CrowdFunding isn't Donation or Charity.

The internet has opened several doors to the ambitious start up entrepreneurs particularly in the funding space. The start up founders read several funding and success stories on the internet and wanted to achieve same in the short span of time. As I am practicing 'CrowdFunding' for quite few months now (For my projects and my client projects), I would like to clarify few myths for the start up entrepreneurs particularly in India. Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people. Crowdfunding is a form of crowdsourcing and of alternative finance. Although the concept can also be executed through mail-order subscriptions, benefit events, movies and other methods. This modern Crowdfunding model is generally based on three types of actors: 

The project initiator who proposes the idea and/or project to be funded, individuals or groups who support the idea, and a moderating organization (the "platform") that brings the parties together to launch the idea.

Crowdfunding has been used to fund a wide range for-profit entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, or community-oriented social entrepreneurship projects.

Myths on CrowdFunding (From Founder Perspective);

1. CrowdFunding is done through websites only - No, it is an alternative finance for bootstrapping the company. Website is one medium of sourcing a like minded and potential investor.
2. No investment from founder - This is again a myth by the founder. Only few creative and NGO projects need no or less investment from the founder. Majority of the tech, non IT projects need to show case the initial traction, growth and acceptance in the market.
3. What is legal? - In India, collecting money through a Digital format is illegal and objected by the SEBI. But can always engage with the like minded people directly and invest money directly in the company. By investing through a third party medium, there is a possible that either of the party can give fake records. But through direct investment, both founder and investor can verify each other. About 200 members can invest in a private limited company
4. Company Formation - Most of the founders launch their idea, product or service and expect funding. They are ignorant on the company formation. Many expect the investors to come in and then company to be formed. They are unaware of what kind of company formation will suit what kind of projects like Proprietorship or Pvt ltd.
5. Shares or ROI - Many while talking express their shock to know that they have to either give out the shares or committed ROI to the CrowdFunders. Based on few baseless information on the internet, they think people encourage to give our money for free or donation. Have an advisor in place while getting engaged in this process.
6. CrowdFunding is not an Angel or VC - CrowdFunding works fine for bootstrapping the company as group of individuals invest their savings in one particular idea / project / services. Group of little money helps the founder to solve the initial problems like cash problem, inventory etc.

Points to ponder for the CrowdFunders;

1. CrowdFunding is a globally accepted concept where group of individuals invest their savings to grow the company and get good returns.
2. CrowdFunding is purely based on investment against stakes in the company or committed returns. Since the founders need to bootstrap, every single share is important in the company. Both needs to agree on a practically agreeable share vs investment.
3. Ministry of Corporate Affairs has allowed up to 200 people to invest in a company in a legal way.
4. CrowdFunders are not board members - They are external investor to get the project launched or grown.
5. CrowdFunders are not Angels or VC - To become a CrowdFunder, it doesn't need a huge money. As low as 25,000 from each and every one also can help few projects to succeed.
6. Once agreed on certain terms and conditions, motivate the founders to achieve their goal. Spread the good efforts of the founders in your network.
7. Anyone can invest in the company - It doesn't require to be an experienced professionals alone. Even students with proper documents also can invest.

Always consult an advisor before investing or receiving funds in a legal way.