is the act of providing financialresources, usually in the form ofmoney, or other values such as effort or time, to finance a need, program, and project, usually by an organization or company. Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the termis used when the firm acquires capital from external sources.
Sources of funding includecreditventure capitaldonationsgrantssavingssubsidies, andtaxes. Fundings such as donations, subsidies, and grants that have no direct requirement forreturn of investmentare described assoft fundingorcrowdfunding. Funding that facilitates the exchange of equity ownership in a company for capital investment via an online funding portal as per theJumpstart Our Business Startups Act(alternately, the JOBS Act of 2012) (U.S.) is known asequity crowdfunding.
Funds can beallocatedfor either short-term or long-term purposes.
In economics funds are injected into the market as capital by lenders and taken as loans by borrowers. There are two ways in which the capital can end up at the borrower. The lender can lend the capital to afinancial intermediaryagainst interest. These financial intermediaries then reinvest the money against a higher rate. The use of financial intermediaries to finance operations is calledindirect finance. A lender can also go thefinancial marketsto directly lend to a borrower. This method is calleddirect finance.3
It is used forresearch, in fields of technology or social science.Research fundingcan split into commercial and non-commercial. Research and development departments of a corporation normally provide commercial research funding. Whereas, non-commercial research funding is obtained from charities, research councils, orgovernment agencies.4Organisations that require such funding normally have to go through competitive selections. Only those that have the most potential would be chosen. Funding is vital in ensuring the sustainability of certain projects.
Entrepreneurswith a business concept would want to accumulate all the necessary resources including capital to venture into a market. Funding is part of the process, as some businesses would require large start-up sums that individuals would not have.5These start-up funds are essential to kick-start a business idea, without it, entrepreneurs would not have the ability to carry out their concepts in the business world.
Fund management companies gather pools of money from many investors and use them to purchasessecurities. These funds are managed by professional investment managers, which may generate higher returns with reduced risks by assetdiversification.6The size of these funds could be a little as a few millions or as much as multibillions. The purpose of these funding activities is mainly aiming to pursue individual or organization profits.
Government could allocate funds itself or throughgovernment agenciesto projects that benefit the public through selection process to students orresearchersand even organisations. At least two external peer-reviewers and internal research award committee review each application. The research awards committee would meet some time to discuss shortlisted applications. A further shortlist and ranking is made. Projects are funded and applicants are informed.7
Crowdfundingexists in mainly two types, reward-based crowdfunding and equity-based crowdfunding. In the former, small firms could pre-sell a product or service to start a business whereas in the latter, backers buys certain amount of shares of a firm in exchange of money.8As for reward-based crowdfunding, project creators would set a funding target and deadline. Anyone who is interested can pledge on the projects. Projects must reach its targeted amount in order for it to be carried out. Once the projects ended with enough funds, projects creators would have to make sure that they fulfil their promises by the intended timeline and delivery their products or services.9
To raisecapital, you require funds from investors who are interested in theinvestments. You have to present those investors with high-return projects. By displaying high-level potentials of the projects, investors would be more attracted to put their money into those projects. After certain amount of time, usually in a years time, rewards of the investment will be shared with investors. This makes investors happy and they may continue to invest further.10If returns do not meet the intended level, this could reduce the willingness of investors to invest their money into the funds. Hence, the amounts of financial incentives are highly weighted determinants to ensure the funding remains at a desirable level.
Withdrawal of funding, or defunding, occurs when funding previously given to an organisation ceases, especially in relation to Governmental funding.11
Business Dictionary(2009) [Online] Available at: 20 October 2014).
. Springer Verlag.ISBN978-3-319-78524-0.
The Economics of Money, Banking and Financial Markets(Global, Tenth Edition)
. Pearson Education Limited. p.68.ISBN38.
U.S. Securities and Exchange Commission( 2010)
Crowdfunding Generates More Than $60,000 an Hour (Infographic)
Kickstarter, Inc.(2010) Seven things to know about Kickstarter [Online] Available at: 23 October 2014)
Raise Capital(2011) Business talk – How to raise capital for a hedge fund [Online] Available at: 24 October 2014)
This page was last edited on 1 April 2019, at 02:18