All about Crowdfunding
Crowdfunding is a process to raise funds for your start-up online. All you need to do is convince the people about your business idea. If they believe in it; they grant you the funds. Simple. Many industries in the country can benefit from the advent of Crowdfunding. Be it Creative products, new innovations or inventions. Crowdfunding will make it easier for the entrepreneur to raise funds. India’s Mahindra Group recently launched a platform called ‘Spark the rise‘. It lets people talk about their ideas and request a funding for the start-up.
Crowdfunding is the practice of funding a project or a venture by raising money from a large number of people, especially via the internet. These people are called investors, and they can contribute any small amount of money depending on their capabilities. It targets individual donors.
Fundraising is seeking financial support for a cause or a charity. It reaches more audience because someone who starts a fundraiser campaign has a lot of followers/support and the supporters persuade their networks to garner more reach.
There is a misconception that fundraising is more effective as compared to crowdfunding. However, the power of Internet, social media, virality and trends make crowdfunding campaigns more successful as opposed to traditional fundraisers.
Types of Crowdfunding:
There are various branches which come under the umbrella of crowdfunding.
- Equity-based crowdfunding
- Reward-based crowdfunding
- Debt-based crowdfunding
- Litigation crowdfunding and lastly
- Donation-based crowdfunding
Before knowing more about this kind of crowdfunding, you should know that equity-based funding is illegal in a country like India. In simple words, it is a joint effort made by individuals to support the cause of other people or any other organizations in the form of equity. This is legal when we consider the United States, where it is mentioned in the 2012 legislation which allows a pool of small investors to come together.
This type of Crowdfunding is also known as the non-equity way of funding your project. It has been widely used for funding campaigns like supporting a free development of software, promotion of motion pictures, aiding scientific research and development of inventions, etc. The people who are funding are hopeful of returns from the project.
This is popularly known as ‘Peer to Peer,’ ‘P2P,’ ‘marketplace lending’ and even ‘crowdlending.’ Borrowers create campaigns to fulfill their financial needs, and lenders contribute towards the goal for an interest.
It is a type of crowdfunding in which the plaintiff reaches out many different people to get funds for a court case; it mostly happens confidentially. The plaintiff asks money either in the form of a donation or gives a reward in return. Later on, if the claimant wins the case, the investor may get more than what he has invested.
The best example for this would be raising funds from individuals to support personal or social causes.
Applications of Crowdfunding
Crowdfunding for Personal Use
At any given time in life, you may be in need of financial assistance. It could be for a celebration, travel, medical emergency, education, a social cause, or more. And much more, depending on your interests. So, If you lack funds to pursue your interests, you can opt for crowdfunding. Many individuals have chosen for this method and have succeeded in gaining funds.
Real Estate Crowdfunding
Gathering of funds from various investors to support a housing project is all that is involved in this kind of crowdfunding. It is also used to fund mortgages secured by real estate. You can invest in this via debt and equity-based investments.
Crowdfunding for Startup
In the recent times, India has witnessed a massive growth in the startup industry. It is because people want to break out of the barrier of working 9-5 and our government supports it. The government has a significant role to play in this, as they’re offering some advantages for startups such as relief from paying tax for the first three years and much more. Startups often look out for investors and try to approach VCs to get funding. Sometimes it gets tedious. Startups can try using crowdfunding as it increases the brand reach and it’s easier than approaching a VC.
Crowdfunding for businesses also comes under this
If you’re starting a business and running short of funds, then you might have thought of approaching a bank to get a loan for yourself. Getting loans from banks isn’t easy as it has a lot of formalities involved. Crowdfunding will help you fetch funds easier than any bank.
Crowdfunding Loans and College Debt
Loans can be of any type – Personal loans, home loans, and even educational loans. Crowdfunding can be of great help to you in these cases. Whether you’re a college student who’s unable to repay the loan taken for completing your university education or you or your family member wants to undergo treatment for an ailment, crowdfunding is the answer as many generous individuals contribute to such causes.
Before getting started with crowdfunding, you need to be aware of certain legal implications and rules related to it.
Major CrowdFunding Platforms in India
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 organization. They earn a nominal commission of 1% on all the loans repaid by the borrowers.
Ignite Intent was formed in April 2012. It is a platform where people can showcase their talents and tell the world about their idea and subsequently get funded! Ignite Intent enables artists, teachers, filmmakers, business startups, musicians, designers, housewives, sports persons, journalists, researchers, writers, explorers, dancers, curators, performers and others to transform their dreams into a reality.
Wishberry.in began its operations in The year 2012. It is a crowdfunding platform for anything creative and out of the box. Their 8 defined categories are: Arts, Performing Arts, Events, Design, Technology, Publishing, Film and video and Food.
Milaap was formed in June 2010. The founding members of Milaap are- Jayesh Parekh, Rajiv Madhok and Vijay Sharma- shared a common vision i.e. to change people’s concept of giving and make it a personal, transparent and sustainable process. 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. It is the brain child of Varun Sheth, Kunal Kapoor and Zaheer Adenwala. 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. Its partners and supporters include- Google Grants, KWAN, CAP India, DASRA social Impacts.
Crowdfunding Rules in India
This is the most common question we hear today – “Is crowdfunding even legal in India?”
Yes, apart from equity-based crowdfunding, other types are completely legal. Crowdfunding in India is governed by Securities and Exchange Board of India, popularly known as SEBI. It is the market regulator which mainly regulates the securities market. SEBI was set up in the year 1988 as a non-statutory body. The parliament passed the SEBI Act in 1992, which granted statutory powers to SEBI. There are certain guidelines laid down by SEBI to govern crowdfunding.
How Do Crowdfunding Platforms Work?
Crowdfunding websites list your project/cause and help you raise money for it. You just have to create a campaign, set a goal and promote it. Some websites allow you to set up a campaign free of cost and charge you a minimal platform fee of 5% on the total funds raised. You can drive the campaign by yourself or for an additional fee, request the platform for assistance to reach your goal faster.