CROWDFUNDING

WHAT IS IT?

Crowdfunding is the usage of vast groups of people for limited sums of money to support a new business plan. Crowdfunding makes use of the easy connectivity of large networks of individuals through social media and crowdfunding platforms to bring together investors and businessmen, with the potential to boost entrepreneurship by widening the pool of investors beyond the conventional sphere of founders, relatives and venture capitalists. Crowdfunding is a way for people, businesses, and organizations to raise funds. It operates through individuals or organizations that invest in (or make donations to) crowdfunding projects in return for potential profits or rewards.

When a company or person wishes to raise money by crowdfunding, they will do so by sharing details of their project, venture, or idea on the crowdfunding website. This means that they can stop going to the bank. The 'crowd' in crowdfunding refers to individuals or organizations that provide the funds.

TYPES OF CROWDFUNDING

Crowdfunding based investment- You invest in a company and earn a share in exchange (usually a share).

Crowdfunding focused on loans- You lend money to individuals or companies in return for a fixed interest rate. It is also called peer-to-peer or peer-to-business lending (P2P or P2B). You will learn more about loan-based crowdfunding in our peer lending guide.

Crowdfunding based on donation-You donate to an individual or charitable group (you might be given anything in return).

Crowdfunding based on reward- You offer money in exchange for a prize related to the initiative or because you value it.

HOW IT WORKS

Crowdfunding has created an incentive for businessmen to earn hundreds of thousands or millions of dollars from someone with money to spend. Crowdfunding is a platform for those with the intention of selling it in front of waiting for buyers

One of the most humorous ventures to gain funding was the person who decided to create a new video game device. His fundraising target was Rs 20,000, but he raised more than Rs 78,000 from 1012 lenders. Investors can pick from hundreds of ventures and invest as little as Rs 100. Crowdfunding platforms receive profits from a proportion of the funds received.

If you consider a project that you’re involved in, you'll need to look for more information. The corporation, the person or the social initiative that seeks to raise money will tell you:

1. How high he's going to collect

2. So much has been raised so far

3. Share in the proposed company (if applicable)

4. How the capital is supposed to be used for

5. How long the pitch is open

6. How many people have already spent in it

7. How you will get in exchange for investment (e.g. business shares)

The investment will only be made if the company increases the entire sum. You will have a cooling-off time of 14 days in case you change your mind.

Some good crowdfunding websites in India:

1. Kickstarter

2. Indiegogo

3. FuelAdream

4. Fundable

5. Ketto