Research On The Application Of Equity Crowdfunding In Small And Micro Enterprises

In recent years, Internet finance has developed rapidly in China; it not only brings convenience to people's lives, but also promotes economic development. At the same time, the government has actively promoted “Internet plus” action to encourage the integration between Internet and economic area. Crowdfunding is a model of Internet finance, and it has built relationship between informal finance and Internet since it appeared in China from 2011. This new model has changed the traditional way to finance and provided a new type of financing to companies, using Internet to build a platform that enables financiers and investors to contact directly. There are four types of crowdfunding, namely, donation-based, rewards-based, debt-based and equity. Equity crowdfunding is a special type of crowfunding, which offering shares to acquire finance. In order to attract more informed finance, the platform has lowered threshold for investors to enable more ordinary investors to participate in the financial market directly. Because the concept of crowdfunding has appeared in China recently, it lacks related regulations and legislations; the public is not familiar with this model. As a result of it, there are some problems with the development of crowdfunding. However, the government has attached very great importance of crowdfunding, so the relevant guidance and has been introduced to regulate the market, which gives strongly support for the future development of equity crowdfunding.Micro and small business occupy in large proportion in China and they have difficulties in financing, and the instability in economy has made the situation even worse. Fortunately, equity crowdfunding can meet the financing demand of small business, which can also ease the difficulties for micro and small business and informed finance. In theory, the aim of equity crowdfundingis disintermediation, so investors and financiers can communicate directly. The platform takes the responsibility to evaluate participants and projects, therefore, it will save time and cost and improve resource allocation effectiveness.Under equity crowdfunding, the entire financing process mostly is carried out online, so it will easily lead to information asymmetry, including adverse selection and moral hazard. Although information asymmetry exists, some of the information generated by social capital can exhibit financier's qualifications,financial situation and credibility. Trust and reputation mechanism that rely on social capital can affect the whole process of financing; in other words, the problems caused by information asymmetry can be reduced.At present, there are more than one hundred platforms of equity crowdfunding in China, involving in a wide range of areas. The main areas include electronics, science and technology products, other industries, such as tourism and automotive, are also involved. Among those platforms, most projects that are more than ten millions are centralized in Jingdong, and the amount of transaction has exceeded one billion since the platform emerged. Jingdong adopted “Syndicate” that is a very popular form. Besides, there are also “small shareholders” and “consuming part” on Jingdong platform, further lowering threshold for investors and making more people to take part in it. In order to regulate the behavior of both investors and financiers, Jingdong set a series of rules for participants to make sure that the platform is fair. Although Jingdong is a successful platform, there still are some problems, for example, the defects of the pattern, lack of proper system and etc.Combined with the problems of Jingdong, this paper concludes with suggestions to promote the application of equity crowdfunding in micro and small business. First, the platform should set certification system for participants to protect investors and the fairness of the platform, while investors and financiers can have offline communications. Second, according to legislation and economic environment in China, private equity funds might be more suitable for the development of equity crowdfunding. Finally, the government should set up related laws and the insurance company can also develop specific insurance to control the risks involved in financing.