Crowdfunding is the process of raising funds from individuals to support a specific cause and generally operates on the principle of trust. If people believe in your cause they will support it by donating to it. Crowdfunding for startups in India is fast becoming one of the easiest ways to raise money for a cause. There are different types of crowdfunding such as equity based crowdfunding, crowdfunding for education, reward-based funding and some may even decide to get help by posting ‘crowdfunding for my downpayment’ as unbelievable as it may sound. This article takes a closer look at Equity crowdfunding in India and highlights the pros and cons of equity crowdfunding.
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What is Equity Crowdfunding?
Equity based crowdfunding, crowd-investing or investment crowdfunding is a method of raising capital that is used by startups or companies in their early stage. According to SEBI, Equity crowdfunding in India is unauthorized and only donation-based and reward-based crowdfunding is permitted. Equity-based crowdfunding requires investors to invest in a startup company and in return, they are entitled to a small share of equity in the company. Equity-based crowdfunding is also used to fund the launch of a company as often entrepreneurs are denied loans by banks.
However, before deciding to invest in equity crowdfunding in India it is a good idea to learn in detail how this functions and what possible difficulties one might run into. You can create a crowdfunding campaign on one of the many crowdfunding platforms available for such campaigns. These platforms have to reach a large audience and can help you find investors easily. Alternatively you can also share your crowdfunding post with your social media following and try to get them to either invest or share the post with others.
Crowdfunding platform for NGOs in India:
Unlike equity-based funding, this is perfectly legal in India and one can easily set up a campaign for it. Milaap, Ketto, Impactguru and Fueldream are some of the most popular platforms available and one can raise funds for a number of causes such as cancer cure, education for underprivileged children, aid for differently-abled individuals etc.
The advantages and disadvantages of crowdfunding:
As with everything else, there is an upside as well as a downside to everything. Some of the advantages of crowdfunding include:
- Speed and accessibility: All that is required to set up a crowdfunding campaign is some basic computer skills, a clear purpose as to why you want the money and you can begin creating your page from scratch. Once that is done you can make the page accessible to the crowdfunding platform’s audience.
- Marketability: Once you have set up your page, it is important to increase its reach by adopting various strategies such as search engine optimization (SEO) in order to make your page rank higher in relevant online searches. You can also create videos to highlight your products or use paid advertisements to create awareness of your brand.
- Feedback and Community: Launching a crowdfunding campaign means you are sharing your business idea with people that you hope to convert into your buyers or clients. Some of them might offer feedback and may point out weaknesses or areas of improvement in the business. You should take this feedback in a positive manner as it can help your business grow and become better.
- Complete control: One of the greatest benefits of crowdfunding is that you do not have to forfeit control of your company while raising funds. You get to decide how much to ask for and you decide how to run your company if and when you receive the funds.
- Building a customer base: Marketing your crowdfunding campaign helps to build interest in your brand and secure prospective customers.
A look at the disadvantages of crowdfunding brings to mind the following:
- Scrutiny and Rejection: The crowdfunding platform of your choice might not accept your idea despite the fact that you think it a solid one. Some platforms are extremely picky and if your campaign does not meet their criteria, it might never see the light of day.
- Competition: There are numerous campaigns on every platform simultaneously and assuming your campaign is accepted, it will face tough competition; you will need to carve a niche for yourself and this requires that you find a way to differentiate yourself from the competition.
- Meeting thresholds and timelines: On some platforms a campaign can run for a specified amount of time. If you do not meet the deadline and get the required amount, you don’t get anything at all and the money is returned to donors.
- Fees: Crowdfunding platforms take a percentage of the money donated as fees and you should bear in mind that you might not get as much money as you had hoped for once this deduction is made.
How coffeemug.ai can help you?
Coffeemug.ai can come to your aid if you would like to delve more into various aspects of crowdfunding. Discover, discuss and decide whether crowdfunding is a right avenue for your business by engaging with experts and professionals at coffeemug.ai.
FAQs
Q. How is crowdfunding different from equity crowdfunding?
A. Crowdfunding and equity crowdfunding are similar, however, the only difference is that equity crowdfunding focuses on generating funds for early-stage businesses. Crowdfunding, on the other hand, is frequently utilized to fund a certain project, cause, or concept.
Q. Who can participate in equity crowdfunding?
A. Equity crowdfunding allows a business to raise funds from the general public rather than just venture capitalists and private equity firms, allowing ordinary people to participate in the funding process.
Q. How long does equity crowdfunding take?
A. The duration from planning an equity crowdfunding campaign to the receipt of funds is usually 6 to 8 months.
Q. What is reward crowdfunding?
A. Individuals who contribute to a project or business with the anticipation of obtaining a non-monetary benefit, such as goods or services at a later time, are known as rewards-based crowdfunding.
