Financing innovations in the context of the digital economy through the
crowdfunding mechanism
Nuriddin Abdullaevich Rasulov, Aminov Shavkatjon Sobir ugli
Tashkent University of Applied Sciences, Gavhar Str. 1, Tashkent 100149, Uzbekistan
https://doi.org/10.5281/zenodo.10467819
Keywords:
Innovation, financing, crowdfunding, innovation process, economic growth, private sector
Abstract:
Today, the world society is moving in the conditions of the modern information revolution. The role and
importance of the digital economy in accelerating and advancing this process to a new stage is incomparable, and it has the power
to influence the economic development of the country greatly. The article reveals the possibilities of using crowdfunding to finance
innovative processes through accelerating the digital economy.
1. INTRUDUCTION
In the context of the development of the
modern market economy, the development of the
digital economy is a participant in financial services,
i.e. the consumer, in simplifying and reducing the cost
of economic opportunities, saving commissions
through various payments through the Internet,
implementing without long chains of intermediaries,
various operations (buying and selling, credit
processing, taxes, payment of fees, etc.) expands the
possibility of implementation.
The digital economy is the basis for the
development of the innovative economy, which is
directly related to the effective introduction of modern
computer technologies, through which online services,
internet banking, internet commerce, etc. improve.
Information and communication technologies
are rapidly entering our lives. Digitalization of the
economy is developing rapidly. As a result, the
implementation of financial relations is improving
with the help of Internet technologies. People are
voluntarily participating in the development of digital
financing cooperation to solve socio-economic
problems. It is appropriate to recognize crowdfunding
as a financing mechanism. Crowdfunding can be
widely used in financing innovative processes as well
as solving socio-economic problems.
2. MATERIALS and METHODS
Also, there are many other innovation
financing mechanisms in the republic, which
constantly provide additional financial resources for
the modernization of the economy, the development of
related high-tech activities, innovative ideas, and
technologies. Resources and efficient methods of
financing are needed. Crowdfunding is one such
method.
Crowdfunding is a type of voluntary funding
of a project by an individual to raise funds for an
author or enterprise [1].
"Here is a brief
overview of the
crowdfunding mechanism:
In the process of financing innovative
projects, foreign countries have used various
mechanisms, including crowdfunding.
This term was coined in 2006 as a global
economic concept.
The term “crowdfunding” is a relatively new
concept in our country's economy. It became
applicable in the economy of Uzbekistan about five
years ago in practical processes, but it hasn't been
widely utilized for an extended period. It hasn't
demonstrated its performance factors. However, in
recent years, the use of the crowdfunding mechanism
for financing has been slowly evolving. The term
"crowdfunding" is defined as follows in popular
scientific publications and economic literature. In
particular:
1. According to the Wikipedia Foundation,
the term crowdfunding is derived from the English
language, and "crowd-people" means "funding -
funding". It consists of financing the projects of other
individuals or companies through the Internet by
people with their funds and other forms of resources
[2].
2. According to the definition put forward by
Ye. Gavrilin, the founder of the largest and most
popular crowdfunding platform (Bloomstarter) of the
Russian Federation, "Crowdfunding is a public
financing process, in which people pay money and get
something they get In particular, people give money to
authors of ideas they are interested in. The author of
the idea offers them a product or service" [3]. In short,
people buy a product or service that doesn't exist.
3.
According
to
F.Murachovsky,
"Crowdfunding is a mechanism of joint financing,
which means participation in the creation of any
project. A financier can participate in any project,
channel his funds and benefit from it" [4].
4. According to A. Osharova, "Crowdfunding
is a special type of fundraising (general financing). It
differs from fundraising in that it receives a product,
service, or prize in exchange for sponsorship.
Participates by financing a small part of the
crowdfunding process" [5].
In our opinion, crowdfunding involves the
voluntary contribution of funds by an individual in the
form of sponsorship for innovative projects and ideas.
As mentioned earlier, the author provides a product or
service as a reward in exchange for sponsorship.
The
modern
financing
method
of
crowdfunding is structured based on several platforms.
At this point, it is possible to compare foreign and
national crowdfunding platforms.
It is known that financing through
crowdfunding platforms was first utilized in the USA.
More than 25 percent of the innovative products
created worldwide are funded by U.S. citizens using
crowdfunding, venture capital, and other similarly
effective mechanisms."
Initially, the crowdfunding platform in the
USA was not adopted for large projects requiring high
investments, but it is intended to be used for the
effectiveness of innovative projects that do not exceed
1 million dollars and require one-time investments.
These opinions were announced by Professor E.
Mollik of the University of Pennsylvania as a result of
the study of 47 thousand crowdfunding projects.
Crowdfunding can change the ongoing
competition in the financing of innovations in
developed countries. By 2012, the new law "Our
Business Startups Act or JOBS Act" was adopted in
the USA during the presidency of Barack Obama. This
allowed companies to raise their crowdfunding to $1
million.
In the US, in most cases, financing of various
projects offered by companies is carried out through
the crowdfunding platform, through the purchase of
shares by its sponsors in small quantities or at low
prices.
The world's largest crowdfunding platform is
Kickstarter, whose main goal is "all or nothing. They
are mainly engaged in publishing and crowdfunding
projects for movies, technology, games, food, music,
software, and other types of projects. "The
Kickstarter" crowdfunding platform differs from other
platforms by the presence of certain restrictions on the
placement of projects presented by authors on the site
[7]. For example, according to the requirements of this
platform, if the published project does not collect
enough funds within 60 days (without holidays), the
author collects the collected funds, if collected. forced
to pay back. Another feature of this crowdfunding
platform is that it takes 5% of the funds raised for each
project as a service fee.
In addition, "Indiegogo" [8], the second
largest crowdfunding platform in the world after
Kickstarter, is a crowdfunding platform, that is mainly
used for placing healthcare, innovative projects, and
technologies on the site and raising funds for their
financing. 'allows to cloak. Its difference from other
platforms is that the author of any ideas and projects
can be announced on the crowdfunding platform,
regardless of which country he is a citizen of.
In addition, crowdfunding platforms in
European countries are also quite developed, in
particular, in Great Britain in 2017, 217.7 million were
raised to companies through crowdfunding platforms
such as Crowdcube, Seedrs, and SyndicateRoom.
pound sterling investment is directed [9].
In April 2017, 50 crowdfunding platforms
were established in Switzerland. 193.8 million through
crowdfunding in seven years. Swiss franc collected. In
Austria in 2015, 6 crowdfunding platforms raised 8.1
mln. collected euros.
In 2017, 20 platforms were operating [10].
There are 9 crowdfunding platforms
operating in the Russian Federation. This platform has
created a new crowdfunding mechanism for financing
innovative projects in all fields. Funding based on the
crowdfunding in Russia takes 3 different forms:
1. Paid. In this case, the investor finances
projects with a high level of profitability.
2. Non-monetary (non-financial). It is
organized on the basis of material incentives.
3. Charitable funds. It is possible to attract
social funds to such a platform [11].
It is appropriate to mention bloomstarter.ru
(Bloomstarter) and planeta.ru (Planeta) as some of the
famous websites operating on the basis of
crowdfunding platforms in Russia.
The
above-mentioned
crowdfunding
platforms work based on a simple mechanism, that is,
the author places his idea or project on the platform.
At the same time, any person will be able to
voluntarily register via the Internet and finance it with
his funds. If a person wishes to sponsor a project of a
large amount to the platform, it will be possible to
finance it through online money transfers based on the
specified conditions [12].
As of March 1, 2019, the Russian
Bloomstarter platform has 202,000 sponsors, 1,866
with a total value of 3 million. financed business
projects, new technologies (innovation), initiatives,
and creative and social initiatives in the amount of
rubles [13].
If we analyze crowdfunding platforms
worldwide, they can be divided into 3 types:
1. Platforms in the form of charity. This kind
of financing is very common in the countries of the
world, especially in Uzbekistan (rehabilitation of
health, indiscriminate assistance to low-income
families, etc.).
2. Platforms formed in the process of direct
lending (financing) of some individuals to other
individuals or legal entities. Internet platforms of this
type are considered to be formed mainly in developed
countries.
3. Platforms that introduce projects to
production by encouraging independent investors as
individuals.
It can be understood from the above that to
date, the crowd-funding platform has practically
proven to be a convenient and effective mechanism for
financing innovative products.
By 2016, one of the main goals of the
implementation of economic reforms based on
modern, international standards, increasing the level
of competitiveness, liberalization of currency
exchange, achieving investment attractiveness, rapid
and efficient production of innovative projects, and the
use of alternative mechanisms for financing them has
become one of the main goals. Until this period, in the
national economy, regulatory and legal documents
have been developed in connection with the
implementation of the above-mentioned reforms. But
the level of their practical use is very low. This created
various artificial obstacles in the development of the
economy. For example, in some cases, artificial
obstacles in the examination of an innovative project
created by an author depend on the human factor. This
made the innovator less likely to work on himself. Not
only the human factor, but the author of the project did
not work on effective developments. That's probably
why, in the "Innovative Ideas, projects and
technologies promotion" competition, which has been
held since 2008, the innovations created by innovators
are repeatedly presented, as well as in the financing of
innovative projects. created an opportunity for abuses
to be allowed. This is limited to the funds allocated
from the budget as an effective mechanism for the
slow development of innovative processes in
Uzbekistan and their financing.
The use of effective mechanisms for
financing innovation processes in each country and the
development of a national innovation system have
become one of the main goals. Among them, public
and private sector cooperation, venture financing,
local and foreign investments, leasing, crowdfunding
sites, and alternative financing mechanisms took
place.
The introduction of these mechanisms for the
national innovation system of Uzbekistan will enable
a step-by-step transition to an innovative economy in
the future. In particular, using the crowdfunding
platform as a modern mechanism, relying on
international experience in financing innovative
projects that do not have a high risk, provides an
opportunity to achieve the ultimate goals.
To date, opportunities for using the
crowdfunding platform in Uzbekistan have expanded
and are reflected in regulatory and legal documents. In
particular, in August 2018, following the experience
of foreign countries, a crowdfunding platform was
launched in Uzbekistan.
The probability of using this modern
financing platform is low in our country. Of course, it
is inappropriate to suggest that the crowdfunding
platform is not actively involved in this process.
Improving access to public financing will take time.
This requires a certain level of knowledge and skills in
using the crowdfunding platform and financing the
projects presented in it.
At this point, in order to prevent the
possibility of embezzlement of funds by the author of
the innovative project based on the crowdfunding
mechanism, i.e., the possibility of the formation of
"financial pyramids", the authors who want to enrich
the projects with financial resources on the platform,
form a questionnaire on a regulatory and legal basis.
or fill out an application. At the same time, it is
advisable for the platform to notify the authors and
consumers in advance of the violation of legal norms.
Currently, crowdfunding is experiencing a
period of active development in several countries. The
use of this method is related to the high demand for
innovation, which is a necessary condition for the
development of existing industries. This method is
based on financial resources in cooperation with
innovators and local investors in Uzbekistan.
Crowdfunding leads to the development and
implementation of innovative projects over the
Internet. (Figure 1)
Figure 1. A model of financing innovative projects by crowdfunding method
Crowdfunding is an effective way of
financing innovations, which depends on the
popularity of the innovative project. If an innovative
project is considered a concrete tool for solving
existing problems, crowdfunding can be considered as
the main method of financing. This type of financing
mechanism exists in Uzbekistan, and as an effective
mechanism for financing innovative processes, the
level of state encouragement is high, and it is
considered necessary to regulate them based on
regulatory legal documents.
It is worth noting that crowdfunding depends
on a certain level of development of the society, the
increase of financing possibilities of the population,
and the knowledge of consumers in forecasting the
1
Compiled by the author.
innovative projects presented by the author. It can be
recognized that such a layer of society has been
formed in Uzbekistan to a certain extent.
Taking into account the above, the following
suggestions can be made:
1. Currently, cases of informally using the
crowdfunding method can be observed among the
population of Uzbekistan. Taking this into account, it
is important to develop and put into practice regulatory
documents on the crowdfunding platform in the
legislation of the Republic of Uzbekistan.
2. Concerning the active formation of the
crowdfunding platform in our country, it is necessary
to develop normative legal documents using the legal
norms developed by the USA, Great Britain, France,
CROWDFUNDING
PLATFORM
Investor
Author of the
project
internet
platform
category
selection
innovative
project program
the amount
of funds
project
duration
incentive
mechanism
Defining the project category
in writing
in video form
lively
Expected result of financing
- financial incentives;
- profit sharing;
- a transaction in the form
of a loan from the first party
to the second party;
- receiving income in the
form of shares after the
project is completed
Indiscriminate funding of
innovative social media
tools
- whether the financed
project is profitable or not;
- providing funds to the
author without conditions;
- determining only the cost
based on the allocation of
funds;
- funds and periodic infinity
in financing the project
Collection of contributions
of up to 5% of funds
collected for an innovative
project
Russia, and other similar countries, where this method
of financing is highly developed and has sufficient
experience.
3. It is possible to expand the number of sites
of the national crowdfunding platform to properly
direct the idle funds of the people of Uzbekistan,
thereby improving the production environment and
providing employment to the unemployed population
that does not require high skills.
4. Granting benefits for the financing of
projects presented by a person or company placed on
the public crowdfunding platform, in the display of
advertisements on social sites and mass media for a
certain period based on the specified conditions.
5. Taking measures to reduce the risks in the
financing of innovative projects with various
purposes, attracting idle funds of the population. It is
important to develop the possibility of concluding
electronic contracts for the provision of products or
services by the manufacturer in exchange for receiving
these funds.
6. For the crowdfunding platform not to
depend only on state grants, budget funds, or foreign
investors
for
the
financing
of
innovative
developments, it is possible to widely use the activities
of local investors.
7. It is necessary to develop a mechanism for
the legal protection of innovative projects placed on
the crowdfunding platform as intellectual property.
8. The crowdfunding platform can be actively used to
finance startup projects and business incubators.
CONCLUSIONS
In conclusion, it should be noted that the
limited economic resources and the constant increase
in human needs increase the demand for innovative
products. This determines the need for the socio-
economic and innovative development of the country.
The use of the crowdfunding platform has
become widespread in international experiments.
Using these experiences, the use of the crowdfunding
platform as a modern mechanism for financing the
ideas, projects, and technologies created in Uzbekistan
on this basis can lead to a reduction in budget costs
through the rational use of idle funds of the population
in the future. As a result, the efficiency of local
production will increase, and the probability of turning
to foreign investments and bank loans by the authors
of innovative projects will decrease.
In general, the mechanism of financing
innovation processes may seem like a very narrow
scope in theory. The above-mentioned is one of the
widely used mechanisms in international experience.
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