When a large number of people invest small amounts of money in a venture or a project, it is called crowdfunding. It helps raise money for new start-ups and growth capital for companies. Crowdfunding is a technique to provide the middle class with the things at which the rich always had an upper hand.“Crowdfunding appears to be democratising access to capital among a larger pool of innovators,” says Vanessa Assenova, a professor in management at Wharton. (from an article of BBC)
With crowdfunding, there is no such thing as an overnight success story. If you go in unprepared, you’re going to fail. In here, a strong start relies on exclusive networking rather than the idea.
It all sounds fascinating and easy but attracting the correct audience for your project is a big challenge. Only 3 out of 10 projects cross the required fund’s scale. The other 7 projects mostly lag because of non-efficient communication. When you need to lure people to invest, you need to promote a sense of surety, comfort and profit. Choose a target audience and be intentional when pitching, because not everyone is equally interested in the same thing. Most people deliver rewards in exchange for money, so the better the reward, the better the crowd you appeal to.
A case study was done by the BBC on crowdfunding. After which they published,
“Stu Anderson is a hobby beekeeper from the Northern Rivers region in New South Wales who, in 2015, ran a record-breaking crowdfunding campaign with his son Cedar to launch Flow Hive, a honey harvesting system they had invented. They smashed through their $70,000 goal within minutes and reached both the $1 million and $2 million marks in record time. At the campaign’s close, they had raised US$13 million – Indiegogo’s most successful campaign ever. Suddenly, Flow Hive had 20,000 prepaid orders to be manufactured and shipped to 130 countries.” Stu was lucky, yes, but in order to make money, he promoted what he believed in. He made a video of his concern about the bees and changing nature which went viral, triggering people’s emotions.
Yes, a strong start does give a better surety in crowdfunding, but a slow start is no death sentence. It’s all about the strategies and communicative skills. Because boons can happen at any time.
Nowadays, everybody understands the old saying, “you’ve got to spend money in order to make money”.Crowdfunding provides you with a platform for both.
To summarize, Crowdfunding is neither a ‘gain and gain’ operation nor a ‘pain and gain venture. It suits everybody’s needs and intentions. All somebody needs to do is figure out a way to shine bright.
There are several types of crowdfunding that you can opt to raise money in India.
You can have a quick go through following types :
It is method usually used by NGO, and people who cannot afford medical treatment, education etc. Most Crowd Funding’s in India is donation based.
Whenever Individuals donate a sum of money, and in return they accept rewards in form of perks like NGO Merchandise, certificates, free visits etc .
Now a days this method is popular as here donor gets rewarded and used by several NGO’s and Individuals who are crowd funding for their creative.
“It’s a kind of Debt but from a group of investor”
Whenever a Investor aims to lent their money to the company with a fixed repayment term and the expect that the company pays a specified interest rate during the term of the loan. By using various debt instruments investors enters into a debt-based crowd funding agreement. Some methods are related to interest only while some are dependent on growth of organisation.
“If a donor invests a large sum of money to get a higher amount of profits in the start-ups.”
In general terms, equity based crowd funding is used typically for the growth of the company.
It is still not got a legal status in India as it is a high risk method of fundraising that requires proper legislation and regulation to minimize investor’s risk. SEBI (Securities and Exchange Board of India) is the regulator who can frame guidelines for a perfectly legal status.