When to look for crowdfunding:
As a startup you have drafted a brilliant business plan, sourced needed products, sorted out your operations and even received your first few orders but are struggling for much needed financial assistance and even an Angel Investor doesn’t seem to be anywhere near, this is where crowdfunding steps in.
Crowdfunding (or crowd sourcing) is a way of funding a project by raising small amounts of money from a large group of people through a reliable online platform. You can utilize this capital to help you stay afloat or scale your business to new heights. You pitch your projects to the vast online community, who believe in your ability and donate small amounts to your project, in return for some goodies or equity in your project. Crowdfunding can be used by absolutely anyone – NGO’s, artists, manufacturers, designers, and even governments.
Why use crowdfunding:
Crowdfunding allows your ideas to take a leap in the real world and emerge to the masses and also to tap into the massive online market, with three major benefits:
• Get initial customers: The vast amount of people who invest in your company automatically become your first customers as they believe in you and trust your efforts.
• Market your idea at little cost: Marketing on a good scale though not huge happens when people at large view your idea on crowd-funding sites, an impression always stays.
• Lay groundwork for formal funding: Lack of funds obstructs growth and quite a few bright ideas never reach the customers, crowd-funding fills in that huge gap by procuring much needed funds.
The three main models of crowdfunding that you can use are:
• Donation model – A financial contribution to a project without any economic benefit to the donor.
• Debt model – A loan where the donor will be repaid based on agreed terms and conditions.
• Equity model – Investor receives an equity stake in the project.
Some common goodies that you can offer to people who donate include:
• A personalized Thank You card.
• A free sample or goodies.
• Early access to new products and ideas.
• Custom made or limited edition products.
The phenomenon of crowdfunding which has taken the Indian market in a huge wave by giving excellent platform for startups and SMEs to raise substantial funds and a freehand to grow without being dependent on financial institutions is in fact a blessing in disguise. Crowdfunding is not a modern day marvel concept its roots go back to the Americans, French and thousands of people from other parts of the world who pitched in their money for the pedestal of the “Statue of Liberty” . Similarly in India Shyam Benegal in 1976 raised Rs.2 lacs from lakhs of farmers for Manthan, a film by Amul.
Since 2012 crowdfunding has had a huge effect on India wherein startups and SMEs can look to achieve big goals without much dependence on banks, lenders, HNI’s etc.., They now seek out to people on reliable online platforms to fund their dreams at an initial stage and achieve desired goals. Democratizing the flow of money into a viable project is the basic idea of crowd-funding. Not all ideas have much scalability (like creative ones by young and fresh minds) thereby they fail to seek funds from investors and venture capitals. This is where crowdfunding steps in and takes the power of selection from the elite few and places it in the hands of masses that believe in the idea and fund them with whatever amount possible. This transaction also gives the masses the people i.e. YOU as a potential investor a new product for portfolio diversification.
Crowdfunding is a boon, an advantage for all thinkers and doers to have their dream project materialize and for that you as an entrepreneur need to communicate to the audience your idea, the target & the goals. Once the belief is set in the crowd about your project feasibility, you will see your journey take off to glory.