Crowdfunding in Mexico, a pragmatic approach in
understanding the growth of a new financing method
Master Thesis Business Administration - Entrepreneurship & Innovation
University of Amsterdam
Faculty of Economics and Business
Student: Atenas Nava Cruces - 10827064
Supervisor: Dr. T. Vinig
Second Supervisor: Dr. T. Gruijters
Statement of originality
This document is written by Student Atenas Nava Cruces who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgments
Looking back on my trajectory when I started giving thoughts to the thesis topic I was confused, with an unclear path to follow. Since the beginning I was attracted to research
a topic that could contribute my home country, but the few studies in the region challenged me day after day.
Now that I present to you my final research I realize that my concerns help me work harder for achieving the results gotten. I can say that perseverance is a key factor for
accomplishing your goals.
I want to specially thank my supervisor Dr. T. Vinig for supporting me during this period. Since the beginning he motivated me to keep my interest in my research as well as advising me whenever I faced a problem. Thanks to my second reader Dr. T. Gruijters
for giving time to read my thesis. My appreciation to all the people that accepted participating in the interviews, which without them this study would not have the perspective gotten. Thanks to all my family and friends for supporting me no matter the distance. Finally to my boyfriend that encouraged me from the beginning of this journey
and help me keep motivated until the end.
Abstract
Crowdfunding has become a novel method used by entrepreneurs as a financing strategy. The type of projects is unlimited, as they can be from social causes to technology development. However, studies are limited to developed countries or worldwide platforms. The purpose of this thesis is to give an insight of crowdfunding in Mexico and analyze whether or not the geography and culture influence this financing method. After exploring factors such as motivation, opportunities, challenges and strategies of seven platforms in the region, it was possible to define the dynamics that may be taken in consideration as a crowdfunding platform. For instance, the country presents high levels of entrepreneurship and a financial gap that crowdfunding may help covering. However, the trust mechanisms need to be adapted to increase the interaction among founders and funders in order to decrease the lack of trust that the culture presents.
Keywords: Crowdfunding, Entrepreneurship, Mexico, Online financing, Opportunities, Challenges
TABLE OF CONTENTS
1. INTRODUCTION ... 8 1.1 RESEARCH QUESTION ... 10 1.2 RESEARCH OBJECTIVES ... 10 2. LITERATURE REVIEW ... 11 2.1 CROWDFUNDING ... 11 2.2 OVERVIEW ON CROWDFUNDING ... 13 2.3 CROWDFUNDING IN PRACTICE ... 14 2.4 GEOGRAPHY IN CROWDFUNDING ... 16 2.5 PLATFORMS AS AN INTERMEDIARY ... 17 2.6 OPPORTUNITIES ... 202.6.1 Mexican entrepreneurial culture ... 21
2.7 CHALLENGES ... 22
2.7.1 Political environment: Corruption and trust ... 22
2.7.2 Mexicans reliance on online transactions ... 25
3. CONCEPTUAL MODEL ... 26
4. METHODOLOGY ... 27
4.1 MULTIPLE SOURCES OF DATA ... 28
4.1.1 Semi-structured interviews ... 28 4.1.2 Platform reports ... 29 4.1.3 Platform analysis ... 30 5. RESEARCH FINDINGS ... 30 5.1 PLATFORM A ... 32 5.1.1 Motivation ... 32 5.1.2 Opportunities ... 33 5.1.3 Platform’s Development ... 33 5.1.4 Competitive advantage ... 34
5.1.5 Challenges & Strategies ... 35
5.1.6 Future ... 36 5.1.7 Platform data ... 37 5.2 PLATFORM B ... 38 5.2.1 Motivation ... 39 5.2.2 Opportunities ... 40 5.2.3 Platform’s Development ... 40 5.2.4 Competitive advantage ... 41
5.2.5 Challenges & Strategies ... 41
5.2.6 Future ... 42 5.2.7 Platform data ... 42 5.3 PLATFORM C ... 44 5.3.1 Motivation ... 44 5.3.2 Opportunities ... 45 5.3.3 Platform’s Development ... 45 5.3.4 Competitive advantage ... 46
5.3.5 Challenges & Strategies ... 47
5.3.6 Future ... 48 5.3.7 Platform data ... 49 5.4 PLATFORM D ... 50 5.4.1 Motivation ... 50 5.4.2 Opportunities ... 50 5.4.3 Platform’s Development ... 51 5.4.4 Competitive advantage ... 51
5.4.5 Challenges & Strategies ... 52 5.4.6 Future ... 53 5.4.7 Platform data ... 53 5.5 PLATFORM E ... 54 5.5.1 Motivation ... 54 5.5.2 Opportunities ... 55 5.5.3 Platform’s Development ... 56 5.5.4 Competitive advantage ... 57
5.5.5 Challenges & Strategies ... 58
5.5.6 Future ... 58 5.5.7 Platform data ... 59 5.6 PLATFORM F ... 59 5.6.1 Motivation ... 59 5.6.2 Opportunities ... 60 5.6.3 Platform’s Development ... 60 5.6.4 Competitive advantage ... 61
5.6.5 Challenges & Strategies ... 61
5.6.6 Future ... 63 5.6.7 Platform data ... 63 5.7 PLATFORM G ... 63 5.7.1 Motivation ... 64 5.7.2 Opportunities ... 64 5.7.3 Platform’s Development ... 65 5.7.4 Competitive advantage ... 66
5.7.5 Challenges & Strategies ... 66
5.7.6 Future ... 68
5.7.7 Platform data ... 68
6. DISCUSSION ... 68
7. CONCLUSION ... 78
7.1 RESEARCH CONTRIBUTION ... 79
7.2 LIMITATION AND FUTURE RESEARCH ... 79
8. REFERENCES ... 81
9. APPENDIXES ... 86
9.1 APPENDIX 1.CROWDFUNDING PLATFORMS IN MEXICO ... 86
9.2 APPENDIX 2.INTERVIEWEE LIST ... 87
9.3 APPENDIX 3.INTERVIEW PROTOCOL ... 88
9.4 APPENDIX 4.PLATFORM AGRAPHS... 90
9.5 APPENDIX 5.PLATFORM BGRAPHS ... 95
9.6 APPENDIX 6.PLATFORM CGRAPHS ... 98
9.7 APPENDIX 7.PLATFORM DGRAPHS ... 100
9.8 APPENDIX 8.PLATFORM FGRAPHS ... 102
TABLE
OF
FIGURES
FIGURE 1CONCEPTUAL MODEL ... 27
FIGURE 2PLATFORM A ... 32 FIGURE 3PLATFORM B ... 39 FIGURE 4PLATFORM C ... 44 FIGURE 5PLATFORM D ... 50 FIGURE 6PLATFORM E ... 54 FIGURE 7PLATFORM F ... 59 FIGURE 8PLATFORM G ... 64
FIGURE 9CROWDFUNDING FINDINGS ... 69
1. Introduction
Crowdfunding is a new resource that entrepreneurs are using for funding their projects as the global crisis hinders the access of capital to this sector (Lehner, Grabmann & Ennsgraber, 2015). This way of financing new ventures has been developing fast in recent years, with more than US$16 billion being pledged (Crowdfunding Industry Report, 2015) through 2014. The success of crowdfunding has raised the interest of researchers to study the ecosystem in which this is developed. Due to its newness, the focus of available literature is more in general terms, describing the different types of crowdfunding (Mollick, 2014) and how each works. Some researchers also agree the Internet plays a major role, as it sets the environment for integrating the social networks (Belleflamme, Lamber & Schwienbache, 2014) around the world. Therefore, researchers have analyzed successful platforms like Kickstarter, Indiegogo, and Kiva, trying to understand this environment. Even though the Internet gives access to different platforms around the world, countries like the United States (Statista, 2012), Germany, and Spain are leading in number of platforms and money raised (Startup Europe Crowdfunding Network, 2014). This raises the question of which reasons cause this effect.
Piff et al. (2010, as cited in Burtch, Ghose & Wattal, 2014) suggest that individuals are more likely to support projects they empathize with, thus the closeness in culture can be a factor for funding projects in other regions. We discuss that geography (Agrawal, Catalini & Goldfarb, 2011) might affect the development of the model, as platforms might not work in the same way in Latin America as in Europe or North America. With Mexico being the leading country in crowdfunding in Latin America with six operating platforms (FOMIN-Multilateral Investment Fund, 2014) and another to be launched by the end of summer 2015, it is interesting to research the
elements that have taken Mexico to this position. In this thesis we analyze the seven platforms and their strategies for understanding whether or not their approach has been the same as the global platforms. The many economic and social similarities between Latin countries will allow us to understand how crowdfunding might develop in the region.
Mexico is a country with a highly entrepreneurial culture, therefore the Ministry of the Economy, together with the INADEM (National Institution for Entrepreneurs) and the National Entrepreneurs Fund, has different programs guiding and fostering entrepreneurs to reach their goals. Additionally, the crowdfunding agency Massolution and the Multilateral Investment Fund (2014) reported that Mexico has shown a stable GDP growth (average 4.3%) from 2010 to 2012 as well as a decrease in unemployment through 2013. The entrepreneurial mindset as well as economy stability gives opportunity for growth to crowdfunding.
However, Mexico also faces some challenges such as corruption (Coronado, 2008) and acceptance of online business (Novak, Hoffman and Peralta, 1999). The term corruption is broad, hence this study will focus on the influence that this has on people’s trust. For the reliance on online transfers it is important to note that by 2013 only 43% of Mexicans have access to internet (FOMIN-Multilateral Investment Fund, 2014), limiting the population that are familiar with internet transactions and causing a lack of trust in online banking. As crowdfunding is done via the Internet, platforms need to build trust mechanisms, share high quality information (Agrawal, Catalini & Goldfarb, 2013; Greiner & Wang, 2010; Haas, Blohm & Leimeister, 2014), pre-select projects, offer value added services, and foster communication between founder and funder (Haas, et al. 2014). The existence of these factors in Mexican platforms will help us determine the success of crowdfunding in the country.
The paper proceeds as follows. The first section presents the theoretical framework by giving a background on crowdfunding. Then, a brief explanation is offered on the importance of crowdfunding geography as well as the influence on setting national crowdfunding platforms. This is followed by a description on how platforms work as an intermediary, after which the identified opportunities and challenges in the Mexican market will be described. The next section defines the methodology and the conceptual model that was followed during the study. This section will be followed by the findings that describe the seven platforms analyzed. A discussion section will then explain how the findings can complement existing literature review; this section also includes a proposed framework on crowdfunding. Finally, conclusions are drawn from the studies, including limitations and further research.
1.1 Research question
This study aims to develop a framework for understanding how crowdfunding has been developed in Mexico, thereby future platform creators can learn from this and further develop this financing method. In order to accomplish this, the following question will be addressed:
How have crowdfunding platforms in Mexico overcome the challenges and taken advantage of opportunities?
1.2 Research objectives
In an attempt to answer the research question, the following objectives helped to direct this study:
Identify opportunities and challenges of crowdfunding in Mexico Identify the existing platforms and characteristics
Identify the development of the platforms
Determine the existing strategies platforms have implemented in order to succeed
Identify which factors are influential in Mexican platforms Identify platforms strategies for building trust
2. Literature review
2.1 Crowdfunding
Through the years entrepreneurs have struggled to set up new projects, as obtaining financial support for their projects has become increasingly difficult. Usually they look for bank loans, venture capital, own savings, or loans from friends. It wasn’t until 2009 that the crowdfunding model started in European and American countries (Huili, Yaodong, 2014). Mollick (2014) defines the term crowdfunding as a way of micro-financing and crowdsourcing through an Internet platform that is dedicated to this particular method of fundraising. In this way, a number of small investors choose a project and fund it with a desired amount of money allowing the entrepreneur to raise the money needed (Mollick, 2014).
Crowdfunding identifies three main actors during its execution: platforms, entrepreneurs and funders (Tomczak & Brem, 2013; Agrawal et al. 2013). Burkett (2011, as cited in Tomczak et al., 2013) defines the platforms as the intermediary that provides an ecosystem where entrepreneurs and funders can interact. Furthermore, Ordanini et al. (2009, as cited in Tomczak et al., 2013) refer to entrepreneurs, to the fundraisers that look for help of the crowd to financially support their projects. Finally, the funders are also known as the crowd of investors that support entrepreneurial
projects for the exchange of a reward (Ordanini et al., 2009, as cited in Tomczak et al., 2013).
As one of the differences between crowdfunding and “traditional” financing methods is the return, the relationship between funders and founders depends on the nature of the funding effort (Belleflammeet al., 2014). Mollick (2014) describes four main contexts in which projects can be funded: patronage model, lending model, reward-based crowdfunding, and equity crowdfunding. The patronage model refers to donations in which the backer is not looking for a direct return (Mollick, 2014). The second model is when the investment is offered as a loan, so a rate of return is expected (Mollick, 2014). Then, the reward-based crowdfunding is considered the most common, as funders can be credited in the project, have an input in the product or be the first to have access to the product at a better price or with special features (Mollick, 2014). Finally, equity crowdfunding is where funders are treated as investors (Mollick, 2014). Even though these four types are considered standard, authors like Hemer (2011) or the consulting agency Massolution (2013, as cited in Haas et al, 2014) classifies them differently, but the essence of the funding is the same.
Crowdfunding makes entrepreneurship more reachable for any kind of ventures as the funds can be collected for traditional and non-traditional projects (Mollick, 2014). This means that as long as you have a good idea and an attractive campaign for your project it doesn’t matter the type of project (cultural, sports, technology, social) as people with the same interests can have access to the internet platforms and are able to contribute.
Even though the crowdfunding goal is to raise enough money for a project, transactions are not handled in the same manner as a traditional financial intermediary.
This is mainly because crowdfunding platforms do not borrow or lend funds (Haas et al., 2014).
2.2 Overview on crowdfunding
Crowdfunding has been growing in recent years, however, reward-based is the most common as offering shares with equity crowdfunding is more complex (Belleflamme et al., 2014). The lack of laws or restrictions on the number of investors a company may have (Belleflamme et al., 2014) limits equity platforms to operating only in certain countries. Until November 2013 the JOBS Act started as a crowdfunding framework in U.S., enabling non-accredited investors to fund entrepreneurs receiving shares in exchange (Ahlers, Cumming, Günther & Schweizer, 2013). However, Lehner, Grabmann & Enndgraber (2015) state that putting regulations into practice might be difficult because of the platforms’ different role and the influence that the crowd has in the investment.
In 2012, crowdfunding funded over one million projects, raising US$1.5 billion (Crowdfunding Industry Report, 2012). By 2014 the market grew 167% raising US$16.2 billion (Crowdfunding Industry Report, 2015) and for 2015 the forecast shows that crowdfunding will reach over US$34 billion (Crowdfunding Industry Report, 2015). The fast growth of this Internet based funding method has generated an interest to study. However, most of the studies are in early stages trying to understand the success factors of this new model.
According to Lehner et al. (2015), crowdfunding has a positive impact as it works as a distribution channel and a pre-market test. They explain that entrepreneurs decide to use crowdfunding platforms as a distribution channel either for a new product
or the improved version of an existing one. Additionally, companies can use the platforms as a channel for pre-testing the potential of the products before releasing them to the market (Lehner, et al., 2015). When companies or entrepreneurs choose crowdfunding platforms as a market place, it is also possible to test whether or not the product would cause a disruptive innovation and foster competition, or whether the product is ahead of its time (Lehner, et al., 2015), which can help prevent wasted production. Lehner et al. (2015) recognizes as an additional value the willingness of funders to participate in problem solving, as they would benefit from this.
2.3 Crowdfunding in practice
As previously explained, crowdfunding has been a successful financing method for entrepreneurs. This success is due to the supportive social environment (Belleflamme et al., 2014) that is set in crowdfunding. Belleflamme et al. (2014) suggest that the primary strategy is building a community which helps to attract a crowd that will be part of the decision-making process. For this, the Internet is the tool used for integrating social networks (Belleflamme et al., 2014; Mollick, 2014). According to Gerber, Hui & Kuo (2012, as cited in Belleflamme et al., 2014) the social network increases when the funders feel they are part of a community that shares the same interests and they have access to the product or shares. This is also influenced by the display of social information (Kuppuswamy & Bayus, 2013). Moreover, successful crowdfunding can influence the crowd by two more factors: the perceived social character or the radical
innovativeness of the idea or the business (Drury & Stott, 2011 as cited in Lehner et al.,
funders perceive that the money needed is in-line with the development of the product (Lehner et al., 2015).
Mollick (2014) and Belleflamme et al. (2014) analyze the reasons that lead to successful campaigns in patronage and reward-based crowdfunding, while Ahlers et al. (2013) describe the context for equity crowdfunding. Mollick (2014) concludes that there is a linkage between the quality of the projects, the founder’s social network, and the geography of the project. For defining the quality of projects, Mollick (2014) refers to the existence of a video, constant updates, and no spelling mistakes (Cabral, 2012, as cited in Mollick, 2014) as the main characteristics. As previously mentioned, social networks (Belleflamme et al., 2014; Mollick, 2014) help increasing the resource availability (Ferrary and Granovetter, 2009; Stuart and Sorenson, 2005, as cited in Mollick, 2014). This includes friends and family (Agrawal, Catalini & Goldfarb, 2011) and the influence of other connections (Shane and Cable, 2002; Sorensen and Fassiotto, 2011; Stam and Elfring, 2008, as cited in Mollick, 2014) that help in the snowball effect. Additionally, Mollick (2014) explains that projects are not equally distributed through the regions, which influences the success of a campaign. Therefore the next section will explain the geography aspect of crowdfunding (Agrawal et al., 2011) and how this can influence the funding process.
Ahlers et al. (2013) found that financial and risk transparency, leadership and human capital, and level of uncertainty are an influence of the success in equity crowdfunding. For assuring risk transparency, Ahler et al. (2013) suggest that entrepreneurs need to display the different scenarios, as this allows funders to have a better understanding of the possible outcome of the investment. Moreover, for leadership and human capital there were higher levels of success when there was a clear structure in the startup as well as knowledge among the entrepreneurs (Ahler et
al., 2013). Finally, funders are more interested in supporting projects that share detailed information such as the amount of equity and projections of the business (Ahler et al., 2013).
2.4 Geography in crowdfunding
As crowdfunding is done through Internet platforms, it can be assumed that entrepreneurs can present their project to a community of online investors expecting that the geographic frictions will be less (Agrawal et al., 2011). Therefore, funds from different parts of the world are expected. However, Agrawal et al. (2011) have researched the possible relationship between geography and crowdfunding, suggesting that not knowing the entrepreneur’s information can influence foreign funding.
Burtch et al. (2014) analyze the role of cultural difference and physical distance in a crowdfunding platform (Kiva.org) as these two elements have impacted online business. Also Reinecke and Bernstein (2013), suggest that the design in platforms, IT-based trust mechanisms, and adapting the interface by culture impact users. Therefore, these factors might be an important influence in Mexican crowdfunding platforms.
In 2014, the Multilateral Investment Fund (MIF) member of the Inter-American Development Bank (IDB) concluded after a study performed in 2013, that Mexico was the leading country in crowdfunding in Latin America with seven active platforms, raising approximately US$17 million (FOMIN – Multilateral Investment Fund, 2014). However, the money raised in European countries is higher (e.g. In 2013, The Netherlands raised approximately US$21 million according the AFM). This raises the question if there is any relation to the country’s culture? Gerber and Hui (2013) suggest that funders need to trust the creators using the funds on the promised project, but
Searing (2013) explains that the Latin economy is affected by confidence in the central governments, thus the levels of trust are affected.
Even though platforms are willing to expand their operations to more countries, there are limitations from regulations, high costs (Startup Europe Crowdfunding Network, 2014) and cultural acceptance. Platforms like Kickstarter, Indiegogo, Crowdfunder, RocketHub (Top 10 Crowdfunding Sites for Fundraising, 2013) have international usage however, national crowdfunding platforms continue to appear. In this manner, actors have more options in whether to choose local or foreign platforms.
2.5 Platforms as an intermediary
Considering that funders search for projects they are personally interested in or believe in, they consider different factors that influence their decision-making. According to Huili & Yaodong (2014) these factors are an introduction for project financiers, product function and features, project progress, return, and discussion between project funders and financiers, reflecting economy, customer participation, trust, information quality, and social networks.
For a better understanding on crowdfunding Agrawal et al. (2013) and Tomczak et al. (2013), identify the creators, funders and platforms as the main actors that generate incentives for engaging with the project. However, the platforms play an important role as an intermediary providing the contact channel between founders and funders. Due to their position as a non-traditional intermediary during the development and commercialization of projects (Haas et al., 2014), platforms have to remain neutral in their activities (Hemer, 2011). For instance, Hemer (2011) differentiates the activities and intensity in which platforms work. First, he defines the platforms that act
only as intermediaries offering a physical platform where founders can present their projects, as well as the software to collect and manage pledges (Hemer, 2011). The second type of platforms refers to those that offer a wide variety of services such as consulting, organizing public relations, and arranging micro-payment with providers (Hemer, 2011).
Moreover, the success and popularity of platforms depend on how their trust mechanisms work (Greiner et al., 2010) for creating an environment where founders and funders perceive less risk or uncertainty. These mechanisms involve institutional instruments or regulations such as feedback, escrow services, and credit card guarantees (Pavlou & Gefen, 2004; Shapiro, 1987, as cited in Greiner et al 2010 p. 4). Taking into consideration that there is a lack of legal regulations on crowdfunding (Agrawal et al., 2013), it is relevant to provide as much information as possible to funders regarding the projects and their founders. In order to diminish the information asymmetry between the founders and the backers, Agrawal et al. (2013) suggest to use mechanisms such as
reputation signaling, rules and regulations, and crowd due diligence. Secondly, they
propose the use of provision point mechanisms for the collective action problem (Agrawal, et al. 2013).
The disclosure of information has a big influence in reputation signaling (Agrawal, et al. 2013), as this helps to build trust. Offering high quality information influences lenders’ decisions (Greiner et al, 2010; Haas et al, 2014) during the funding process. For rules and regulations, it is important that the crowdfunding platforms keep reacting to user behavior by adapting their conditions for maximizing transaction volume (Agrawal et al., 2013). Crowd due diligence refers to mechanisms that complement the improvement of asymmetries caused by the absence of face-to-face communication (Agrawal et al., 2013). For instance, Kickstarter uses the help of the
crowd to know if the projects are a fraud or have been plagiarized (Agrawal et al., 2013). Finally, Agrawal et al. (2013) describe provision point mechanism as a tool for helping with information quality, incentives, and minimizing fraud. Thus, the extra value that the platforms create for users is an important factor for the founder and funder, as this can help in the decision as to where to post the project and where to search for projects.
As previously mentioned, sharing high quality information is considered one of the factors intermediaries have to consider for increasing the usage of their platforms. Therefore, they need to reduce the information asymmetries and the transaction costs (Bakos, 1991; Bakos, 1998; Mahadevan, 2000; Malone et al, 1987, as cited in Haas et al, 2014) based on the intermediation theory (Allen & Santomero, 1998; Diamond, 1984; Fama, 1980; Niehans 19978, as cited in Haas et al, 2014). This means that platforms are able to pre-select projects, provide the information about the project as well as enabling relationships between founders and funders for increasing the quality and amount of information (Lin et al, 2013; Zvilichovsky et al, 2013, as cited in Haas et a, 2014).
For having a rapid growth in crowdfunding, Hemer (2011) suggests there is a need for the emergence of more platforms. Future platforms may include funding mechanisms, return, and specialization (Haas et al, 2014). For the funding mechanisms, platforms provide parameters for the pledge levels, the minimum amount of the pledge and an all-or-nothing principle (Gerber et al, 2012; Mitra & Gilbert, 2014; Mollick, 2014; Wish 2014, as cited in Haas et al 2014). These mainly help for setting some rules as well as managing the risk of the founder by either choosing between an all-or-nothing principle or a keep-it-all principle (Cumming et al, 2014, as cited in Haas et al, 2014). Return refers to what funders receive in exchange after backing a project (Mollick,
2014). Finally, for specialization, Haas et al (2014) suggests that platforms are able to offer projects that are part of a niche market. For instance, campaigns can be for creative projects or creative products (Agrawal et al, 2010; Haas et al, 2014), for startups or new businesses (Ahlers et al, 2012; Burtch, 2011; Schwienbacher & Larralde, 2012, as cited in Haas et al 2014), and for sustainable or social projects (Burtch et al, 2013; Haas et al 2014).
Platforms can decide which type of crowdfunding intermediary they will be, taking into consideration those founders that will still demand specific characteristics from the platform. Therefore, intermediaries have to build trust mechanisms, share high quality information, pre-select projects, offer value added services, and foster communication between founder and funder.
2.6 Opportunities
According to Fernández-Serrano & Liñán (2014) Latin America is characterized for its entrepreneurial culture, influencing unconscious behavior and values that are reinforced and increased over time. Nowadays, creating an own venture is more common, thus entrepreneurs are looking for new financing methods. Due to the increase of new projects in Mexico, the government has created institutions that help financing outstanding ventures. However, not all of these are able to receive any support, as the amount of funds available is limited. This creates an opportunity for crowdfunding.
2.6.1 Mexican entrepreneurial culture
The term entrepreneur has been known in Mexico for a long time, as people wanted to have their own small businesses to ensure their families were supported financially. This trend was very common among people living in poverty (FOMIN-Multilateral Investment Fund, 2014). Nowadays, middle class people are more active in entrepreneurial ventures and willing to take higher risks (FOMIN-Multilateral Investment Fund, 2014). This has caused a total entrepreneurial activity of 34.2% in the country (Fernández-Serrano & et al., 2014). Due to this increase in startups, the Mexican government has established two institutions focused on helping entrepreneurs: the National Institution for Entrepreneurs (INADEM) and the National Entrepreneurs Fund. The main activities of these institutions are to provide support and training to entrepreneurs during the process of opening new ventures. The National Entrepreneurs Fund analyses different projects and provides financial support to entrepreneurs. For instance, in 2014 there were 31 projects of a total of 338 that were funded for a total of 5 million EUR (National Entrepreneurs Fund, 2014).
Moreover, Mexico is characterized for strong family ties, which helps to create extensive social networks (FOMIN-Multilateral Investment Fund, 2014), as not only does the direct family get involved, but also families tend to be larger. Mexicans rely highly on their networks, as it is common to ask for favors. This kind of relationship is based on trust, friendship and sincerity, creating a socializing culture (Grosse, 2001). As relationships tend to be tight between people, they create a community in which collaboration and support is part of their values (Grosse, 2001). This applies not only for doing business, but also in religious matters or any personal problem they may face (e.g. If there are damages after a natural disaster, the community will help each other to overcome the situation). Hence, personal contacts might be helpful when launching a
crowdfunding campaign, as spreading the project among the network might be an influence for being successful.
Fernández-Serrano et al. (2014) state that culture influences the levels of entrepreneurship, as a supportive culture can generate social legitimation and a sharing of values towards entrepreneurship. Additionally Russel (2005) explains that cultural values, beliefs and norms define the emergence of entrepreneurs. Even though Latin American countries have a common past, their developments have been different, causing disparities in their economies and income levels (Fernández et al., 2014). Consequently, more developed countries in Latin America (Argentina, Brazil, Chile, Costa Rica, and Mexico) rank higher in entrepreneurial activities (Fernández et al., 2014). However, Russel (2005) explains that for a successful entrepreneurship in Latin America there must be a social context that identifies the person into a group.
2.7 Challenges
In Latin America, there are different challenges to overcome, as countries like Mexico have higher levels of corruption, which results in a lack of trust in others. In order to have a growth in crowdfunding within this region it is necessary to apply specific strategies to understand the political environment and the confidence in online transactions.
2.7.1 Political environment: Corruption and trust
For Mexico, one of the biggest challenges is corruption. Mexicans consider that (even though there is not much difference) the term can be divided into two: political and social corruption (Bailey & Paras, 2006). Corruption has created a society with a lack of
trust in the government as well as in other institutions (governmental or non-governmental). Corruption is seen in different levels, however it starts with society (Bailey et al, 2006) when they engage in bribery (mordida: term used by Mexicans), which is considered the biggest problem of corruption according to a survey by the Mexican newspaper Reforma (2003, as cited in Bailey, et al 2006), followed by citizens’ dishonesty.
Coronado’ s (2008) study of the Mexican culture helps with understanding this society. As well as Bailey et al (2006), Coronado (2008) agrees that corruption starts with the citizens. However, she explains that circumstances lead them to work under informal practices. Some of these informal practices are asking for favors, using personal or family networks, paying a person for doing administrative procedures on behalf of others, giving gifts, and bribery (Coronado, 2008). These activities are seen as common among society, yet citizens complain about politicians and bureaucratic organizations (Coronado, 2008). Thus there is a considerable lack of trust in the government and other organizations. According to an OECD report, in 2011 Mexico was ranked as one of the countries with the lowest levels of trust only ahead of Turkey and Chile (as cited in FOMIN – Multilateral Investment Fund, 2014). Only 26% of Mexicans trust others, while in Nordic countries the level of trust in others is 80% (OECD, 2011, as cited in FOMIN – Multilateral Investment Fund, 2014).
Although Mexico has political stability, corruption is a big factor that can affect investment, as the uncertainty for investors is still high. Therefore, over the years the government has referred to corruption as the biggest problem Mexico needs to overcome in order to grow (Coronado, 2008). In this way, different actions have been taken in recent years, such as increasing public transparency and economic reform initiatives (FOMIN – Multilateral Investment Fund, 2014). One activity that is
categorized as an initiative to reform the economy is legislation on crowdfunding, which is currently in process under the supervision of the Foreign Investment Law and General Corporation and Commercial Partnership Law (FOMIN – Multilateral Investment Fund, 2014).
The government has been implementing an anticorruption initiative, which is meant to reduce bribery by centralizing all payments to a government cashier or the banks (Coronado, 2008). However, the paradox relies on the government’s intention to develop new programs while there is a lack of strict punishment enforcement with government employees. In general, the citizens’ perception is that the government is corrupt with an absence of engagement between their promises and their activities (Coronado, 2008).
Even though corruption is one of the biggest challenges to overcome, Bailey et al. (2006) and Coronado (2008) conclude that in order to make change this needs to start from society. If citizens stop giving bribes or using their influences among their networks, politicians and police will be forced to increase transparency. But this suggestion will require changing the culture or the “flexibility” (Coronado, 2008) Mexicans are used to.
Corruption is highly related to having a society that doesn’t trust, as it undermines faith in institutions, government, and interpersonal activities (Morris & Klesner, 2010). As there is a big linkage between corruption and trust in Mexico, Morris et al. (2010) found that this could affect willingness to participate with others. This perception can build a distrusting society affecting social empowerment (Morris et al. 2010). This cultural aspect could be reflected in the usage of crowdfunding platforms, lowering backers’ willingness of engagement (FOMIN – Multilateral Investment Fund, 2014). In order to increase pledges, Mexican platforms need to generate trust
mechanisms that will ensure reliability and transparency, because citizens have experienced the consequences of corrupt organizations and government (Coronado, 2008).
2.7.2 Mexicans reliance on online transactions
Online transactions are crucial for crowdfunding. Without this it is not possible to raise the funds needed to support projects or new ventures, so the concept of crowdfunding wouldn’t be able to exist. There have been challenges with online business since the beginning. Relying on Internet providers is not easy for consumers, thus establishing a trading relationship makes it more difficult (Novak, Hoffman & Peralta, 1999). One of the problems described by Novak et al. (1999) is that customers do not have direct control over transactions. They conclude that not knowing about the level of security makes users hesitant to share their personal information as well as their banking details (Novak et al. 1999). It is very common that people have a feeling of being scammed by a website (FOMIN – Multilateral Investment Fund, 2014). Lack of trust and the absence of personal exchange generate attention regarding online shopping and online banking among Mexicans. However, after an analysis of online banking, Mansumitrchai & Al-Malkawi (2011) highlighted that online adopters consider that online services make transfers and payments more efficient, while non-adopters find it a complicated and less personalized service, as they find physical contact important. Moreover, both online adopters and non-adopters have doubts about disclosing personal data as well as the security of an Internet bank (Mansumitrchai et al., 2011).
Due to the importance that Mexicans give to trust while doing business, corruption has affected online transactions (National Institute of Statistics and
Geography, as cited in FOMIN – Multilateral Investment Fund, 2014), as people are not willing to disclose personal data. Also, sharing information online is seen as risky for identity theft, losing data, or being involved in laundering schemes. Thus, online platforms need to show their users that their security mechanisms are able to avoid and reduce any risk.
In 2013, the Mexican Banking and Securities Commission, together with the Department of the Treasury, reported that during 2012 only 13% of banking users have online banking, and 6% use mobile banking (as cited in FOMIN – Multilateral Investment Fund, 2014). With these numbers, we can say that Mexicans have not adopted the habit of online banking like other countries. Therefore, there is a need to promote online financial services, which can affect the development of crowdfunding in the country. For instance, Mansumitrchai et al. (2011) imply that foreign financial groups might be used as an agent for fostering the usage of online banking operations as an international brand might gain more trust than a Mexican brand.
3. Conceptual Model
Based on the literature review, crowdfunding in Mexico can work as a response to the lack of funds offered to entrepreneurs by government programs. However, platforms have two major challenges to overcome in the region: corruption and trust as an influence on investments and scarcity of online transfers. The conceptual model (Figure 1) represents how opportunities and challenges influence the strategies and factors platform founders need to implement in order to succeed. After an in-depth multiple case studies of the platforms, suggestions for future development of crowdfunding might be drawn.
Figure 1 Conceptual Model
4. Methodology
This master’s thesis aims to be exploratory research, as the intention is to have a snapshot of the current situation of crowdfunding in Mexico. A multiple case study (Saunders & Lewis, 2012) of the region will be done in order to answer the research question “How have crowdfunding platforms in Mexico overcome the challenges and
taken advantage of opportunities?”. As crowdfunding is a new financing method,
research on the topic is limited. Currently there are no studies in Latin America, thus a multiple case study will give insight that will help to create a background in the region. The research design will be based on a qualitative and abductive approach as it will be based on a theoretical proposition on crowdfunding with the possibility of discovering new variables and relationships (Dubois & Gadde, 2002) by providing specific insights within the region.
4.1 Multiple sources of data
For the data collection, a purposive sampling was done as it is intended to understand the situation of crowdfunding in Mexico. In order to gain more insights into the situation, the sampling criteria that was used was a typical case. This means that the sample taken will be illustrative as well as representative (Saunders & Lewis, 2012) in order to generalize the responses. Thus, a multiple case study of the region will be done, including semi-structured interviews, analysis of platform reports and an analysis of the crowdfunding platforms.
4.1.1 Semi-structured interviews
There have been seven platforms in Mexico of which only six are currently operating, with another platform preparing to start operations by the end of summer 2015 (Appendix 1). Among the existing platforms there are three different types of crowdfunding (lending model, reward-based and equity crowdfunding platforms) (Mollick, 2014). After contacting the platforms by email and explaining the research, five operating platforms agreed to participate in the interviews gathering 7 founders and 1 project manager. Additionally, an upcoming platform founder agreed to participate. Finally, for the missing operating platform it was possible to interview two project founders and analyze the information provided by the platform (Appendix 2). We were able to apply the snowball sampling (Saunders & Lewis, 2012) for three platforms, by asking the creators to refer to their co-founders and broaden the knowledge in the topic. However we reached data saturation (Saunders & Lewis, 2012) with the interviews.
Before conducting the interviews there was a pilot test to avoid any misunderstanding during the interviews and make necessary changes. The interviews lasted around 60 minutes and they were done via videoconference on a schedule previously arranged with respondents. Due to time constraints, one participant shared his experience by email. As the purpose was to have the most information possible, some questions and topics were predetermined based on the literature review, however there was time for discussing the perspective of the platform founders. Thus, a protocol (Appendix 3) was followed during the interviews. The interviews were recorded with the participants’ consent and some notes were taken. After the interviews, the data was coded in data sheets and sent to the participants for additional comments or changes.
We transcribed every interview to analyze all the data. We used NVivo to help with the coding. After finding the patterns between the codes we were able to define six main codes (1. Motivation; 2. Opportunities; 3. Platform development; 4. Competitive advantage; 5. Challenges and strategies, and 6. Future), which helped us structure the findings.
4.1.2 Platform reports
During the interviews it was possible to request any report the platform had. We were able to gather four reports for all the platforms. These were used for analyzing additional information that was not considered previously. For the analysis we proceeded in the same manner as the interviews as the information was coded through NVivo using the six codes previously mentioned.
4.1.3 Platform analysis
By analyzing the crowdfunding platforms it was possible to retrieve information such as total number of projects, number of successful projects, type of projects, days left, goal, pledge, rewards, location, founder’s gender, social media intensity, amount of rewards offered per project, and amount of videos and pictures included per campaign. These variables were useful for creating a data matrix that was analyzed for determining the background of crowdfunding in Mexico. However, not all of the platforms have the same information in their websites so the information gathered varied from platform to platform. Considering that some platforms are bigger than others, the data retrieved helped to design specific questions for platform founders.
Because crowdfunding is based on the Internet it was important to determine the required characteristics for the platform to be considered for the study. The platforms need to be based in Mexico as well as being available for Mexican founders and funders. For instance, Indiegogo is accessible to the Mexican market however the platform is originally based in the United States. Thus, the platform does not fulfill both characteristics for this study.
5. Research findings
In August 2011 the first crowdfunding platforms started working in Mexico and since then more platforms started launching in the Mexican market. Until mid-2015 there were six national working platforms offering three funding types (lending model, reward-based and equity) (Mollick, 2014) of the existing four models. Additionally, by the end of summer a new platform is expected to launch.
According to the platform creators there was a slow start in crowdfunding in Mexico. This was due to the lack of knowledge regarding the topic as well as the fear to fund fraudulent projects. However, after almost 4 years that the first platform was opened there have been posted 3,358 projects. For further calculations it was only considered 1,425 projects as for the rest of the projects we were only able to retrieve the total amount pledged (over 2 million EUR). From which 530 have been successfully funded, with a success rate of 37% and over 4,869,881.93 EUR pledged. During the analysis it was possible to distinguish between the founders, funders and projects characteristics. For the founders it could be concluded that the entrepreneurial initiative in Mexico comes from the male gender. The average of backers per project is 24, for successful projects 54 funded the project and for non-successful 7. Regarding the project characteristics in reward-based platforms the average of rewards offered by founders is of 7, for successful projects 3 and for non-successful ones 4. The average comments are 1, for successful projects 2 and for non-successful ones 0. Additionally, it was possible to analyze the amount of videos and images per project. For the videos there is an average of 1, for successful projects 1 and for no-successful projects 1. In the case of images 6 were the average, 6 for successful projects and 6 for non-successful. The social media intensity was not possible to track for all the platforms; however Platform B displayed the amount of likes given per project (186 likes) and Platform C shows through its Facebook page the shares given on that platform. In Facebook shares and twits the average is of 0.3.
In the following sections the results of seven platforms are described in depth, as each platform had different strategies and experiences while developing the platform. For a better understanding of the phenomenon “crowdfunding” we have created six categories based on the interviews and reports: (1) platform’s motivation, (2)
opportunities, (3) process (development), (4) competitive advantage, (5) challenges and strategies, and (6) future. For the last five categories each platform has its own subcategories. Additionally there is a final section where we show the data found in each platform.
5.1 Platform A
This platform was one of the pioneers in crowdfunding in Mexico. In figure 2 it is possible to find a summary of the findings of the interviews.
Figure 2 Platform A
5.1.1 Motivation
The idea of bringing a crowdfunding platform to Mexico started when some professors noticed the success that this new financial method had in other countries. After conceptualizing the model they invited two entrepreneurial students to found the platform. It took them 3 months in starting up the first crowdfunding platform in
Mexico. However, they think that their success relies in their positive attitude and openness to the results, as one of the co-founder states “when you are 22 years old you
don’t have anything to lose in a business so we could risk it all”.
5.1.2 Opportunities
When the idea of the platform started the founders did not think about which opportunities crowdfunding had in the country, “it was only the ambition of doing
something that worked in the rest of the world”. However, after analyzing how
crowdfunding worked there were two opportunities that depend from each other: (1) high entrepreneurial culture, and (2) lack of loans. Founders agree that in Mexico there are many entrepreneurs that cannot fund their projects because it is difficult to gather the funds.
5.1.3 Platform’s Development
As the platform was one of the pioneers in crowdfunding the founders didn’t have any expertise or knowledge of the topic, even one of the founders states “if I could do this all
over again knowing all what I know, like how crowdfunding works and how to get successful projects, I would do so many things different”. The development of the platform
involved 3 stages: (1) creating awareness, (2) financing the platform, and (3) legal fundament.
The platform started with basic features, but with projects created by influential people like artists or singers. This last one was considered as the valuable asset for the projects. However, they didn’t consider that crowdfunding had no awareness in the country and that the goals set were very high for succeeding in a new venture.
Therefore, they had to change their approach for creating awareness on the topic. They did what they called “crowdfunding offline”, as one co-founder explains this was
“organizing different events where we invited the project creators and possible funders to meet each other and show who we are”.
Furthermore, the platform started and has been developing with its own capital. Since its foundation, the platform has not received any type of financing, so the co-founder explains proudly that they needed to create a “parallel business”, in which they tried to associate the community with known corporations.
Even though crowdfunding does not have any legal background, the platform looked for legal consultancy for assuring their operations were trustful. They decided to operate under the same model as a broker, in which the platform is the money handler. In this way they could offer more credibility to its users as the platform assures its legal operations.
5.1.4 Competitive advantage
The founders explain that they are the only active platform doing reward-based crowdfunding, but the fact that there are more platforms doing crowdfunding is positive, as this will help the development of the model. However, the co-founder explains that there are three characteristics that have taken them to be the biggest platform in Mexico: (1) young team, (2) customer service and (3) flexible model. One founder explains that young people with an age average of 23 years old characterize their team. He explains that the team is very important “There is a lot of trust in the team
as we think everybody can come up with new strategies for making new projects being successful”. Moreover, the platform has been characterized for its customer service, as
they follow up on all the projects. Even though the platform has been growing and it has over a thousand projects after its opening, both founders agree that keeping track to every campaign and giving guidelines to the creators have helped them to attract more projects and having successful ones. They explain this by saying “giving personalized
attention to the projects is the model to follow in Latin America; we put down the barrier that Internet sets. The roadmap we suggest and following closely the projects help to achieve the set up goal”.
Lastly, they believe that the platform has a flexible model. Even though the platform offers an “All or Nothing” scheme, the team evaluates every project individually. This allows them to see the relevance of the cause and in some cases they change to a “Keep it all” scheme. Having a more personalized service supports a flexible model that attracts more creators.
5.1.5 Challenges & Strategies
Being the first platform set in Mexico, made the funders realized that challenges such as (1) lack of knowledge, (2) lack of trust, and (3) society’s characteristics, needed different strategies in order to succeed.
As crowdfunding was a new model in the country, the first challenge the platform faced was the lack of knowledge of the topic, “nobody had heard about it, so we
needed to do something for changing that”. Hence, the founders have been working in
three strategies: (1) crowdfunding offline, (2) alliances, and (3) creating an association. As explained before, part of the development of the platform was based on inviting project creators and funders to different events so they could explain what the model was about as well as sharing the experiences they had had. Another strategy was to
have alliances with different universities in the capital as well as the biggest universities of the rest of the country. Moreover, the founders consider that creating AFICO (Crowdfunding platform association) will help current and new crowdfunding platforms to spread the word; he says, “…with the association we are creating a voice
that helps making noise about crowdfunding”.
According to one of the founders, the biggest challenge to overcome was the lack of trust between Mexicans, “people need to know where are you putting your money, who
is behind everything and how one can assure the security of a transaction”. Therefore,
they took advantage of the “crowdfunding offline” for (1) building trust mechanisms and defining their strategy in (2) customer service. For the first one, the founders realized that after people got to know them and they had built a reputation, they needed to offer security in their transfers. Working with third well-known parties stimulated this. Additionally, the platform has a policy for giving fast responses when a user has a problem, in this way they can build more trust.
For the last challenge, one founder explains that the society has been part of corruption practices for a long time. This has caused that Mexicans feel a need to tolerate this activity and affects the lack of trust on others. However, the platform requires the creator to sign a contract in which he or she accepts the responsibilities if the project is funded.
5.1.6 Future
Crowdfunding has a big future in Mexico and the rest of Latin America, but it needs to be enhanced by the government. One of the founders explains, “there are so many
entrepreneurs without resources. This is where crowdfunding can work […] but we still need the help of the Entrepreneurial Institutions and spreading the word”.
5.1.7 Platform data
In the platform it is possible to find information of all the existing projects (Appendix 4), which are divided by 8 different categories and subcategory. Until April of this year there were 1,282 projects with a total goal of almost 5 million EUR. Of all the projects, including successful and unsuccessful projects, there is an average of 6 rewards levels, 24 funders, 2 updates, 1 comment, 1 video and 6 images per project. Additionally, the males are the ones with higher entrepreneurial initiative, as they are the gender that predominates among the funders with a rate of 58%. The rest of the rate is divided between female projects (26%), mixed (female and male) projects (2%), and company or association projects (14%).
Until April of this year the platform has 457 successful projects with a goal of 1.8 million EUR and pledging over 2 million EUR in this case. For these projects there is an average of 7 rewards levels, 57 funders, 4 updates, 2 comments 1 video and 6 images per project. On the other hand, unsuccessful projects have an average of 6 rewards levels, 6 funder, 1 video, 5 images and no comments and updates. One of the founders states that their statistics show that if 30% of their funds come from family and friends the project has more possibilities to pledge the goal. Afterwards, these family and friends tend to create a snowball effect within their network, therefore 70% to 80% of the funds are gathered from here. The missing funds come from third parties that read about the project in social networks or blogs.
Of the 8 existing categories the biggest one is Creative Industries with more than 600 projects, from which more than 250 projects were successful, pledging over one million EUR, with 59% of male projects. The project characteristics of this category were an average of 7 reward levels, 30 funders, 2 updates, 1 comment, 1 video, 6 images and no Facebook page information. This is followed by Arts and Culture category with more than 250 projects, from which more than 90 projects were successful, pledging over 3 hundred thousand EUR. For this category female projects outstand with a rate of 39% versus 35% of the male projects. The project characteristics of this category were an average of 7 reward levels, 18 funders, 1 update, 0 comments, 1 video, 6 images and no Facebook page information. Social Initiatives follows it with 190 projects and 55 successful projects pledging over 350 thousand EUR. In this category the male are over the female projects with a rate of 44%. The project characteristics of this category were an average of 6 reward levels, 24 funders, 0 updates, 1 comment, 1 video, 5 images and no Facebook page information.
Between the 32 states of Mexico, Mexico City has the highest number of projects (605) with a success rate of 42%. Jalisco with 110 projects and 28% in success rate follow it. The State of Mexico is in the third place with 51 projects and 33% of success rate.
5.2 Platform B
This platform was one of the first platforms operating in four different Latin countries, Argentina, Brazil, Chile, Uruguay, Colombia and Mexico. Figure 3 summarizes the findings of the interview.
Figure 3 Platform B
5.2.1 Motivation
The platform started when the founders thought about making an impact in three different areas (social, education and economic) in Latin America. They thought on using the platform for showing Latin America and the world different projects that are created by Latin talent. They explain this by saying, “We wanted to be the bridge for the
5.2.2 Opportunities
The respondents agreed that Latin America has two main opportunities that crowdfunding may help tackle: (1) high entrepreneurial culture, (2) lack of capital, and (3) lack of loans.
The platform believes that the Latin culture is known for being entrepreneurial and with good ideas that in many cases are not (well) executed. They explain, “There are
thousands of creators with amazing ideas that shouldn’t be restricted”. This opportunity
goes together with lack of capital and lack of loans, as in general there are small entrepreneurs that do not have the money or do not have access to loans from any financial institution.
5.2.3 Platform’s Development
As being pioneers in crowdfunding, the development of the platform relied in one important factor: creating awareness. For this, the platform organized different seminars where they invited creators and funders to get to know the “new” financial method. The founder explains that crowdfunding has existed for a long time and everybody is familiar with it, he says, “It is the same as filling a piggy bank”. This resemblance allowed them to explain the topic in a more approachable way. They also created a community that helped the platform grow, “we trust that our community will
be the ambassadors of the platform, they will talk about it and a new network will be created”.
5.2.4 Competitive advantage
Even though those crowdfunding platforms are a channel to get funds for projects and in general the model for reward-based works in the same way for all the platforms, the participants described characteristics that differentiates them: (1) social impact, (2) flexible model, and (3) experience.
The participants explain that the platform has created a space with 19 different categories in which the projects can fit. However, these projects need to be of social impact as the purpose of the platform is to develop ideas that may have an impact in the society. This means that charity campaigns cannot be posted on the platform.
Regarding the flexible model, they consider that having two types of funding (All or Nothing or Keep it all) gives them an advantage over other platforms, as the most suitable type can be chosen instead of being decided by the platform. In this way creators can determine which is more suitable for the project. For instance, the platform explains, “in general, social projects or startups could use whatever they gather to do
something, like registering the company”. In case the creator chooses for “Keep it all”
they need to explain in the campaign what will they do with the money they pledge if the goal is not reached.
Moreover, the platform believes that the experience they have on Internet, creative industries as well as the ability on adapting and implementing the crowdfunding model in different regions differentiates them from others.
5.2.5 Challenges & Strategies
The participants explain that the main challenge that Mexico needs to overcome is the (1) lack of trust and (2) online payments. They explain that these two challenges go
together, “without trust, funders do not want to pay online even if they are willing to
fund”. The strategies taken for reducing the lack of trust were (1) alliances, and (2)
seminars. The alliances were made with universities so they will help them spread the crowdfunding concept between students. Additionally the seminars were given for reaching more creators and funders that at the same time may cause the snowball effect. For the online payments the funders want to assure that the banking details are safe and the information won’t be used for other matters. Therefore, the platform offers different paying mechanisms, like deposits through banks or stores and online payments using international third parties like PayPal.
5.2.6 Future
The founder says that not only the platform in Latin America has been growing, but also crowdfunding in general. The future in Mexico for this financial method is promising; however there is a need of support from the community and the government in order for it to keep growing.
5.2.7 Platform data
In the platform it is possible to find information of all the existing projects (Appendix 5), which are divided by 19 different categories. Until April of this year there were 113 projects with a total goal of almost 1 million EUR. Of all the projects, including successful and unsuccessful projects there is an average of 7 rewards levels, 24 funders, 1 update, 1 comment, 1 video and 9 images per project. Additionally, the males are the ones with higher entrepreneurial initiative, as they are the gender that predominates
among the funders with a rate of 45%. The rest of the rate is divided between female projects (23%), female and male projects (7%) and company projects (25%).
Until April of this year the platform has 42 successful projects in “All or nothing” and 27 projects for “Keep it all”, together they have a goal of 3 hundred thousand EUR and pledging over 320 thousand EUR. For these projects there are an average of 8 rewards levels, 33 funders, 8 thousand views, 2 updates, 1 comment, 1 video and 10 images per project and 271 Facebook likes.
Of the 15 existing categories the biggest one is Social Impact with 30 projects, from which more than 20 projects were successful, pledging over 85 thousand EUR, representing the total projects with 9% of male and 6% female ones. For successful project characteristics there was an average of 7 reward levels, 29 funders, 8 thousand views, 7 followers, 2 updates, 1 comment, 1 video, 11 images and 400 Facebook likes. This is followed by the Design category with 28 projects, from which 11 are successful projects pledging more than one hundred thousand EUR. For this category male projects outstand with a rate of 10% versus 4% of the female projects. For successful project characteristics there was an average of 10 reward levels, 34 funders, 15 thousand views, 13 followers, 1 update, 0 comments, 1 video, 10 images and 56 Facebook likes. In third place, Education category follows with 12 projects pledging over 20 thousand EUR. For this category, company projects outstand with 5%, followed by male with 4%. The project characteristics have an average of 6 rewards, 13 funders, 8 thousand views, 6 followers, 0 updates, 0 comments, 1 video, 9 images and 280 Facebook likes.
5.3 Platform C
Platform C is one of the equity platforms working for the Mexican market. Figure 4 summarizes the interview findings.
Figure 4 Platform C
5.3.1 Motivation
The idea of Platform C started on August 2013 when two friends wanted to design a new startup ecosystem. After analyzing the opportunities crowdfunding may have in Mexico, the founders worked for six months on developing their idea in order to make a feasible and legal model that could help entrepreneurs fund their projects. Their law and IT background helped them design an innovative business model that allowed them start operations in January 2014 as an equity crowdfunding model that involves benefits to founders and funders.
