RAISING INVESTMENT THROUGH CROWDFUNDING
If we get into the definition of crowdfunding, it is basically a financing method of raising funds through the support of vast networks of people who typically contribute through an online platform. In layman terms, crowdfunding refers to the method through which the business can raise capital through a large number of people beyond friends, family, relatives, etc by posting details about their project on their website to establish their business. In this entrepreneurship era, crowdfunding is proving to be an effective method for entrepreneurs to set up their companies. Crowdfunding websites bring entrepreneurs and investors together through a crowdfunding campaign on an online platform.
How exactly does crowdfunding work?
Crowdfunding platforms make money by facilitating investments through a designated campaign page and payment management services. The entrepreneur who wants to raise funds and the investors who are interested in funding new business ideas need to register themselves at official crowdfunding websites (which acts like a medium between them). The entrepreneur has to put the ideas and plan of flow of the business along with the minimum amount the investor can invest on the website. The potential investors can decide whether they are interested to invest and can carry out the further proceedings. Once the funds are raised, the entrepreneur has to pay fees to the crowdfunding websites based on the percentage of fundraising. The percentage of profit generated from the business needs to be shared with investors by way of return on investment.
Crowdfunding in India
India has a huge startup culture with many start-ups at present and more to be started which needs funding. Considering the population of India, which is over 1.4 billion people, the potential donor side presents exceptional crowdfunding opportunities for the entrepreneurs. In India, crowdfunding is based on a centuries old concept, based on donations for a social or religious cause. The crowdfunding in India has been proven to be an excellent alternative to classic financing methods. Without the use of commercial banking, crowdfunding in India through online platforms allows entrepreneurs to promote their project and monetise it to millions of potential investors.
Regulation of crowdfunding in India
Indian Regulator has placed a Consultation Paper on its website for crowdfunding in India. The Indian Regulator expresses interest in promoting SME businesses through crowdfunding, however at the same time, imposing significant measures towards the protection of investors. The Parliament passed the SEBI Act in 1992, which granted statutory powers to SEBI. There are certain guidelines laid by SEBI to govern crowdfunding. However the Indian Regulator wishes to limit crowdfunding to accredited investors.
Types of crowdfunding
● Donation/Charity based crowdfunding - It is best used to raise money for personal needs and community-based projects. One can use social media to spread awareness about their fundraiser and to attract more people to donate for the noble cause. Today in India, donation-based crowdfunding is one of the preferred ways of fundraising. Some of the examples are:
1. Ketto- Founded in 2012, Ketto has assisted people, individuals and communities across India to raise funds for imaginative and personal causes. Fundraising on Ketto's online platform is free.
2. Milaap- It is a crowdfunding platform for healthcare loans. It enables users to crowdfund loans from investors for medical emergencies, sports, children, human rights, etc.
3. Impact Guru- It is a global crowdfunding platform offering crowdfunding solutions for NGOs, social enterprises, startups and individuals.
4. FundDreamsIndia- It is a crowdfunding platform that focuses on many domains like social causes, creative arts and charity. In this platform, the users can select between two options AON and KWYG and can start any of the campaigns.
5. GiveIndia- It is a crowdfunding platform where individuals and non-profits can start fundraisers and receive one-time donations.
6. Donatekart- This crowdfunding platform offers crowdfunding for NGO campaigns and goods.
7. GoFundMe- It is a donation based crowdfunding platform ideal for raising funds for service-based causes, startups, artists, etc.
8. RocketHub- It is a global crowdfunding platform for venture capitalism, therefore, startups can use it to raise funds for their businesses.
9. Crowdrise- This crowdfunding platform is ever ready to help organisations that want to tackle real-world issues instead of funding for-profit ideas turning into a business.
10. MightyCause- This crowdfunding platform is not geared much towards for-profit business funding rather it's more focused on funding for worthy causes.
● Rewards-based crowdfunding - It is to fund a startup or organisation offering products or services. The donors get rewards based on the amount they contribute. The rewards usually consist of prizes or free products by the company. Some of the examples are:
1. Wishberry- It is a reward based crowdfunding platform that enables users to raise funds for their creative and innovative ideas. The platform is focused on topics such as arts, design, film, music, theatre, publishing, etc.
2. FuelADream- It gives campaigners the choice of AON (All or Nothing) and KWYG(Keep What You Get). It is a platform that believes in "quality more than quantity".
3. Catapooolt- It is India's first industry-backed and most rewarding crowd-engagement platform for music, movies and performing arts. It offers campaigners to partner within their network of investors, incubators, accelerators, mentors, and for marketing, distribution and sales and community endorsements.
4. Crowdera- It is a complete free global crowdfunding platform that launched in India in 2016. It is a Software-as-a-Service (SaaS) company that builds scalable technology solutions and platforms to help organisations amplify their fundraising.
5. Dream Wallets- It is a leading crowdfunding startup founded in 2015 that helps in raising funds. The startup focuses on areas like movies, theatre, music, photography, literature, etc.
6. Impact Guru- It is also a reward-based crowdfunding platform started in 2014 offering crowdfunding solutions for personal and social causes.
7. TheHotStart- It provides a platform through which community members become ‘Evangelists’ of projects by funding them. The project creators offer unique rewards in exchange for this support. This platform also provides opportunities to build a community around the projects, promoting it on the platform and linked social media sites. It works on two models ‘Flexible Funding’ and ‘All or Nothing’.
8. BitGiving- It is an online crowdfunding platform to raise funds that gives wings to entrepreneurial ideas, creative minds and social issues. In this platform all kinds of creators come together in a bid to raise funds online and share their stories.
9. Start51- It is an online fundraising platform that helps in raising funds for all types of domains. It supports projects from several industries like films, games, music, technology, arts and design.
10. Indiegogo- It runs on a rewards-based system, meaning donors, investors, or customers who are willing to help to fund a project or product can donate and receive a gift.
11. Kickstarter- It maintains a global crowdfunding platform based on creativity. The company’s stated mission is to “help bring creative projects to life”.
12. Fundable- It is a software-as-a-service (SaaS) crowdfunding platform that offers hands-on support to companies as they navigate the fundraising process.
13. Patreon- This platform provides business tools for content creators to run a subscription service. It helps creators earn a monthly income by providing rewards and perks to their subscribers.
14. iFundWomen- The founders created the online crowdfunding platform “as a fundraising ecosystem for women-led startups and small businesses”. It also provides coaching, marketing, and other services for startup owners.
● Lending/Debt-based crowdfunding - It is a type of investor-funded crowdfunding where campaign creators ask supporters to invest in projects with the promise of future repayment with interest. Some of the examples are:
1. Rang De- It is India’s first P2P micro lending platform founded in 2008. It connects individual social investors to a community of entrepreneurs and students from low-income households, enabling them to invest in the livelihoods and education needs of the community.
2. Faircent- It is a P2P lending platform where lenders and borrowers interact, without having to go through the traditional financial intermediaries like banks. It enables creditworthy borrowers lower their cost of loans and individual investors/lenders to lend directly to their peers or community thereby earning higher returns.
3. The Money Club- It helps form trusted communities across India to ensure people save more, borrow at low-interest rates, and invest for maximum returns.
4. Lendbox- With an average ROI of 24%, this platform can help people save more and create a stable passive income.
5. Finzy- It is a digital platform to help secure quick and easy loans at personalised rates based on the borrowers’ creditworthiness.
6. i-Lend- This platform enables lenders to get high returns on their investments and borrowers to get loans at attractive interest rates.
7. i2iFunding- This fintech startup offers loans at attractive rates for borrowers and high returns on investment for lenders.
8. PaisaDukan- This is a technology-driven platform which enables borrowers and lenders to have a seamless transaction.
9. LenDenClub- This P2P lending startup provides a platform for directly connecting the lenders with the borrowers.
10. RupeeCircle- With the help of technology, it provides cheaper interest rates on loans and also offers higher returns for the lenders by not involving the intermediaries.
● Equity/Investment-based crowdfunding - It is a method raising capital used by startups and early stage companies. In essence, it offers company’s securities to a number of potential investors in exchange for financing. But in India, Equity crowdfunding is illegal. To issue equity shares in India, companies need to comply with the provisions of The Companies Act, 2013. In 2016, SEBI pronounced over half-a-dozen digital equity crowdfunding platforms (ECP) as unauthorized, unregulated and illegal. Some of the examples are:
1. Grex- It is a private market platform, and its associated ecosystem, that helps companies access multiple financial products as they grow from incubator to IPO.
2. LetsVenture- It enables startups looking to raise money to create investment ready profiles online, and connect to accredited investors. It also allows startups to get their business plans reviewed by its team as well as connect to mentors.
3. TermSheet- It is a cloud-based platform exclusively built for the real estate industry that marries your workflow with your data.
4. Equity Crest- It helps promising young companies connect with high quality investors to fulfil their capital needs with the best possible outcomes.
5. Tracxn- It provides market intelligence data for private companies. The company’s extensive global database along with customized solutions and features allows its customers to source and track companies across sectors to address their requirements.
6. SyndicateRoom- It connects ambitious investors with trailblazing organizations and it is great for multi-sector private investments.
7. Micro Ventures- It is an equity based platform offering investment opportunities for accredited and non-accredited investors.