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Home » Wondering What You Need To Know About Crowdfunding? Here is Your Guide

Wondering What You Need To Know About Crowdfunding? Here is Your Guide


Crowdfunding: Changing paradigms of fundraising

Crowdfunding: Crowdfunding is the platform for obtaining financial support for a project using the contributions of many individuals using social media and cloud technologies. This strategy makes use of the group efforts of a sizable group of people, mostly online through the internet using cloud technologies, and leverages their networks for increased reach and exposure

Crowdfunding not only provides upfront cash for product development and innovation but more importantly it enables a firm to get the desired support through the validation of the market demand.

One of the most crucial aspects of crowdfunding is its capacity to offer people and start-up companies the necessary support and give them access to a wider range of investors. More significantly, the money-raising effort may be seen, interacted with, and shared by the investors.

Crowdfunding has multiple benefits. Some of them are as follows

  • Crowdfunding facilitates the desired presentation for simplification. By crowdfunding, one can experience the priceless process of examining the company from the top down, taking into account its background, traction, offerings, addressable market, value proposition, and packaging.
  • Crowdfunding makes the concept or business public and provides a great opportunity to validate and improve the offering. It also brings transparency
  • It can effectively use PR and marketing activities to reach the financial goal. From the beginning to the end, the campaign can be shared and promoted via social media using email newsletters, and other online marketing strategies.
  • Crowdfunding enables start-ups to test the market and gauge how the public will respond to their product. This will enable the start-up company to determine whether there are customers for its product and how well it will do on the market.
  • Crowdfunding helps to find an alternate route to get finance when conventional investors are sceptical and disinterested and thus one may easily get the desired finance needed for the project.
  • your investors can often become your most loyal customers through the financing process
  • Investors can become Loyal customers during the financial process
  • When you share your concept, you frequently receive input and professional advice on how to make it better, this helps the start-up to improve the business process.

Types of Crowdfunding

    Crowdfunding is generally categorised into 3 types as follows

    • Donation Based Crowdfunding
    • Reward Based Crowdfunding
    • Equity-Based Crowdfunding

    Let’s try to distinguish between these 3 types of Crowdfunding
    Donation-Based Crowdfunding: Donation-based crowdfunding focuses on collecting money from individuals to support social or personal issues without providing any financial rewards to the donors. Donation-based crowdfunding involves asking a lot of contributors to give a small amount to a project. This helps the project get funding. Token incentives with a rising level of prestige could be given to the backers in exchange, depending on the magnitude of the donation. However, for the smallest amounts, the backer does not get any sought benefits but the tax breaks they can claim under Section 80G of the Income Tax Act depending on the terms and conditions of the platform they are using. The Securities and Exchange Board of India is responsible for overseeing crowdfunding in India (SEBI). The SEBI published a “Consultation Paper on Crowdfunding in India” in June 2014 that addresses the legal and regulatory difficulties in putting the crowdfunding framework in place.

    Digital Platforms facilitate convenience for raising the sought funds. Just in minutes, digital platforms can bring together individuals who want to help and those who need help. For instance, Milaap has donations in 130 different countries and more than two million followers on Facebook. Various other organisations are raising funds using donation-based crowdfunding for their project.
    Reward-Based Crowdfunding: In this type of crowdfunding, people donate to a company in exchange for a “reward,” which is often a form of the good or service that the firm provides. Even though this approach rewards backers, as there is no financial or equity return, it is still typically regarded as a subset of donation-based crowdfunding.
    Those who have an intriguing idea but lack the resources to set the project, Start-ups and mainly those in the creative industries, who don’t qualify for conventional small-business loans but want to test the market to see if there are potential buyers for the idea can seek the reward-based crowdfunding for their project.
    Equity-Based Crowdfunding: Equity crowdfunding, sometimes referred to as crowd investing, invest crowdfunding, or crowd equity crowdfunding, is the online sale of securities by a private company to a group of investors. As a result, it is a form of the capital market. Equity crowdsourcing is frequently governed by securities and financial legislation because it includes investing in a business.
    Unlike donation-based and reward-based crowdfunding, Equity crowdfunding targets a larger range of investors than traditional capital-raising techniques for early-stage businesses, which typically rely on investments from a limited group of professional investors. Equity crowdfunding’s main goal is to raise the necessary funds by having many investors make tiny contributions.

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