How the crowd can fund your project
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Thanks to crowdfunding
platforms, now you can approach a large group of people to finance your
dream.
When Shubhashish approached
banks for an education loan in 2013, he was offered strict conditions.
For a loan of `23 lakh, at 14.50%, he was asked to provide a collateral
worth the same amount. The other offer was to take a loan of `7.5
lakh, at the same interest rate, but without a collateral. Neither
offers met Shubhashish’s needs. He required `23 lakh.
Shubhashish decided to try an unconventional route. He had close to 2,500 followers on Twitter and 600 friends on Facebook. He asked them to help fund his studies. He promised to return their money in seven years at 8% interest. “I started with a target to get 1,000 people to be a part of this exercise. I got seven investors on day one. I had 100 days to generate the funds,” he says. He was able to raise `11 lakh.
“I put in `3 lakh, and my family pitched in with the rest,” he says.
Funding a venture by raising money from a large group of people is commonly known as crowdfunding. The act of raising money is known as crowdsourcing.
Crowdfunding can be an effective way for generating funds to finance entrepreneurial ventures, social causes, higher studies, mu sic albums, publishing books or college projects. Here’s what you need to know.
Crowdfunding platforms
In India, the most popular way of securing crowdfunding is the rewards or returns-based funding model. Rewards help attract donors' attention. A rewards-based campaign may offer VIP access to events, signed merchandise, an interaction with celebrities, free download of a movie or music album before it is launched, and similar incentives. “This model is suitable for raising between `5 lakh and `30 lakh,“ says Rinkesh Shah, Founder of http:www.ignitein tent.com, a crowdfunding platform. The platforms charge between 7% and 12% of the funds raised as fee. Some may even charge a project initiation fee.
Crowdfunding platforms also help fund seekers with marketing strategies, mentorship, consulting and legal advice. Anshulika Dubey, Cofounder and COO, http:www.wishberry.
in, says, “Platforms give multiple options to donors to transfer funds—credit card, debit card, Net banking, etc. An individual can only give the option for Net banking. Also, individuals do not have the credibility to raise funds outside their family and friends.”
Things to keep in mind
To opt for crowdfunding, you need to know your project in and out. It is not easy to convince people to invest in you. “You can't approach a platform or a funder just with an idea. You need a certain preparedness,“ says Shah. You should be able to communicate the project plan, its completion time, the money required for it. You need to convey how you will develop the project and convince the funders that you will be using the money productively. You need to be certain of the project’s delivery date.
Small investors may put in small amounts. Getting bigger sums from fewer investors is also difficult. You have to be prepared for the possibility of not being able to generate the necessary funds.
Who should stay away…
Crowdfunding is better suited for raising funds for a one-time project. It is not viable as a longterm funding strategy. If you are looking to finance a long-term project, say a start-up, approaching angel investors or venture capitalists may be a better idea.
What does the law say?
Crowdfunding is governed by the Companies Act. Sebi brought out a consultation paper on crowdfunding regulations on 17 June 2014, and is still seeking an opinion on it. It has proposed that crowdfunding take place through Sebi-recognised platforms, including stock exchanges, depositories, technology incubators and associations of private equity or angel investors.
Shubhashish decided to try an unconventional route. He had close to 2,500 followers on Twitter and 600 friends on Facebook. He asked them to help fund his studies. He promised to return their money in seven years at 8% interest. “I started with a target to get 1,000 people to be a part of this exercise. I got seven investors on day one. I had 100 days to generate the funds,” he says. He was able to raise `11 lakh.
“I put in `3 lakh, and my family pitched in with the rest,” he says.
Funding a venture by raising money from a large group of people is commonly known as crowdfunding. The act of raising money is known as crowdsourcing.
Crowdfunding can be an effective way for generating funds to finance entrepreneurial ventures, social causes, higher studies, mu sic albums, publishing books or college projects. Here’s what you need to know.
Crowdfunding platforms
In India, the most popular way of securing crowdfunding is the rewards or returns-based funding model. Rewards help attract donors' attention. A rewards-based campaign may offer VIP access to events, signed merchandise, an interaction with celebrities, free download of a movie or music album before it is launched, and similar incentives. “This model is suitable for raising between `5 lakh and `30 lakh,“ says Rinkesh Shah, Founder of http:www.ignitein tent.com, a crowdfunding platform. The platforms charge between 7% and 12% of the funds raised as fee. Some may even charge a project initiation fee.
Crowdfunding platforms also help fund seekers with marketing strategies, mentorship, consulting and legal advice. Anshulika Dubey, Cofounder and COO, http:www.wishberry.
in, says, “Platforms give multiple options to donors to transfer funds—credit card, debit card, Net banking, etc. An individual can only give the option for Net banking. Also, individuals do not have the credibility to raise funds outside their family and friends.”
Things to keep in mind
To opt for crowdfunding, you need to know your project in and out. It is not easy to convince people to invest in you. “You can't approach a platform or a funder just with an idea. You need a certain preparedness,“ says Shah. You should be able to communicate the project plan, its completion time, the money required for it. You need to convey how you will develop the project and convince the funders that you will be using the money productively. You need to be certain of the project’s delivery date.
Small investors may put in small amounts. Getting bigger sums from fewer investors is also difficult. You have to be prepared for the possibility of not being able to generate the necessary funds.
Who should stay away…
Crowdfunding is better suited for raising funds for a one-time project. It is not viable as a longterm funding strategy. If you are looking to finance a long-term project, say a start-up, approaching angel investors or venture capitalists may be a better idea.
What does the law say?
Crowdfunding is governed by the Companies Act. Sebi brought out a consultation paper on crowdfunding regulations on 17 June 2014, and is still seeking an opinion on it. It has proposed that crowdfunding take place through Sebi-recognised platforms, including stock exchanges, depositories, technology incubators and associations of private equity or angel investors.
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