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Talukder, S.C.; Lakner, Z. Social Entrepreneurship and Crowdfunding. Encyclopedia. Available online: https://encyclopedia.pub/entry/46101 (accessed on 04 July 2024).
Talukder SC, Lakner Z. Social Entrepreneurship and Crowdfunding. Encyclopedia. Available at: https://encyclopedia.pub/entry/46101. Accessed July 04, 2024.
Talukder, Saurav Chandra, Zoltán Lakner. "Social Entrepreneurship and Crowdfunding" Encyclopedia, https://encyclopedia.pub/entry/46101 (accessed July 04, 2024).
Talukder, S.C., & Lakner, Z. (2023, June 27). Social Entrepreneurship and Crowdfunding. In Encyclopedia. https://encyclopedia.pub/entry/46101
Talukder, Saurav Chandra and Zoltán Lakner. "Social Entrepreneurship and Crowdfunding." Encyclopedia. Web. 27 June, 2023.
Social Entrepreneurship and Crowdfunding
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This entry is adapted from the peer-reviewed paper 10.3390/su15129411

The term “social entrepreneurship” refers to business ventures which seek to create an enterprise with a social mission. In practice, it is extremely challenging for social entrepreneurs to obtain funding through conventional channels. Crowdfunding has emerged as a potential solution to those funding constraints, enabling social entrepreneurs to assess capital and build networks for supporters.

social entrepreneurship crowdfunding

1. Introduction

The world is currently facing various social and environmental challenges that require innovative and sustainable solutions [1][2]. Therefore, social entrepreneurship has emerged as a promising approach to tackling these challenges, with the potential to create positive social and environmental impacts through business ventures [3]. The term “social entrepreneurship” refers to business ventures which seek to create an enterprise with a social mission [4][5]. It enables business owners to make a positive change in the world while also generating a profit [6]. Moreover, to address societal gaps through cutting-edge innovation, social entrepreneurship can be seen as a catalyst for positive change [7][8]. Social entrepreneurs are gaining more and more recognition for the positive impact they may have on society, culture, and the economy [9]. Additionally, businesses with a social mission are able to see the big picture of society’s challenges and find novel solutions that bring attention to those issues in general [10]. Moreover, social entrepreneurs are change makers, inventing new ways to support and develop those who are excluded from the opportunities of modern society.
In today’s business world, the availability of financial resources is a major obstacle for any entrepreneur. Moreover, raising funds is a significant obstacle for entrepreneurs who are in social entrepreneurship ventures [11][12]. Because social motives often outweigh financial concerns, and do not fit with the interests of traditional forms of financing (banks, business angels, venture capital, etc.), a lack of funding is a particularly serious issue for social entrepreneurs [13]. Furthermore, social goals do not always align with the goal of maximizing profit, and conventional lenders and investors tend to shy away from projects with a social aspect [14]. Moreover, during the global economic crisis, several national governments reduced social spending, drastically reducing the amount of aid available [15]. Social entrepreneurs often face significant challenges in assessing funding to support their ventures, particularly those that give emphasis to social and environmental impact over profit. If social enterprises are able to raise sufficient funds for their activities, they can play a crucial role in mitigating the serious repercussions of severe crises [16].
Nevertheless, in practice it is extremely challenging for social entrepreneurs to obtain funding through conventional channels. Therefore, conventional financial mechanisms are inadequate to foster the expansion of social entrepreneurship ventures [17][18]. In today’s competitive market, acquiring funding for social entrepreneurial ventures requires more innovative and creative methods [19].
Crowdfunding is a relatively new fundraising tool that is increasingly expected to help bridge this gap [20], since it is one of the viable options for financing social entrepreneurship projects [4][21][22]. As a novel method of obtaining funds, crowdfunding possesses special features. These are the crowd, the fundraiser, and the online funding platform itself, which all play key roles in collecting the funds [23]. Moreover, crowdfunding is considered to be a panacea of the development of entrepreneurial finance since it enables the raising of capital from a large number of small investors using the Internet [24][25].
Crowdfunding has emerged as a potential solution to those funding constraints, enabling social entrepreneurs to assess capital and build networks for supporters. Moreover, when making their decisions, crowdfunding investors consider more than just financial returns, including the credibility of the project and the desire to feel like they had a contribution in creating something [13][22]. Crowds’ prosocial motivations and expectations of natural rewards are the primary reasons that attract supporters or investors to participate in social entrepreneurship ventures [26][27]. Hence, studies have shown that crowdfunding actually not only removes the need for financial intermediaries, but also drives innovation by enabling contact between ventures and consumers [28]. Many people see crowdfunding as a revolutionary approach to funding for social entrepreneurship ventures [29].

2. Concepts and Practices of Social Entrepreneurship and Crowdfunding

2.1. Social Entrepreneurship (SE)

The concept of social entrepreneurship is still in its infancy in the academic arena, despite its popularity and widespread interest in the real world [10]. Social entrepreneurship is the practice of identifying and developing opportunities to provide social impact. Entrepreneurs who focus on social good tend to be creative, resourceful, and goal oriented. Moreover, to put it simply, social entrepreneurship is the practice of individuals, businesses, and entrepreneurs creating and implementing solutions to social problems. Hence, a social entrepreneur is someone who seeks commercial opportunities that benefit local communities, wider societies, or the global community at large. Furthermore, social entrepreneurs are those who have developed innovative solutions to society’s most pressing social, cultural, and environmental issues [30]. Social entrepreneurship, in contrast to the more prevalent form of entrepreneurship, i.e., taking the initiative to start a new firm or expand an existing one, places a greater emphasis on the creation of social capital rather than on financial gain. This does not negate the importance of turning a profit. Others define social entrepreneurship as commercial operations that integrate the ‘social’ and ‘entrepreneurship’ to solve social problems with innovative solutions aimed at long-term social development [8][31]. Nevertheless, social objectives are the driving force behind social entrepreneurship; it must address social problems while generating a profit, resulting in a dual role for social entrepreneurship and social enterprises [32].To make their ideas a reality and effect constructive change in the world, entrepreneurs require access to financial resources. In particular, SE is characterized by innovative hybrid enterprises that pursue both financial viability and social benefit [33].
The framework for SE is still in the development stage. As a result, determining how to quantify this type of social and economic innovation is challenging. There is a lack of comprehensive, widely accepted metrics and data gathering procedures for studying social entrepreneurship, and the statistical databases on which these measures are based are still in their infancy. For this reason, case studies or “anecdotic evidence” are typically limited to national-level statistical data. For instance, the idea of “social entrepreneurship” in Vietnam refers to a broad spectrum of endeavors with a focus on doing good for society. Chung (2019) reports that the top three drivers of SE in Vietnam are the establishment of new workplaces (60%), the betterment of particular communities (55%), and the assistance of vulnerable people (42%) [34].

2.2. Crowdfunding

Crowdfunding refers to the practice of pooling a large number of people’s financial contributions to support a certain endeavor or enterprise. Information technology makes it possible for fundraisers to obtain money from a lot of people through online platforms. Starting and emerging enterprises frequently turn to crowdfunding as a source of cheap, quick capital. It is an innovative approach to finding financial support for new ventures. Fundraisers and supporters can communicate with one another using crowdfunding platforms. The crowdfunding website allows anyone to make and receive monetary contributions. If a fundraising campaign is successful, crowdfunding sites will often impose a fee on the fundraiser. Crowdfunding sites offer their users a safe, simple interface.
Crowdfunding’s true advantage is that it reduces the need for intermediaries in financial transactions. When businesses or startups need money, they approach individual investors to raise funds. Fund providers may receive some sort of benefit, either monetary or otherwise, in exchange for their support [35]. Crowdfunding has grown in popularity in recent years, and one reason is the increased amount of online communication and the dissemination of business ideas through social media and online forums. It is clear that crowdfunding has several advantages for business owners. Crowdfunding’s primary use is to provide financial support for initiatives and projects [36]. It can, however, also be used for advertising [37], because crowdfunding has the ability to attract more customers and public attention [38][39]. In the same way, a crowdfunding campaign’s offering can be seen as a market test to determine the level of interest from potential customers [40][41]. There are four distinct forms of crowdfunding that have been identified in the scholarly literature. Donation-based crowdfunding provides no reward in exchange for financial support. In reward-based crowdfunding, donors receive the sponsored product or some other sort of tangible or intangible reward. According to [38], the most common type of crowdsourcing is reward-based crowdfunding. Additionally, there are two types of investment-based crowdfunding in which monetary rewards are distributed among investors. Investors in equity-based crowdfunding (also known as crowd investing) earn financial returns on their investment if the enterprise is profitable [42]. Finally, lending-based crowdfunding (also known as debt-based crowdfunding or crowdlending) is similar to a bank loan in that supporters act as lenders and receive a predetermined interest rate over a set period of time [43]. By and large, crowdfunding facilitates the collection of funds from a large population using an online platform, rather than through the more time-consuming and cumbersome means of traditional financial channels. Crowdfunding should not be seen as a panacea because even in the most developed countries, with a very high level of capital endowment, it represents just a very small portion of the economy. One of the most obvious barriers to the spread of CF is the low level of financial culture and the prevalence of unstable economies in developing countries. However, crowdfunding is expected to grow from its 2021 global market size of USD 13.64 billion to USD 28.92 billion by 2028 [44]. To evaluate the efficacy of social entrepreneurship and crowdfunding, we must consider their social impact over time, their social mission and aims, their social innovation, the success rate of their campaigns, and the amount of money they are able to generate.

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