What Is Crowdfunding
Crowdfunding, as its name suggests, is a funding method where common people like you and me, henceforth the crowd, fund a creative project (for instance, music, film, book publication), a benevolent or public-interest cause (for instance, a community based social or co-operative initiative) or a business venture.
These contributions are sought through an online crowdfunding platform, while the offer may also be promoted through social media.
Different crowdfunding site can have different purpose or approach, but overall the concept is simple – you post your project to a large group of site users, or "potential investors", and they will fund your project with money, if they are interested in the project. You can start a crowdfunding exercise for free and you will only be charged when your project has raised some funds or the full amount. There’s nothing to lose and this is great for publicity.
The top three Crowdfunding Platform are
Types Of Crowdfunding:
1. Rewards Crowdfunding
Rewards-based crowdfunding is the most common type of crowdfunding option available. This type of crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards campaign offers at least three levels of pledges/rewards
2. Equity Crowdfunding
Equity crowdfunding is the exchange of actual shares in a private company for capital. In this form of crowdfunding, entrepreneurs can set investor caps, minimum pledge amounts, etc. as well as approve or deny investors who wish to view their business documents.
3. Donation Crowdfunding
Donation crowdfunding is exactly what it sounds like - the campaigns amass donations without being required to provide anything of value in return. This type of campaign serves social causes and charities best.
4. Lending Crowdfunding
Lending based crowdfunding allows entrepreneurs to raise funds in the form of loans that they will pay back to the lenders over a pre-determined timeline with a set interest rate.Lending campaigns tend to take place over a shorter timespan of around five weeks and works well for entrepreneurs who don’t want to give up equity in their startup immediately.
Benefits of Crowdfunding
Traditionally, Start-ups are funded through private equity, angel investor or loan arrangements with a financial institution. These Financial Institute have become increasingly constrained in their ability to lend money to the ventures or start-ups which may have high risk element.
Crowdfunding is a great alternative way to fund a venture, and it can be done without giving up equity or accumulating debt.
Crowdfunding in India
While it is still in nascent stage in India, compared to large markets like the US, China and the UK, the trend is catching up fast especially in the wake of emergence of social media as a key platform for such activities.
In a new report, the research department of IOSCO, of which Indian capital markets regulator SEBI is a key member, has said that the 'financial return crowdfunding market' has doubled year-on-year for the last five years to an estimated USD 6.4 billion in 2013.
This has been mainly driven by annual growth of 90 per cent in peer-to-peer lending.
Major Crowdfunding Platforms in India
The idea of Rang De was sown in the year 2006.Rang De began its operations on 26 January 2008. The inspiration for starting Rang De was the thought that the peer-to-peer lending model could be transformed to lower the cost of micro-credit. Rang De is a non-profit organisation. They earn a nominal commission of 2% on all the loans repaid by the borrowers.
Ignite Intent was formed in April 2012. It is a platform where people can showcase their creative, innovative and brave ideas and subsequently Get funded.
Wishberry.in began its operations in the year 2012. It is a crowdfunding platform for anything creative and out of the box. Their 15 defined categories are: Alumni, App, Arts, Dance, Design, Fashion, Film, Food, Game, Music, Photography, Publishing, Sports, Technology and Theatre.
Milaap was formed in June 2010. Milaap provides a platform for the poor, hard-working individuals in the country to raise funds. It does not charge any commission from the funds you lend on Milaap. Instead, Milaap charges its field partners a 5% fee for the funds raised.
Ketto was launched on 15 August 2012. Ketto provides a platform where you can provide support for the causes you think are important. It was launched with the idea to bring a positive change in the society.
There are many Indian Crowdfunding start-up’s like Fundmypitch, PikAVenture and Funduzz, which are in a nascent stage. We have seen quite few Indian hardware startup raise funds on foriegn crowdfunding platforms such as Project Fin. The Indian Crowdfunding platforms operate more with the non-tech part of the Industry, and we wish to see this changed over a period of time.
Author: Puneet Agarwal
Linkedin id: in.linkedin.com/pub/puneet-agarwal/3/55b/972/en