ACCA Financial Management (F9) Certification Practice Exam

What is indicated by Crowdfunding?

1. Bank loans from a single investor

2. Raising money from a large number of investors via the internet

3. Government grants for startups

4. Investing from a small pool of traditional investors

The correct answer is: Raising money from a large number of investors via the internet

Crowdfunding refers to the practice of raising capital through the collective effort of a large number of individuals, usually via online platforms. This method allows entrepreneurs, startups, or projects to gather small contributions from many people, effectively pooling their resources to meet funding goals. The internet plays a critical role in facilitating this process, enabling access to a broader audience than traditional funding methods would allow. This approach contrasts sharply with more conventional financing methods. For example, bank loans typically involve debt taken from financial institutions or a single investor, which is a less diversified method of raising funds. Government grants target specific projects or initiatives, often with strict eligibility criteria, whereas crowdfunding can be open to anyone with a viable idea. Moreover, relying solely on a small group of traditional investors limits the funding potential and increases the risk associated with dependency on a few sources for capital. In summary, crowdfunding's distinctive characteristic is its democratization of financing, leveraging technology to mobilize resources from a vast number of individual contributors for various projects, which makes the second option the correct interpretation.