Collaboration Exercise

Week 7

Crowdfunding: Enerchi Bites Case Study

Crowdfunding is an emerging Internet-based method to raise capital for an enterprise. Mollick (2014) explains that the method is attractive to business owners as it allows them to raise capital and test marketability. Through this, an entrepreneur is in a position to contribute to the idea they believe in even if their capital investment is low. I will explore the concept of crowdfunding using the Enerchi Bites case study. The case study explores two investors, Annie and Marla (twin sisters) who venture into the business. They named their business from the Energy and Chia (a major ingredient in their product).

One of the reasons that Annie and Marla opted for crowdfunding was to attain more funds from external sources other than from families and friends. Although the Kickstarter campaign was not successful, as it did not reach the set goals, I believe the strategy was better in terms of market research. Through crowdfunding, the twins were able to learn their market, understand the tastes and evaluate the financing aspect of their business. For example, through crowdsourcing, Annie and Marla realized the value of their friends and family circle as it contributed approximately 85% of the total money. 

However, it is clear that Enerchi Bites did not attain their goal and the strategy seemed a failure. The company after raising $10,183.00 only netted 45% of the total amount. This opens the advantages of relying on traditional methods of capital rising like friends and families. During the campaign, Marla and Annie realized they could not reach their target amount. This risked the business from losing the money to their investors. This is per Schwienbacher and Larralde (2010) argument that failure to attain the funding target risks a business to lose the amount as it is returned to investors. For Annie and Marla, they had prepared for such a challenge by maintaining plan b source to fund the campaign. Base on the amount generated, I feel like Annie and Marla gave way too much in terms of rewards in comparison to the generated returns. Thus, crowdfunding is not a venture for all businesses.

Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of business venturing, 29(1), 1-16. Schwienbacher, A., & Larralde, B. (2010). Crowdfunding of small entrepreneurial ventures. Handbook of entrepreneurial finance, Oxford University Press, Forthcoming.