(TIỂU LUẬN) REPORT the elements leading to successful crowdfun

MINISTRY OF EDUCATION AND TRAININGFOREIGN TRADE UNIVERSITY REPORT The elements leading to successful crowdfunding campaign and application in Vietnam... Based on theinformation on reputa

MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

REPORT The elements leading to successful crowdfunding

campaign and application in Vietnam

September 2022 ABSTRACT

This study seeks to give an analytical understanding of crowdfunding by examining theimpact of project quality and founder quality on the success of crowdfunding Based on theinformation on reputable crowdfunding platforms, seven elements are leading to the success

of crowdfunding campaigns After doing a questionnaire and comparing two cases, thedetailed information, incentives, and value of the campaign are considered the most affectedelements Besides, in equity and lending-based crowdfunding, backers also care about theprofit potential of the campaign These findings show that backers focus on reliableinformation that can build their trust, and the benefits they will get if they invest in thecampaign These elements are still true when applied to the situation of crowdfunding inVietnam when analyzing the case of Thien Nam Elevator - a successful case in Vietnam

Over the past few years, crowdfunding has become a popular fundraising way thatsupports small campaigns a lot With this kind of fundraising, both profit and non-profitcampaigns have a chance to succeed even if they come from a small group or corporation.This form of investment can help small groups of people or SMEs to introduce severalcreative ideas for products or campaigns to society However, these campaigns cannotalways successfully approach the backers, who invest in them As a result, fundraisers needsome factors that can support their campaigns

Despite its popularity throughout the world, crowdfunding has just become familiar inthe Vietnam market in recent years Then, there are some difficulties for fundraisers andbackers to approach it in the right way However, it is undeniable that several crowdfundingcampaigns in Vietnam have succeeded in raising funds

In this report, our team will discuss elements leading to successful crowdfundingcampaigns, then, analyze how Vietnamese crowdfunding campaigns apply these elements inreality

Crowdfunding is most often used by startup companies or growing businesses as a way

of accessing alternative funds It is an innovative way of sourcing funding for new projects,businesses, or ideas

It can also be a way of cultivating a community around your offering By using thepower of the online community, you can also gain useful market insights and access to newcustomers

This guide is aimed at entrepreneurs, businesspeople, and companies, especially smalland medium enterprises If you are thinking about ways of financing a new business or idea

or have heard about crowdfunding and want to learn more, you may find this guide useful.Crowdfunding is done through online platforms that support fundraising services Thefundraiser will post information about the campaign as well as the reason to raise funds onthe platforms to attract investment

1.2 Main types of crowdfunding:

Donation-Based:

Donation-based crowdfunding is a way to source money for a project by asking many contributors to individually donate a small amount to it In return, the backers may receive token rewards that increase in prestige as the size of the donation increases For the smallestsums, however, the funder may receive nothing at all

Sometimes referred to as rewards crowdfunding, the tokens for donations may includepre-sales of an item to be produced with the funds raised Donation-based crowdfunding canalso be used to raise funds for charitable causes

Because this sort of crowdfunding is predicated on donations, funders do not obtainany ownership or rights to the project—nor do they become creditors to the project.

Receive gratitude gifts (Reward-based):

The sponsorship amount is divided into each package, and each package is a

corresponding gift Sponsors will receive gifts when the project is successful, regardless ofprofits or ownership shares

For example, a jewelry designer might reward everyone who contributes $100 with

an original handmade bracelet, or an inventor of solar-powered lawn mowers might give a mower to contributors at the $1,000 level Rewards don’t have to be substantial; some businesses offer a simple handwritten thank-you note

Equity-based:

Equity crowdfunding is a unique way to raise capital for your business without taking

on new debt It’s a form of fundraising that attempts to attract investors who are willing tocontribute funds toward your business goals in return for a financial stake in the company

In general, equity crowdfunding is a business funding model that involves collecting smaller sums of money from a larger number of private investors Would-be investors may

be able to get involved for as little as $100 This approach differs from trying to attract sizable investments from venture capital firms or angel investors—a business capital

strategy that’s out of reach for many startups and established small businesses alike

1.3 The benefits of crowdfunding

Backers

Involvement – investors may find it rewarding to be involved in the development of a specific business, project, venture, or cause Crowdfunding enables potential funders

to choose how they invest their money more freely

Returns – crowdfunding may offer investors higher returns than those available fromother, more traditional, financial products

Costs – by obviating the need for various intermediaries such as brokers, investors may receive benefits via reduced search and transaction costs

Fundraisers

Accessibility – crowdfunding enables borrowers to access finance where it may notnecessarily have been available to them from banks or other institutional lenders.Numbers – crowdfunding enables individuals and businesses to receive finance from apotentially unlimited pool of investors with relatively low associated access costs.Exposure – raising finance via crowdfunding provides borrowers with significant exposure may help to raise the borrower's profile and provides them with free access tomarket feedback

1.4 The risks of crowdfunding

Backers

Information asymmetry – potential funders may face the problem of information asymmetry and find that they cannot conduct proper due diligence on the borrower.FSCS – investment via crowdfunding platforms does not provide the investor with any access to the government's Financial Services Compensation Scheme, which may leavethe investor with no access to compensation if the borrower becomes insolvent

Liquidity – due to the lack of any established secondary market for crowdfundedinvestments, investors may find it difficult, if not impossible, to cash out their

investment

Start-ups – many borrowers on crowdfunding platforms are start-ups or businesses inthe early stages of their development There is a significant risk that the borrower's business will fail, resulting in a capital loss to the investor

Shares – it is unlikely that shares issued on crowdfunding platforms will carry any associated voting rights or rights to dividends for the investor In addition, the value ofany investment may be significantly diluted if more shares are issued

Fundraisers

Reputation – whether through lack of experience or time pressures, borrowers may fail

to achieve their proposed goals set out in their initial pitch This may result in

irreversible reputational damage to their business and the borrower's public support.Intellectual Property – to receive public backing, borrowers may find that they must make a trade-off between producing a detailed and thorough initial pitch and exposingdesigns or products that have not yet been properly protected

Management – successful crowdfunding campaigns may result in a borrower having tomanage many investors' expectations, demands, and investments Without the

appropriate resources, borrowers may struggle to successfully carry out this task

2 The legal framework of crowdfunding in Vietnam

In recent years, the wave of startups has been developing strongly in the business community and the young generation in Vietnam However, the environment and conditionsfor start-ups, including the legal framework, support policies, venture capital funds, etc., still face many obstacles Completing the conditions, in which focusing on financial policies

as a pedestal is a requirement, helping the Vietnamese startup community to rise and

develop strongly

To promote and support start-ups, the Government has issued several financial policies

to support directly (such as tax policy, credit policy, etc.) and indirectly through the

incubator model Specifically:

Firstly, on tax policy: Implement tax exemption and reduction policies for start-ups tohelp businesses have more financial resources to invest in expanding production and

business and reduce dependence on loans banks and save business costs, thereby reducing costs, contributing to improving competitiveness, and attracting investment capital These policies are outlined in Clause 1, Art.11, Circular 96/2015/TT-BTC; Clause 1, Article 16 of Decree 218/2013/ND-CP guiding the implementation of the Law on corporate income tax, Decree 13/2019/NĐ-CP on science and technology enterprises, etc

Secondly, about credit policy: Through the Bank for Policies, the Government has implemented incentives for start-ups such as interest-supported credit, loan guarantees fromcredit institutions, funds national technological innovation fund, national science and

technology development fund, and a small business support fund The policies related to credit support: Article 8, 20 of the Law on Supporting SMEs; Decree No 38/2018/ND-CP

on investment for innovative start-up SMEs in Vietnam; Decree 39/2019/NĐ-CP, etc

Third, about the incubator model: indirect support for start-ups through the promotion

of incubators helps businesses operate effectively, increasing independence and financial autonomy for incubators In Vietnam, a business incubator model has also been developed inseveral priority areas, such as science and technology, to support newly established

businesses Accordingly, the State provides funding for the establishment and operation of public incubators and tax incentives

Although there are specific policies to support projects or start-ups, the government still does not have specific policies for crowdfunding Therefore, many inadequacies createconflicts when implementing crowdfunding

Specifically, in the lending-based model, loan transactions between investors (lenders) and project owners (borrowers) are not at all contrary to the provisions of current laws, more specifically the Code of Conduct Civil 2015, provided that participating investors are individual investors

In contrast, in the equity-based model, it is not a simple matter to determine whether the nature of the project owner's share issuance transaction to investors is consistent with thecurrent legal framework Project owners are completely free to call for capital from 1-2 certain investors, but once the number of investors becomes larger and more diverse, there are conflicts with the Securities Law 2019 regarding the “public offering of securities”.Donation and reward-based, are all forms of non-profit fundraising, so they are

generally a form of donation The law stipulates that charity donation is a civil activity, so the caller and capital contribution, in this case, will be negotiated and decided by

themselves However, if the act of wrapping capital with signs of fraud, taking possession ofthe property, or taking personal advantage, will be criminally handled

3 Elements lead to the successful crowdfunding

campaign Detailed and clear description

The description is the script the company would use to speak and tell in crowdfunding

to persuade backers to invest in their campaign The description contains importantinformation such as the products, the utility, the profit, etc that are attractive enough to getfunding

The goal of crowdfunding is not just to go out and beg for money but to invite people

to invest and help to fulfill a particular goal for the business To achieve this, people who arelikely to invest need to know clearly and detail about the campaign

Fundraisers can get a first production run, launch a new location, and add a feature tothe base product or service so that backers can understand clearly what they are doing Theyneed to break down where the money they are asking for will go in this specific phase of thebusiness because investors always focus on details to know whether it deserves to invest in

souls but also gives them specific benefits and solutions they would get after investing inthem.

And fundraisers need to set their goals as low as possible for each campaign Withsome crowdfunding platforms, they will get no money if the campaign is not successful, sojust keep the expected profits down the road The numbers - the goals - need to be concrete,realistic, and focus on solving the single stated problem we have just engaged our brackets

Emphasizing the value of the product or campaign is also an important key leading tosuccessful crowdfunding Especially, the company also can figure out the potential backers.Research their concerns, and their goals for the community Following that, backers wouldemphasize the value of the campaign that potential backers want to attract their attention

Legitimacy

Legitimacy is commonly defined in political science and sociology as the belief that arule, institution, or leader has the right to govern It is a judgment by an individual about therightfulness of a hierarchy between a rule or ruler and its subject and about the subordinate'sobligations toward the rule or ruler

Legitimacy builds a fundraiser's identity and makes them influential When thebusiness is legitimate, fundraisers have a greater chance of pleasing their customers Also,they are not afraid to put themselves out there and can be proud of their business, so theyhave free reign to spread the word about their brand

Many backers will believe it when they see it In other words, they require evidencethat the companies are legitimate and picking up steam before deciding to back thecrowdfunding campaign To prove the legitimacy, show the backers what they will besupporting in detail — how it works, how fundraisers came up with the idea, and evenpictures or videos if fundraisers have a prototype Because fundraisers are likely to never

meet the backers, the more proof the companies can provide that their plan is legitimate thebetter.

Profit potential

The success of any business depends on its ability to continually earn profits Profitequals a company’s revenues minus expenses Earning a profit is important to a businessbecause profitability impacts whether a company can secure financing from a bank, attractinvestors to fund its operations, and grow its business Companies cannot remain in businesswithout turning a profit

Profit potential also can be defined as the potential of the ability of the long-termstrategies of the products and campaigns to be sold in the market and the profit theseproducts can bring back

Fundraisers need to understand the importance of profitability in business managementwhile developing strategies, especially long-term strategies and tools which give thecompany the best chance at remaining profitable

Because crowdfunding hinges on reciprocity It relies on a win-win relationship Iffundraisers want backers to pay for their fundraisers need to give backers deserved benefits.The backers always care much about what they would get if they invested in this Therefore,fundraisers can draw up a clear plan and show the profit potential of each stage to theinvestors to attract backers by the possibility of a high return on their investments

When choosing the potential to show, the companies can ask themselves, if they are thebackers, would they invest? How will they benefit from the campaign? Does it deserve to bepaid for?

Incentives

Generally, an incentive is anything that motivates an individual to accomplishsomething Economic incentives, therefore, are the financial motivations for behaving in aparticular manner They encourage people to pursue their financial preferences Thiseconomic incentive definition confirms that economic incentives can act as instruments forstimulating participation in an activity These tools may provide valuable information onhow consumers and businesses respond to market factors such as profits and prices

In reward-based crowdfunding, incentives are the rewards or promotions that backersreceive after investing While in equity and lending-based, incentives are gross profit anddividends.

Incentives need to appeal to people who’ve never heard of the companies: Along thatline, crowdfunding should be audience building first, fundraising second, meaning the pageshould appeal to folks who are not personally familiar with the companies As witheverything else on the page, the content must have enough strength to persuade investmentwithout knowing about the writer

Supporters want to feel special: In terms of the psychology of crowdfundingsupporters, even from disparate fan communities, you can boil down what they want from

an incentive in four main ways The first is that they want to feel special and of high status,

so offering things like premiere invites, exclusive early access, and producer credit tend to

go over well Be sure to price appropriately because this can work against you too- if youvalue specialness too low, they will assume it’s not all that special

Supporters want to be recognized: To accommodate this, in addition to making specialthanks and/or producer credit an option, be sure to thank them publicly- share the incentivesyou give to them on your feeds and tag them when you can If you include a link to yourcampaign as well in the post, when they share it on their feeds, they aren’t just spreadingawareness but spreading the link as well

Attractive marketing strategies

Crowdfunding marketing is marketing strategy businesses employ before, during, andafter crowdfunding campaigns to succeed Well-thought-out crowdfunding marketingcampaigns can help small businesses reach more potential investors to get monetary supportand meet crowdfunding objectives

When fundraisers promote campaigns, they reach a large group of people, increasingthe chances of businesses getting funded A powerful marketing campaign can help themcreate relationships with the audience Creating and running a crowdfunding marketingcampaign offers them opportunities to engage with the community, which can foster trustand confidence Also, crowdfunding marketing campaigns leverage social media, emailmarketing, and other marketing avenues to maximize the success of your crowdfunding

Creative and unique ideas

A basic law of economics dictates that creative and scarce supply inherently createsgreater demand Create greater demand for your startup by limiting one or more of thehigher-level rewards to just a few — this will inflate demand for those rewards and result inhigher pledge amounts for your crowdfunding campaign!

Creativity is not an element that can make backers decide to invest but it is still animportant factor to attract and boost the curiosity of the backers Making backers have somesmall interests in the project may lead to big investment so fundraisers also need to carefullyprepare a creative idea The ideas are not necessarily a whole new one, but fundraisers canalso modify the old ones into new and attractive ideas

1 Method of data collection and analysis

1.1 Select information from reputable sources

Select information through reputable crowdfunding service providers: RocketHub (USA), KissKissBankBank (France), Crowdfund.news, SeedInvest (USA), etc Then, theinfluencing factors are drawn to the investor's capital contribution decision

1.2 Questionnaire

Based on information collected from reputable sources, the questionnaire was

built with 3 main parts:

The first part is a categorical question, intended to determine if a participant has or hasnever invested in a crowdfunding project

The second part contains a set of questions to determine the crowdfunding experienceand opinions on the factors affecting the decision to contribute capital

The third part contains some social and demographic questions, such as age, education,income, place of residence, etc to determine the basic information of the participants.The questionnaire was posted to a crowdfunding group on the Facebook platform

1.3 Case studies method

Select 2 cases on the Kickstarter platform that both are technology reward-basedcampaigns: 1 successful and 1 unsuccessful case in crowdfunding Then, analyze the

project's existential points to compare the difference

2 Process and analysis

2.1 Select information from reputable sources

Results after referencing sites like KissKissBankBank; RocketHub and SeedInvest, French and American websites providing crowdfunding services; Crowdfund.news, a

website that provides useful information about crowdfunding; and some other websites, 7factors play a key role in the success of fundraising projects, in which:

Detailed and clear description

Value of the campaign

2.3 Case study method:

Successful Crowdfunding Project: Bird Buddy: A Smart Bird Feeder

Bird Buddy is a smart bird feeder app that notifies users of feathered visitors, capturestheir photos, and feeds them This innovation can also contribute extremely important information to the database of birds’ species, population, and migration that helps scientistsbetter understand and protect them

During the 57-day fundraising period, the fundraising target amount reached 83.803%and was sponsored by 22.925 people

In the Kickstarters platform, Bird Buddy has provided a series of extremely detailed information about the project including a brief description of the project, a user manual in text and video with eye-catching animations, and the advantages of the project (e.g: using AItechnology to identify birds and remember their eating habits, take pictures of birds, etc.) Inaddition, there is detailed information about the types of rewards that backers receive when investing in the project, which is an incentive for backers because it is of the reward-based type The project also has information about the goal, timeline, and purpose of fundraising (what the investment money is used for) Besides, the project also brings value in many aspects: spiritual value for bird lovers and for those who are given as a gift (product can be customized as a gift), environmental value - using objects that are sustainable, and scientific value - support experts in keeping a database of migrations and population for research and protection purposes) The project also created bird blogs as a way of marketing on SNS and websites

Thus, Bird Buddy is not a completely new idea, but it has creativity compared to previous projects and it builds backers’ trust through a methodical plan in terms of visionand benefits it brings.

Failed Crowdfunding Project: Virtual Jesus

Virtual Jesus is a platform for conversations about life, love, hope, and peace that are

centered on the message of the biblical Jesus

The project has 7 days left to call for capital, but there are only 2 backers, and theinvested amount accounts for 0.53% of the goal

Contrary to the Bird Buddy project, Virtual Jesus does not have specific information when the project information section is mostly devoted to telling the story of the 2 founders instead of focusing on the description of the project and necessary information However, the project information section can show the value of the project to a specific community of people who have faith in God In addition, the information section other than a brief

description of the project and information about fundraising goals and deadlines does not have a timeline, demo of how the application works, and what the investment money will beused for Moreover, there are no really attractive and practical rewards or incentives to motivate backers This project also has no profit potential as people of true faith will choose religious sites instead of downloading apps This project also does not have marketing forms

to promote and attract backers

In general, this is a project with a rather special idea, but it lacks too many attractivefactors for investors and the applicability is not high, so it leads to failure

Conclusion:

The two campaigns both are technology projects and both are reward-based

campaigns However, the Bird Buddy project was successful thanks to the elements of detailed & clear information, incentives, value, an attractive marketing campaign, and creative innovation Meanwhile, Virtual Jesus, in addition to being a unique project, does nothave the elements to create trust and investment motivation of backers

FINDING AND ANALYSIS

1 Real state of crowding funding in Vietnam

In recent years, the Vietnamese market has come up with a unique form of capitalmobilization called Crowdfunding, roughly translated as capital mobilized from thecommunity or sponsored by the crowd This is a form of capital mobilization that haddeveloped in other countries for many years before being introduced into Vietnam Inaddition to the main purpose of getting funding, crowdfunding helps introduce ideas to most

of the public Crowdfunding is not only a source for raising funds from a larger communitybut also a possibility for Start-Ups to see if their project is well perceived Even thoughcrowdfunding in Vietnam is not that common yet in comparison to many Western countries,

it is showing growth and is emerging as a new trend

Crowdfunding is not common in Vietnam Due to cultural differences between theWest and the East and different perceptions of failures, crowdfunding is not the platformwhere people are willing to share their ideas and call on capital because they are afraid ofbeing denigrated instead of being supported In a business environment that focuses onrelationships like in Vietnam, investing in a stranger on the internet is not easy at all.Moreover, the limiting of online transactions and the legal system that doesn’t specificallyregulate crowdfunding are major obstacles

However, these problems cannot prevent crowdfunding from developing in Vietnam

In contrast, in the last three years, many crowdfunding web platforms have emerged andgained a great deal of trust from the Vietnamese community, for example, FirstStep,Comicola, Fundstart, Charity Map, FundingVN, etc Each of the crowdfunding webplatforms in Vietnam has its unique strengths:

Funding Vietnam which was set up in 2015 is the only reputable and unique

crowdfunding platform in Vietnam today It is designed for innovative start-up projectswith the desire to bring products to customers to help connect projects with businesses,investors, and a community of supporters and bring projects to customers The

Vietnamese project is meaningful to the community and the world