Analysis Of The Value And Risks Of Crowdfunding In China

Internet Finance has been a hot topic in recent years. Premier Li Keqiang first proposed the "Internet Plus" action plan in March 2015. As a new model of Internet Finance, crowdfunding links and matches investors and raisers directly, which has a great significance to solve financing difficulties for small and medium enterprises and to help construct multi-level capital market. Under the call of "mass entrepreneurship and innovation", central and local governments have issued a series of policies to support crowdfunding in 2015. According to statistics, the total scale of crowdfunding market has reached 114.24 billion RMB in the year of 2015, which is five times more than that in 2014. Nearly 50 thousand projects successfully raised funds and more than 72 million people involved in investment.In China, crowdfunding has experienced a rapid development period in 2015. Jingdong Crowdfunding, as the representative of these crowdfunding platforms, it has innovated a lot under the multiple pressures from investors, entrepreneurs and regulators. It is actively trying to divert the idea of "pre-sale or marketing". Jingdong crowdfunding is the most mature platform at present and it takes the most market. So we take Jingdong crowdfunding as an example to analyze the value and risks of crowdfunding in China. We hope to help the small and micro enterprise entrepreneurs to make financing decision and provide a reference for investors and platform as well as provide valuable conclusions for the academic.This paper consists of seven chapters:Chapter 1 is introduction. It starts with the background and significance of this research, then introduces the research content and methods, and finally describes the framework of ideas, innovations and weaknesses.Chapter 2 is literature review. These reviews mainly focused on definition, risks and policy recommendations of crowdfunding model. With the rapid development, analyses of factors that influence the success of crowdfunding, the pricing strategy of crowdfunding and others also have begun to emerge.Chapter 3 concentrates on the theoretical analysis, which includes definition, pattern classification and mode of operation.Chapter 4 summarizes the status and regulatory policies of crowdfunding both in domestic and foreign markets based on the relevant data. In terms of regulatory policy, it introduced the JOBS Act in order to provide references for regulators. The Chinese government embarked upon regulation of Internet Finance since 2015.Central and local government have issued some sets of regulations, such as "the State Council on promoting" Internet plus "action guidance" to support the development of crowdfunding especially equity crowdfunding.Chapter 5 is to explore the current status of crowdfunding based on Jingdong crowdfunding. Jingdong shows a clear layout and invest many resources on the development of crowdfunding. From the product crowdfunding to equity crowdfunding, and even some supporting services, Jingdong sets up a complete ecosystem. It firstly introduced these three products from the aspects of developments, operation mode and typical cases. Secondly, its profit model has been revealed, and finally, the innovation point of Jingdong Crowdfunding has been analyzed and summarized.Chapter 6 is case study. Based on Jingdong crowdfunding, the value and risks of crowdfunding in China have been analyzed.Firstly, it analyzed the value from the aspects of government, project sponsors, investors and crowdfunding platforms. Crowdfunding has a great significance to solve financing difficulties for small and medium enterprises and to help construct multi-level capital market. Meanwhile, it also has economic value, spiritual value, social value, and strategic value etc. for project sponsors, investors and crowdfunding platforms. Actions like a project sponsor sponsors a project, an investor invests a project and a company like Jingdong establishes crowdfunding platform can be seen as making investment decisions. So it used capital budgeting related theories to analyze the value of crowdfunding. For government, in the stage of economic structure transformation and upgrading, crowdfunding can help our country to develop the spirit of innovation and entrepreneurship. In addition, the low financing threshold of the model helped our country to solve financing difficulties for small and medium enterprises as well as construct a multi-level capital market. Moreover, this model can also bring financial income for the government when those sponsors successfully achieve the dream of entrepreneurship. For project sponsor, sponsoring a project is not only required to make investment decisions but also need to make financing decisions. In this paper, it used capital costs and other theories to reveal the value of crowdfunding, which are low financing threshold, high financing efficiency, low cost of financing, the use of advertising effect and high success rate of entrepreneurship etc. For investors, crowdfunding not only help them to accumulate wealth, but also help them to achieve the spiritual value and social value. For crowdfunding platforms, especially platform like Jingdong crowdfunding which was set up by an e-commerce company. Crowdfunding help it to achieve the strategic value as well as make the most use of corporate diversification.Secondly, it analyzed the risks of crowdfunding in China. In the past, researches are mainly focused on the risks faced by investors. In this paper, it not only revealed the investment risks faced by investors, but also revealed the financing risks the project sponsor are facing and financial distress risks that crowdfunding platforms are facing.The past researches did not give a specific calculation of crowdfunding's ROI because crowdfunding's returns are usually bonus, products and services etc., which cannot be calculated. In this paper it used the factor model to give the calculation. Actually these factors are combined by the investment risks which are market risk (legal risk, interest rate risk, etc.) faced by the project, unique risk of the project(the moral hazard of project sponsor and the operation risk of the project itself) and risk from crowdfunding platform(credit risk, network risk and technical risk, etc.) etc. At the same time, the risks faced by the project sponsors are intellectual property risk and equity valuation risk.Chapter 6 is the summary, risk prevention suggestions and outlook of crowdfunding. Through the analysis, it can be seen that the crowdfunding industry has an explosive development because of its value. Both investor and project sponsor have great enthusiasm, and fund raising record has been broken. And platforms have innovated actively in order to divert the idea of "pre-sale or marketing".For those risks, it put forward some suggestions for risk prevention from the aspects of crowdfunding platforms, invertors, project sponsors, and government. The efforts of the industry (crowdfunding platforms) are particularly important. In the future, platforms like Jingdong crowdfunding could develop more products such as crowdfunding funds to diversify risk and strive to develop into the equities trading platform to solve the circulation problem of shares, which will help the development of crowdfunding.The biggest challenge of this paper is lack of relevant data; especially the object of the case study is belonging to Jingdong Finance which is not listed. So we did not do quantitative analysis. In addition, crowdfunding industry develops rapidly; some conclusion may not be applicable for future cases.