Coming out as a breakthrough in venture funding business, crowd funding is taking off in India in a positive way. With the success of the first ever live crowd funding event at Kolkata, many ventures found their much-desired funding. It has already bred some success stories like that of the movie ‘I Am’ and Adhitya Iyer’s book.
WHAT IS CROWD FUNDING?
Crowd funding is new go-to strategy for budding start-ups. It is the practice of pooling in of resources by numerous people, thus the term ‘crowd’, to fund prospective projects. It is an alternative finance system where funds are raised through mediums like internet-mediated registries, mail-order subscriptions, benefit events, and the like. Crowd funding side-tracks the moneyed investors and VCs sitting in big corporate offices and instead of asking a few people for a large sum of money it asks a large number of people each for a small sum of money to finance your big dream. It is a generic appeal more homey, comfortable and interactive than convincing VCs about your dream project. Crowd funding is usually done via online platforms. The fundraisers set up their public campaign highlighting the main features of their proposed project and accepting donations for the same. These funding applications can be of any nature. They can range from charitable to educational projects to personal ventures or creative ones.
TYPES OF CROWDFUNDING
Crowd funding varies depending on the product or service you offer and your goals of growth and reimbursement. There are three primary types including donation-based, debt-based and equity crowd funding.
Donation-Based Crowd funding
Donation-based crowd funding is where the investors or contributors are promised no financial returns. People usually invest because they believe in the cause as these campaigns are mostly cause-based. Nevertheless, minor tokens can be offered in order to express gratitude towards the investors. These include fundraising for disaster relief, medical bills, charities, and other non-profit ventures.
Debt-Based Crowd funding
This method promises the contributors their money back with interest. It is also called ‘peer-to-peer lending and doesn’t account for much involvement of traditional banking. Along with financial returns, the investors get the satisfaction of having contributed to the success of a prospective idea which speaks to them through micro-financing. These campaigns usually include personal startup ventures.
Equity Crowdfunding
This type of funding is different from both the above-mentioned ones as the contributors become part-owners of your company. They acquire equity shares in exchange for capital receiving return on their investment as well as a share of the profits. They are also entitled to a dividend. If the venture turns out to be successful, the share value goes up and if not, the value goes down. This type of funding is a sort of gamble which can go either way and is much more risky.
Crowd funding in India
Crowd funding is nothing new to India. Since centuries we have been donating ‘chanda’ for some or the other socio-cultural cause, such as building of religious infrastructure.
The online scene is a bit of a different matter though. Crowd funding, a concept originated in the West, much like most of other western ideas has started infiltrating the Indian masses. But, crowd funding in India is rather new with not much awareness amongst people.
CROWD FUNDING REGULATION IN INDIA
Firstly, there are no clear regulations for crowd funding in India. Even as equity crowd funding is one of the fastest growing models of crowd funding globally with a total volume of $2.5 billion, it is yet to take off in India where regulations are still waiting to open up. With the Business Startups Act coming through, securities-based crowd funding is now rapidly defining the new contours of crowd funding in USA. Whereas in India, it’s almost two years that Securities and Exchange Board of India (SEBI) issued a white paper on securities-based crowd funding but has not taken any action beyond that. As a result, most crowd funding platforms are projecting themselves as social impact projects, connecting lenders and those who need funds rather than funding platforms. With regulation not coming through, most crowd funding companies in India restrict themselves to finding backers for creative projects such as those in fashion, independent films, music, comic, publishing and photography.
CURRENT SCENARIO
The crowd funding trend is on the rise and has already provided us with a few success stories. India witnessed its first ever live crowd funding event in Kolkata recently. Organized by platforms like Nasscom, Catapoolt and Payumoney, it was a great success and a major step in revolutionizing the startup funding business.
Moreover, we already have a few success stories to inspire us. Startups like Spin Academy, Dabba Radio, Brahma have been able to raise substantial amounts from crowd funding platforms both Indian and abroad.