kind rewards which is products with discounts. From
20% and up to 40%., in case of donations amounted to $221 and $295 respectively. In
crowdfunding, people order goods that do not yet exist. The sponsors believed in the product
even at the development stage, so it is logical to offer it at more attractive price. It is possible
to offer users not only a product with a discount, but also the discount itself for the purchase
of goods from crowd-campaign. If during the period of the project activity the potential
sponsor does not have the necessary amount (after all, any crowdfunding project is not an
endless pleasure), then after the end of the campaign the sponsor can take advantage of the
discount and buy the product.

Q: What were the minimum and maximum amounts your last project was backed?
A: Our pledges ranged from $1 to $1700
Author's Comments: Backers may donate as much as they want starting from 1 cent and up
to endless amount. Although the average amount of donations has been already mentioned, that
is proven that the average pledge of $252 for this project is outstanding in comparison to world
average pledge which is $104 in 2014-2020. This number assures high interest in project shown
by backers.

Q: Why do you think people back projects?

A: Because they fall in love with a concept and they'd like to support it. Also because they
want to have something that is not widely available on the market.

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 Author's Comments: The answer for this question perfectly describes reasons for
backers to pledge campaigns. It may seem to look like a philanthropy, however that is not it.
People donate money to support projects for rewards. If these rewards are products
themselves, then it works like a prepayment for a unique product which will be owned by
limited number of people. If no rewards are behind these donations, then the person might
like the product itself and so-called “whales”, those who can donate huge amounts just
because they can afford to do so, and giving such amounts as $1700, which is historical
maximum for this project, to beloved projects. However, there are still cases when people
donate money, because they know, that nobody else except the given company will be able
to realize similar project. In addition, people are engaged, because a lot of projects keep
contact with its backers during and after the campaign as companies keep relations with its
backers on regular basis, in order to have backers for next projects.

Q: What do you think was the biggest mistake you did during the crowdfunding campaign
if was any?
A: We started to build a mailing list, on full speed, quite late.
Author's Comments: It is vital to create a mailing list in advance. Usually at the
beginning the list starts on contact lists of all team members. Services like Mailchimp allow
to create a mailing list and attract traffic to a campaign page as soon as it is launched and
when it reaches the defined milestones. Example of a better calculation: one recipient for
every dollar of the stated goal.

Q: What do you think are the pros and cons of crowdfunding according to your
experience?
A: The biggest cons of the crowdfunding campaign are its costs. But there are plenty of
pros like ability to check the demand before you start the production. Raising the money,
learning the feedback and ideas for the future products etc.
Author's Comments: The person who was interviewed considers, that the biggest cons
of the crowdfunding are its costs. Under costs he does not disclose in details what he means,
but he may mean those costs assiciated with launching of the campaign and creation of the
prototype.

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 Q: Do you think the height of the goal has an impact on the final result of the campaign?
A: Yes it does.
Author's Comments: As it is mentioned on Kickstarter’s website the main
recommendation when drafting the financial objective of the first project according to
recommendations of Kickstarter is to minimize the declared budget. It's not even the case
that a small amount is quickly to collect, but most users react negatively to millions as targets
of projects and rarely believe in the success of ambitious campaigns. Answer affirms, that
the height of the goal does has an impact on the final result, which means, that backer do
looks at the target amount while making decision whether to back the project or miss it.
Large financial targets may be achievable if the project combines at least two of below
mentioned criteria (Vardanyan, n.d.):

- for new projects of known creators (second and subsequent crowd projects of the
creator);
- if the author has a significant number of loyal fans / clients interested in the
implementation of the idea;
- for high-profile, modern projects with a powerful media campaign.

Q: What are the 3 main advantages of crowdfunding to your personal opinion?

A: Here are plenty of pros like ability to check the demand before you start the production.
Raising the money, learning the feedback and ideas for the future products etc.
Author's Comments: Majority of the advantages of the crowdfunding are listed in
literature review part, but main advantages include also those that are mentioned by
marketing manager:

- Raising the money with no need to pay interest or income share;

- Getting the feedback;
- Understanding the demand for the product.

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 Q: How often did you publish updates on the project? How important is it according to
your experience?
A: We were posting an update when any of the planned milestone was reached.
Author's Comments: In almost 20 percent of successfully funded projects founders
updated the project’s website more than five times, while in the case of failures only 3.7
percent were updated at the same level of frequency. As it has been answered by marketing
manager it has too little sense to publish updates too frequently (every 1-2 days), unless there
is a reason for that, like milestones. Better to publish updates less frequently (once a week),
but to publish significantly important news for backers and potential backers. On the other
hand, even if the milestone is not reached, it is better to make some news run for the backers,
so the project looks active.

Q: In your personal opinion, what are 3 main factors the project may succeed in
crowdfunding?
A: In my personal opinion:

1. Outstanding product
2. Good and big mailing list
3. Team of great specialists in the team

Author's Comments: This list perfectly describes the situation in which creators are
people working for a company where everyone has business awarness and such things like
good project and team of great specialsts may seem obvious. However sometimes projects
are run by only one individual and in that case he does not have any team of specialists. But
this list may be complemented by these factors, that might not be feasible, but they do have
pozitive correlation to success (Parker, 2014, pp. 432-435):

- Previous successful projects on crowdfunding;

- Experience in project management;
- Fan community of the project before the launch
- Choose the right platform

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 - Support of friends and family
- Feasible target
- All points covered below but just the other way round

Q: What are the 3 main obstacles and factors for projects to fail?
A: Lack of the three points above
Author's Comments: Main mistakes made by unexperienced creators include (Stanko &
Henard, 2017, pp. 784-798):

- Absence of updates on the crowdfunding page;

- Start crowdfunding without community support, or small community;
- Lack of knowledge of the industry;
- Wrong target set at the beginning;
- Too high target amount;
- Poor rewards list, or its absence;
- Only one way of the project promotion;
- Unprepared mailing list;
- No response to comments.

Q: What is your overall impression after the crowdfunding? Is it positive? Would you run
another campaign?
A: It's certainly positive. We are planning more campaigns in the future.
Author's Comments: Every successful project would say that the impression is pozitive
and it is not surprizing, that they are planning another campaign. Crowdfunding is effective
because of the inclusiveness and breadth of the audience, consisting of people open to
everything new. It is not necessary to perceive this tool only as a banal action of seasonal
discounts: it is necessary to position it, rather, as a multifunctional channel of brand
promotion, which allows the author of the project to take a broader look at his own business
model, to see the mistakes and shortcomings in it, in order to eliminate them later.

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 Money is just the tip of the iceberg. Other advantages of crowdfunding are market research
(market research), collection of pre-orders, community development and even attracting
foreign investment or establishing new partnerships as it has been mentioned above.

Q: Was your campaign perfectly organized? If you got a chance to run another campaign
would you change anything in the way you run the crowdfunding campaign, in comparison
with what you did last time?
A: It was my first campaign, therefore it couldn't be perfect. I would change or modify a
few things, but in general i think it was quite ok.
Author's Comments: Company is planning run another unannounced project. Person
who was being interviewed did not clarify what things he would change next time, but on the
strength of last answers it would be right to assume that he is planning to start building
mailing list much earlier, than he did ot during this run.

Q: How popular is the product right now?

A: It is still in development phase, available for pre-orders only (through Indiegogo
Indemand) so it's hard to say.
Author's Comments: Since the product is not being sold as for now may, no assumptions
may be done, however taking into account the price of the phone, amount of backers and
average discount which is 20 percent on Indiegogo there is an opportunity to calculate at least
revenue from sales of the product to backers. The price for one phone is $369 without a
discount and $295 with a discount. Number of backers is equal to 1,248. In that case, revenue
from sales from pre-orders would be $368,160.

Q: Have you been mentioned in any TV shows, magazines, etc.?

A: Yes, we have been mentioned in different media sources such as: Yahoo!, The Times,
The Sun, TrendHunter, DesignBoom, Gizmodo, TechAdvisor, Digital Trends, IGN, Good
EReader, Woman&Home, MobileSyrup, Forbes, Mashable India.
Author's Comments: Over 22 percent of successful projects have at least one media
notice, on contrast to 12.18 percent of failures. The supporters were drastically more active
in those projects that succeeded in gathering the targeted financing – nearly 30 percent in

80
comparison to above 17.7 percent in case of failures, the reason for that may be media adverts
(SAMITPATEL, 2019).

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 Conclusion

This research aimed to answer for such question as:startups consider crowdfunding as an option
for funding?

- How successful are Polish projects able to become on local and global level?
- How performance of Polish crowdfunding practice differs from World practice?

The crowdfunding market in Poland is growing. Most social funding platforms in Poland
were established after 2010. Based on the analysis, it can be stated that the Polish market of
crowdfunding can be divided into two streams consistent with crowdfunding models. First is
the donation and reward-based crowdfunding, which is a rapidly growing form of obtaining
capital for planned projects, primarily in the field of technologies, music, videogames or
sports. This is a popular way to fulfill different passions and to make one’s dreams come
true. The other stream is investment crowdfunding, which can be seen as an alternative source
of finance, however Polish platforms are still not popular.
Among graduates, including people who are willing to do business and those who are not,
crowdfunding is more preferred concept as an alternative way of project financing, and
according to the research mentioned in sub-chapter 3.1 master students prefer
Crowdfunding/Donation/Sponsorship over Venture Capital, Business Angels and Public-
private funds, due to the reason, that crowdfunding is considired to be effective, as it is seen
at figure 5, where over 75% on average agree on the fact, that crowdfunding is effective. In
addition, probably because of the popularity of such platforms as polakpotrafil.pl, Indiegogo
and Kickstarter, reward-based crowdfunding is assumed to be the most efficient type among
other types of crowdfunding. On the other hand, donation-based crowdfunding is also
assumed to be efficient, as it is seen at figure 6. As more young people in Poland become
aware of crowdfunding, the growth of popularity of this method of project financing keeps
going up. Crowdfunding is getting accepted by younger generation, and that fact is moving
the capabilities of the underlying concept toward bigger and more capital-intensive projects.
As it has been illustrated through the research and survey of the given illustrative group that
students and graduates prefer crowdfunding over other options and treat crowdfunding as the
one being efficient even though, the reserach is limited to given illustrative group from one

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faculty of one Polish univesity and the time when the survey was conducted, therefore it may
misrepresent the results of the research conducted in another period and in different countries.
In addition, this research just illustrates the approach of students towards crowdfunding and
doesn't include real entrepreneurship experience.
Looking at successful Polish projects, that are able to gather up to 1,000,000 PLN on local
crowdfunding platforms and up to 25,000,000 on global crowdfunding platforms the
effectiveness of crowdfunding may be proven, assuming that success rate is volatile,
depending on the source and the chosen platform, from 30% up to 55%. Polish projects are
able to beat the target amounts with significant positive difference, as historical numbers
show and prove. If a success of crowdfunding is defined by reaching the target amount, it
may be fairly determined, that projects are able to become very successful gathering up to
1803% of the initial target amount on local platforms and even up to 12935% of the intial
target amount on international level. Even though, author is considering only the most funded
projects, and there is no guarantee, that the next project is able to gather so much funds, this
research is limited to only Polish projects, whereas internationally projects did manage to
gather much more funds historically beating Polish statistical records.
Many platforms offer the possibility of setting up a crowdfunding campaign. They can
last for a certain period or they can be limited in time. One of the most popular portals for
crowdfunding in Poland is Polakpotrfi, a Polish Kickstarter. Other popular portals that
operate directly in Poland are Patreon and WspieramTo. Both these portals offer the
possibility of organizing a crowdfunding campaign lasting for a certain time. In return for
handling the collection and advertising, they charge a commission. Its amount depends on
the portal.
Even though, Polish startups prefer launching crowdfunding campaigns on Kickstarter
and Indiegogo, the performance is not significantly underperforming world practice based
on success rate. Success rate in Poland in 2019 was equal to 30%, whereas global success
rate in period of 2014-2020 was equal to 22.8%, which means, that in 2019 Poland had higher
rate, than the success rate in the World between 2014-2020 on average. If polakpotrafil.com
would be taken separately and compared from year to year, then a continuous growth in total
amount gathered may be observed and increasing success rate which reaches even 50% in
case of polakpotrafil.com in particular years. According to other research, World practice

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does outperform in terms of the number of backers and the success rate, with differences of
3,535 backers and 11.55% respectively from Polish practice.
Common characteristic of World and Polish practice in crowdfunding is preference of
reward-based crowdfunding, which becomes more popular than crowd investing (equity-
based crowdfunding) and crowdlending, as well as some popular categories such as Music
category which dominates among other categories in both cases. In addition, preference of
reward-based crowdfunding is also based on facts, that the most popular crowdfunding
platforms in Poland and in the World are reward and donation based including Kickstarter,
Indiegogo, Polakpotrafil.pl, Wspieramy.to, Patreon. However, amount of money available
for gathering is different, and backers on global statistics prefer different categories of
projects to what backers on Polish platforms prefer. In World practice the average amount
gathered per project reach as high as $200,000, whereas in Poland this amount is significantly
lower and equal to approximately $50,000 averagely per project. Apart from that fact, even
such amount is considered to be very significant for young Polish startups. Considering the
fact, that Poland is small market in comparison to such bigger markets as United States and
other European members. As a result, it is reasonable to state, that based on most popular
categories of Polish crowdfunding platform polakpotrafil.pl, local platforms are used to fund
Initiatives or Local-social projects and small projects that are focused only on Polish market
up to $50,000.
Unlike World practice, Polish local crowdfunding platforms have negative tendency in
terms of popularity for project creators according to figure 10, however the entire concept of
crowdfunding is already accepted by young generation as a competitive alternative way of
project funding, which means that startups have more trust in bigger international platforms
including Kickstarter and Indiegogo.
Although, according to gathered data in chapter 3 it is clear, that number of projects and
startups funded through the crowdfunding platforms is increasing globally each year, further
analysis has showed, that Polish startups prefer to launch crowdfunding campaign on
international platforms. Mudita company, the one that has been interviewed, successfully
raised more than $300,000 on Kickstarter and Indiegogo. This story must serve as an example
for further development of crowdfunding. Outstanding success of this project is just one case
out of thousands of cases that proves potential of Polish crowdfunding and Polish startups.

84
In addition, rules of crowdfunding do not change from the fact that Polish projects are from
Poland, since products and services may be delivered all over the world.
Further research is needed, as crowdfunding as subject has not yet been fully research and
more room for worthful findings left. Some of these findings may include such topics as:
most active countries by rate of engagement per population, correlation of GDP per capita,
FDI, Tax Rate on Crowdfunding.
Thanks to crowdfunding, many groundbreaking inventions have been financed, and
although in Poland the idea is still crawling, it is getting more and more popular every day.

85
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 List of figures
Figure 1. Start-ups’ common lifecycle 19
Figure 2. Support provided by government 33
Figure 3. Willingness to do business 56
Figure 4. Preferred alternative funding sources 56
Figure 5. Opinion about effectiveness of crowdfunding 57
Figure 6. Most efficient type of crowdfunding 58
Figure 7. Most successful Polish campaigns on local crowdfunding platforms 59
Figure 8. Most successful Polish campaigns on global crowdfunding platforms 61
Figure 9. Crowdfunding in Mainland Europe by Country 63
Figure 10. Polakpotrafil.pl historical statistics 2011 – 2017 64
Figure 11. Crowdfunding platforms by success rate 64
Figure 12. Crowdfunding Statistics of Poland and the World for 2019 65
Figure 13. Diversification of categories as for 2019 66
Figure 14. Main features of the categories on Kickstarter 67
Figure 15. Main features of the categories in Poland. 68

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 Warsaw, 31/08/2020

Name and surname: Oleksii Byk

Student’s study record book no.: 39018

DECLARATION

I declare that the Master’s Dissertation entitled:

«Startups financing at early stages of their lifecycle via crowdfunding platforms: Polish
experience»
which was submitted at Kozminski University, was written by me alone and has not
previously been the subject of any official procedure associated with applying for a higher
education diploma which confirms obtaining a professional title.

I also declare that the present dissertation does not infringe copyrights under Act of 4
February 1994 on Copyright and Related Rights (Journal of Laws of 2016, item 666) or
personal rights protected by law.

Concurrently, I am aware that the content of the dissertation will be verified with the anti-
plagiarism program which cooperates with the national repository of written dissertations.

Oleksii Byk

95
 Warsaw, ...........................

Name and surname of the Supervisor: ...........................................................

DECLARATION

I declare that the Master’s Dissertation entitled:

«Startups financing at early stages of their lifecycle via crowdfunding platforms: Polish
experience»
authored by the student Oleksii Byk (student’s study ID no. 39018) and submitted at

Kozminski University, was prepared under my supervision.

Concurrently, I acknowledge that the content of the Master’s Dissertation will be verified
with the anti-plagiarism program which cooperates with the national repository of written
dissertations.

/Supervisor’s signature/

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