Crowd Funding is the practice of funding a project or venture by raising monetary contributions, from a large number of people, through internet and social networking sites.
Crowd Funding, a popular concept started in the US and the UK, is an emerging and innovative online platform that provides small businesses and startups with opportunities to increase their social media presence, investment base and funding prospects. It is an innovative way of raising capital. It conducts process of financing a project by requesting and receiving small contribution from many parties in exchange for a form of value to those parties.
How it works?
In crowdfunding, you need to create an online profile and explain your project and fund-raising goals and share the same with public at large, including your family, friends, friends of friends and so forth.
Major Roles of Crowdfunding :
- Beneficial for SMEs
It is hugely beneficial for Small & Medium Enterprises (SMEs). With the required funding, SMEs can focus on starting their venture and bettering their products and services.
- Creation of Employment Opportunities
Crowdfunding makes it easier for young entrepreneurs to access the early capital they need for their business. Thus, it helps the government to keep the young and youth engaged and productive.
- Support beyond Family & Friends
In India, the family and friends tend to be more supportive than most of the western countries. Crowdfunding enables entrepreneurs to get support of an extended group of early investors who believed in the offering, and not only their family and friends.
- Fund Innovations for Indian challenges
India’s challenges are much unique and diverse, as compared to its counterparts. Crowdfunding can help address some of the issues, such as supporting rural businesses through micro-financing, non-profit needing funds for causes like poverty alleviation, education, better health, scientific research and business growth.
Challenges of Crowdfunding in India :
Some of the challenges that India faces are as below:-
- The idea of crowdfunding was used in the very past in this country. Places of worship, for example, were built overnight using a large number of donations. However, the concept of online crowdfunding is new to the country.
- The industry is also not very investor-friendly. It seems people are still not ready for this concept.
- India still has a low trust level of doing the things online.
- Crowdfunding in India will have to look at building an offline base to finally induce mass awareness and encouraging larger participation. For e.g. E-commerce in India developed actively when they initiated the concept of cash on delivery.
Risks involved in Crowdfunding :
- In India, the concept of crowdfunding is catching up fast and is posing a danger at the same time, as their funds would scale up at some point of time. It might give rise to many money laundering schemes in the name of crowdfunding in social media.
- Crowdfunding is a difficult task of convincing so many people as the money would have to pay back. So the owner of the project needs to be clear and set up a communication media to attract people.
- Investors might lose confidence if the target amounts are not met. To avoid this type of risk, the project on crowdfunding platform would be carefully rated.
Pros and Cons of Crowdfunding :
- It minimizes the tedious fund raising process.
- Complex, difficult and niche ideas get funded.
- Minimum amount of capital has to be spared to participate in financing.
- The business ideas should be protected with a patent or copyright, otherwise it will be stolen by somebody and lose its importance.
Examples of Crowdfunding
Start51, IgniteIntent, TheHotStart, Wishberry, Bitgiving and FundsDreamIndia are some of the examples of crowdfunding platforms in India.
Crowdfunding is moving rapidly in an upward direction of raising funds for start-up of new business. There are serious concerns regarding the concept, for which there should be requisite laws applied. If nurtured accordingly, it crowdfunding will act as a catalyst in bringing the start-up ideas into reality.
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