Crowdfunding (Rise of the rest)

Crowdfunding is an online extension of financing from friends and family, communities to fund members with some business ideas. The web-technology base used during the projects and the conviction of ideas allows determining which project should receive funding and how much funding should be received. Moreover, providing management and technical assistance with real-time feedbacks on businesses. Crowdfunding makes the entrepreneurs accountable and with the over-bust of social media they’re marketing their ideas and raising funds thereon. A movement which has started to move beyond the transcending boundaries, cultures and political barriers giving fuel to entrepreneurial finance.

Crowdfunding has a long history embedded. Books have been crowd-funded for centuries as authors and publishers would advertise their books with the help of subscription scheme or praenumeration. The decision to publish a book would depend upon the readiness of the subscribers, the power of confidence among investors signaled the nascent stage for crowdsourcing. The concept of crowd-funding has been derived from crowdsourcing which describes the process of outsourcing tasks for ideas, feedbacks, asset, knowledge, resources, and expertise to develop and accomplish the purpose.

During a podcast by Wharton’s Valentina Assenova, he discusses the first noteworthy instance of crowd-funding that gained popularity. When government sources failed to provide funding for the construction of the Statue of Liberty, a newspaper led-campaign attracted small donations from 160,00,000 donors. In 2006, the “Free Blender” campaign which was an early software crowdfunding precursor aimed for open-sourcing  by collecting $100,000 from the community while offering additional benefits led to the emergence of the concept.

Crowdfunding – widening the purview

A report by worldwide expert administrations firm PwC perceives the accompanying classifications: Seed crowdfunding which is the utilization of “rewards-based” crowdfunding. This subsidizes the creations where patrons pay forthright for an item or venture. Value crowdfunding enables little and vast financial specialists to buy little packages of offers. This gets a great deal of press consideration – yet makes up just a little level of in general crowdfunding.  Donation-based crowdfunding which is used to assist in networking activities.

“Crowdfunding is a democratized funding”

– Jonah Berger

Regardless of whether it is crowd-sourcing or crowd-funding platforms, both have commission-based plans of action benefiting (commonly 4 – 7.5%) from each effectively supported battle on their stage. Crowd-funding platforms have the additionally preferred standpoint with the capacity to take a value stake in effectively subsidized organizations. However, by and large, the entire plan of action for group-based venture stages is driven by exchange volume. The entire group subsidizing industry, which is in quick development mode at the present minute, is entering a period of the combination. The fragile stages that can’t drive the essential volume through their stages are leaving the business, whereas the grounded stages are extending their market nearness and developing their task-based. Continuing in the matter of crowdfunding the stages need to pursue the model or exit.

The main question here is “Can India Leapfrog”?

In a country like India innovation, creativity and invention arguably have no funding available on its side especially if the reach of technology is limited. Further, the lack of transparency and accountability with the use of funds for a purely creative project impedes the sustenance. The other problem is the number of funds required. It is here that crowd-funding comes to the rescue. Helping these unconventional innovators and entrepreneurs bridge this gap in India is, a Kickstarter-inspired crowd-funding platform.

Another astounding model is Exploride, Asia’s largest crowd-funding project in Kerela that has set a record in the group subsidizing history of Asian startups. The organization’s Indiegogo battle crossed the underlying target of $100k in only five days and has achieved an incredible $500k mark in 40 days of its dispatch. Exploride’s campaign has been upheld by 1,800 individuals from more than 50 nations over the globe with the greatest number of pledges originating from the USA.

With all the development of the diverse stages and tasks, SEBI discharged a research paper in the year 2014 in regards to the proposition giving proper structures to raising of assets by new businesses and SMEs. Crowdfunding could expel obstacles and made the move from conventional account to present day financing. In 2016 SEBI issued a public statement titled “SEBI Cautions Investors” which secured issues relating to the financial exchange and with more than 200 investor’s, the stage can begin going about as a trade. The delaying of the legalization of equity-crowdfunding as every investor expects a return on investment and framing a proper grievance redressal system is paramount.

The power of crowd-funding applies to projects relating to any field, any amount or any location. Crowd-funding is a viable option and a constant proposed regulation accepted by the Government making it an appealing and desirable option. Looking at the global emergence of crowd-funding there are many pros and cons associated with it. Taking the right steps to encourage crowd-funding will be a boon to many, the different types of models and power of communication make it even easier for start-ups and SME’s to raise finance. The need of the hour is to identify its abundant potential and tap it in this nascent stage.                                                          

Anushka Chordia
Team Member– Alternative Investment Funds
(M.Sc. Finance, NMIMS – Mumbai. Batch 2018-20)

Connect with Anushka on LinkedIn

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