What is Crowdfunding?
Crowdfunding or funding by crowd is a concept where a lot of people commit money to a venture or a project to raise a target amount of money in a stipulated time frame. i.e. rather than relying on one person to fund the project we get a lot of people (crowd) come together to fund the idea/project.
Crowdfunding is a very popular topic among today’s entrepreneurs.
This is the reason, it finds a mention in my startup blog.
The concept is simple and i will demonstrate it with a simple example.
Let’s say – if you need an amount of 3,00,000 INR to become an Entrepreneur / start a venture. You have few people who are willing to fund you with money ranging from 3,000 to 10,000 INR.
You go and ask all of them to fund your project and not ask a single person to fund the project.
Now if you had to ask a single person for 3,00,000 INR It might take some time and a lot of convincing.
Also, the risk comes completely on a single person.
This is where crowdfunding works. Firstly, the risk gets divided among a lot of people.
Secondly, you have a lot of people backing your project. Thereby, giving you an option to get the first promotion done by a lot of stakeholders.
Although a new concept to India, China followed by USA have the maximum transaction in Crowdfunding space.
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When did Crowdfunding Originate?
Although the concept of crowdfunding has been gaining popularity since the start of 2000’s, Crowdfunding has been around us for years.
How about we go back the memory lane and recall the instances when as a kid we raised money by asking for small donations from crowd (aka chanda).
That my friend were your initial days of Crowdfunding.
In 2001, a website called as Artist-share started the concept of crowdfunding.
In India, the concept gained popularity with the entry of kick starter in the year 2009. The concept really gained popularity in between 2011 – 2012.
What are different types of Crowdfunding?
Different type of Crowdfunding includes:
1) Donation – based crowdfunding
Donation based crowdfunding is where you ‘donate’ a certain amount of money towards the crowdfunding.
The word ‘donation’ would obviously mean that you cannot expect anything in return (other than blessings may be.)
2) Equity-based crowdfunding
Equity based crowdfunding is where you contribute an amount and get a small piece of equity in the company itself.
It is however pertinent to note that Equity-based crowdfunding or any funding where the contributor gets any kind of monetary gain is banned in India.
3) Reward-based crowdfunding
Reward based crowdfunding is where the contributor gets some sort of reward for the contribution made.
This reward could be of any kind. Let’s say if the crowdfunding is for making a movie, the reward could be in the form of credits to the contributor.
If the crowdfunding is for the launch of a restaurant, the reward may be in the form of discount vouchers to the restaurant.
4) Debt-based crowdfunding
This is just like taking a loan from the people. In return, they expect the amount contributed by them to be returned with a certain sum of interest.
What are the steps to Crowdfunding?
-Find the right platform for your idea and based on what you intend to achieve.
-Fill out a form and provide your details as required by the site.
-Have a proper pitch and give out complete information of your project and the amount of funds needed.
The usual parameters defined while setting up the project are:
– Name of the project
– Description of the project
– Amount of money the project is trying to raise
– What project owner promises in return in lieu of the fund contributed:
It could be gifts, An initial free copy of the product/service, Free service, Stake/equity
– Time duration till the campaign will the run
The web portal keeps a % of the amount raised by the project as facilitation fees. The web portal also keeps a check on the promises made by the project owner through a legal binding agreement.
-Prepare a pitch video. According to an estimation, your pitch has a 90% chance of getting rejected if it does not include a pitch video.
-Emphasize on rewards. The fund providers need to know whether their contribution is worth it.
-Prepare a campaign page. This is the page where people will land after they’ve discovered you on the crowdfunding platform.
-Show your ‘work-in-progress’ to the fund providers and keep them in the loop as to the direction of your project.
How does Crowdfunding work in India?
Crowdfunding is a hit concept in countries like USA. In the last few years websites like Kickstarter, Indiegogo, crowdfunder have made a name for themselves by helping a lot of people raise funds through crowdfunding.
Crowdfunding in India is relatively a new concept.
In good old days, we had a person going door to door asking good Samaritans for contribution to a worthy cause.
History shows, crowdfunding is a very old concept.
Today, crowdfunding like most of our life’s things is an automated process relying more on technology. i.e., we have web-based platforms for crowdfunding.
The business/person in need of crowdfunding goes and posts their project on the crowdfunding websites.
The steps to raising funds via crowdfunding is already explained above.
How successful is Crowdfunding for startups in India?
Most of the startups trying to raise funds through crowdfunding rely on the portals I mentioned above.
Unfortunately, the majority of the crowdfunding websites have made little progress in the last few years.
“The global crowdfunding industry generated about $34.4 billion in the capital last year. No reliable numbers are available for India though it is estimated it accounts for a small fraction of this. “
Ketto, one of the famous names in crowdfunding platforms in India, has so far raised USD 5,990,400 through more than 100,000 backers to support over 10,000 projects (averaging just under USD 600 per project). (source: http://crowdsourcingweek.com/blog/indias-top-ten-crowdfunding-platforms/)).
The list of famous Crowdfunding websites in India?
Milaap happens to be one of the top crowdfunding sites in India with special attention towards healthcare needs.
There is a huge gap between India’s private health care expense (estimated at $90 billion a year) and the $ 60 billion expense made by everyone from their pocket
Milaap is trying to bridge this gap by helping raise funds or finding mediums to help.
According to Milaap’s website “They share stories of (pre-qualified) individuals and groups with a network of its trusted community and partners, who either specialize in providing and managing microloans to their local communities or can connect with the cause to help with a donation.
As of August 2019, the platform has raised nearly INR 700 Cr to support 100,000 causes, impacting millions of lives across the country. Currently, donations for medical emergencies form an overwhelming majority”.
Source : https://milaap.org/about-us/overview
Ketto is another popular crowdfunding site where you can raise funds for a variety of purposes.
Be it, funding your creative project, paying your medical bills, helping animals, helping someone fight cancer, Ketto has got it all covered.
Ketto has a dedicated smart-dashboard with an intuitive user experience.
It supports international payment and accepts all modes of payment.
Further, you can withdraw funds instantly.
In a span of about 6 years, Ketto’s expertise and credibility has helped 2,10,000 fundraisers raise over Rs. 500 Crore. There have been over 42 lakh donors for various causes.
Ketto has one of the best industry success rates with 7 out of 10 fundraisers achieving their goals for various causes.
Ketto has been featured on various popular platforms such as the guardian, The Huffington Post, Mashable, DNA, BBC.
Website : https://www.ketto.org/
Kickstater was one of the first crowdfuding platforms to start in India in the year 2009, with special emphasis on creative projects.
In 2015, it was reincorporated as a benefit corporation based on its belief that success is measured by how well the mission is achieved and not by the size of the profits.
Kickstarter creates tools and resources that help people bring their creative projects to life, and that connects people around creative projects and the creative process.
Kickstarter supports, serves and champions artists and creators, especially those working in less commercial areas.
Kickstarter fosters a supportive environment for employees to work on their own creative projects, including time off to pursue them.
The total dollars pledged to Kickstarter projects is a whooping $4,951,973,080 with 1,81,585 succesfully funded projects.
The number of total backers are 17,812,790 with 5,916,022 repeat backers and total pledges amounting to 61,562,100.
The total launched projects for Kickstarter have been 4,84,723 with $4.95 billion dollars being raised.
Website : https://www.kickstarter.com/
In mid April, 2016 – Fueladream.com started its opertaioms from Bengaluru (a.k.a Bangalore).
According to their website ‘Fueladream is a crowdfunding platform and marketplace for people & organisations that currently aims to raise funds for creative ideas, causes, charities, events and community led activities with a initial focus on India.
The parent company is called Fueladream Online Ventures Pvt Ltd.’
Fueladream has fulfilled many a dreams and has managed over 400 plus campaigns since launch and helped raise over INR 33 CR.
Fueladream.com is committed to radically changing the lives of 2.2 Bn people in India and Africa.
Funders on the website can make a contribution ranging from INR 100 to INR 5 Lakh in one single crowdfunding contribution.
They charge a the processing fee of INR 3000 plus taxes.
A contract charge of 6% of the total amount collected will be charged to you (9% in case of group campaigns) and 3% will be charged as a reimbursement cost.
Some recent innovative projects such as the creation of smart wallets that can be tracked, e-bikes and the world’s lightest jacket (claims the maker) have been funded on Fueladream.
Wishberry is one of the most successful platforms in India for creative artists, and is on a mission to empower creativity in India.
The speciality of Wishberry lies in the fact that it is not only a DIY platform but also provides services like marketing strategy, personal campaign consultation, social media & PR.
Wishberry only accept projects in the categories of Film, Music, Dance, Theatre, Art, Design, Photography, Comics and Publishing.
The projects must be unique and original ideas and not projects that have been done before.
Every project must be presented with a ‘pitch video’.
This is backed by the premise that projects without a pitch video have a 90% chance of failure.
Just like you decide to watch a movie if you find the trailer interesting.
Further, you must show your ‘work-in-progress’ which increases your credibility in the eyes of the funder.
As till date, Wishberry has carried out over 500 projects with 1 lakh backers and Rs.17 crore being raised.
It has a had a success rate of 70%.
In 2015, creative projects raised the most on Wishberry with 51% market share.
Some of the popular creative films such as Punyakoti (India’s first Sanskrit animated film) and Mantra- a film about India shining starring Rajat Kapoor and Kalki Koechin have raised funds on Wishberry.
Punyakoti rasied Rs.41 lakh with 282 backers and Mantra raised Rs.20 lakhs with 67 backers.
Accoridng to their website, “Millions of people around the world visit Indiegogo to find clever and unconventional things that solve everyday problems large and small.
By giving entrepreneurs everywhere a platform to launch new and groundbreaking products, we help surface innovations in tech, design, and much more, all before they go mainstream. “
Indiegogo has 9 million+ strong community of users spread across 235 countries across the globe.
The website gets around 10 million people on their platfrm every month. Most importantly, 47% of campaigns that exceed their goals are run by women.
Website : https://www.indiegogo.com/
Catapooolt is India’s premier platform for startups in India and are pioneers of crowdfunding in India.
The platform has a ‘Trusted Mentors’ panel to guide campaigns and projects.
The platform focuses on community driven crowdfunding for startups which makes it a speciality.
Catapoolt has kicked off simultaneous crowdfunding for the largest number of projects on a single day and has created an Asian record.
Catapoolt has locked in 100+ industry associations offering $30 million USD + value propositions to startups.
Further, it has onboarded 15+ media partners and crowdfunded more than 300+ projects on the platform.
Fundraising on Catapooolt can be done in a variety of categories including music, literature, gaming, fashion, sports, photography, travel, technology, environment.
Recently, Catapooolt was recognized as the best crowdfunding platform for creative entrepreneurs at the Indywood Film Carnival.
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Here are the Pros and Cons of Crowdfunding with reference to India:
- The most significant Pro of crowdfunding is the ease of raising money by dividing risk among smaller entities and since India is a country with a huge population – you have a lot of people to help you crowdfund.
- The biggest con is the headache, you as an entrepreneur must take in dealing with many small level investors.
- Imagine a world where you are accountable for 100+ people. Life does not get any easy when you should report to so many people.
- Another problem with crowdfunding in India is the lack of legal structure in India for crowdfunding. The laws are a little vague and haven’t exactly evolved with the concept.
- So, if you are an entrepreneur who is planning to raise funds using crowdfunding please add the above two challenges to the list of challenges entrepreneurs face when starting a startup.
- Crowdfunding, the idea to help entrepreneurs raise funds in India does not find a lot of backers in the country with the second largest population in the world, and do you know why?
Crowdfunding’s Struggle in India?
Crowdfunding includes the word “funding”. Hence, do not confuse it with crowd-sourcing.
Crowdfunding is a type of crowdsourcing. So if you have sourced resources from a crowd which did not include funds, it is not crowdfunding.
And please do not include the religious functions, temples you have funded from your pocket. By crowdfunding projects, I clearly refer to ventures, projects of NGOs or some noble cause.
Obviously, religion is a noble thing but then we are a religious country and it is the only thing which gets crowdfunded.
As a matter of fact, all religious bodies get over-funded with crowdfunding.
They are flushed with money flowing through crowdfunding. The concept is such a hit with them that the poorest of the poor, who barely make enough to meet ends end up funding them as a part of the crowd – washing their sins by contributing to temples.
And what the temples give us in return of the crowdfunding we do is something, I find in bad taste.
Their obsession with gold, a ticket for our rendezvous with god’s idols, charging us money from prasad, cast divide, discrimination against women…..I will stop. I am heading in the wrong direction.
Getting back to crowdfunding.
The question again is “why crowdfunding does not work in India?”
The biggest problem with crowdfunding is that we have to trust an unknown person to fund their dream? Hmmm….I am thinking out loud like an average Indian “how can I trust someone else’s dream when I know it has nothing to do with my dream?”
Hello? We are in India Sir/Ma’am. Since childhood, we are taught to be wary of strangers.
God knows what sinister motive this business on a crowdfunding website has in raising money from unknown persons. Why did their family not fund him?
How do we trust them?
What if they disappear with the money? There is no law to get hold of this person.
Bottom line. I cannot trust the unknown person asking me for money on the internet.
Again, I am thinking like an average guy in this country.
Moving forward. Thinking more in terms of return on investments.
This person asking for money is not even offering a lucrative interest. The moneylender around our house tells me “he gets 3 to 5 % per month interest on the money he invests in businesses. I am not as greedy as he is but at least I should get 2% / month”.
But then this unknown entity is asking me money for free and what are they offering me in return?
T-shirts, caps, first VIP access to his product/service.
I can anytime go to any ecommerce website and get a truck full of all this stuff with the money they are asking me to invest.
What if this startup fails? Forget T-shirt, I won’t even get money back to buy underwear 😉
Lastly, the business is not even asking for money in the name of god.
At least, with god, I have the chance of getting some good karmas in return. (remember, how we bargain with God asking the eternal one for all the good things in life in lieu of the offerings we present to the great one)
I don’t blame the average Indian for their apprehensions, fears or whatever you may call it. We are wired differently.
We have no law to save us (if things go south). We work in an environment where cheating happens and the protectors turn in to perpetrators (read: police).
I crowdfunded a religious project some years back only to be duped by the temple priest. (when I was the God-fearing, religious guy). I still am the same God-fearing, religious guy but I don’t fund religious projects anymore.
No wonder, Crowdfunding in India is a concept which hasn’t really kicked off.
We are far away from the days when some unknown person puts an attractive project on the internet, hoping to raise funds from the crowd which is asked to invest faith, money in a project.
The campaigns in the USA might raise millions and get thousands of backers but in India, we don’t trust strangers easily. We know our system won’t protect us. Then why unnecessarily invest money in something where we know we might not get the promised returns.
For us, weighing pros and cons of crowdfunding always tilts the weighing scale more in favour of cons. Hence, the apprehension about investing in crowdfunding.
And if it’s only about gaining good karmas by helping crowdfund someone else’s Startup dream, we would rather invest in religion backed crowdfunding projects than the ones on the internet.
Always remember “For Good Karmas, we only Trust in God!”.
FAQs about Crowdfunding
Is Crowdfunding allowed in India?
As per the rules of India, you cannot indulge in equity-based Crowdfunding.
However, Crowdfunding used to raise funds for a venture or help someone in need is allowed in India and you can use any of the Crowdfunding mentioned above platforms to run your crowdfunding campaign.
I strongly recommend that you do not indulge in any illegal activity using Crowdfunding as SEBI has set up strict guidelines for anyone using Crowdfunding to fund their illicit business 😊
How can I start a crowdfunding business in India?
To start with – Crowdfunding is not a business.
You can launch a Startup campaign on the legally operated crowdfunding platforms in the country.
To ease the process of running a crowdfunding campaign, we have listed the steps to running a successful crowdfunding campaign above.
What is Crowdfunding and how does it work?
Crowdfunding is the process of raising funds from a crowd (that was easy 😊) – preferably, using one of the online mediums / Websites that have become popular for raising funds.
It works on the concept of raising funds for a venture or helping someone through a lot of people who contribute a small amount to help meet the campaign’s objective
What do Crowdfunder’s get in return?
Crowdfunders usually get gifts, access to the early launch of a project and lots of love from people who are running crowdfunding campaigns.
By the way, being in India – you cannot get equity as a Crowdfunder as equity-based Crowdfunding is illegal in India
Is Crowdfunding legal in India?
As answered earlier, other than equity-based Crowdfunding – all the other forms of Crowdfunding are legal in India.
How can I get Crowdfunding in India?
The straightforward route to get crowdfunded in India is to register on the crowdfunding platforms listed above and then set up a campaign that follows the steps to attract more attention from the community on the crowdfunding website.
Does Crowdfunding really work?
If done for the right cause and marketed correctly, Crowdfunding really works and the proof of that is the successful campaigns that have been able to achieve/overachieve their goals on crowdfunding websites like Milaap, Kickstarter – to name a few.
Is Crowdfunding taxable in India?
The taxation process regarding Crowdfunding in India is straightforward.
If you raise money as a registered non-profit organization, all the funds raised are tax-free. On the other hand, if you are not registered as a non-profit company – you pay tax as per the customary tax laws of India.