Crowdfunding, its types and importance

Money is needed to run any business. Big companies raise money by taking loans from stocks and banks, but if a small enterprise does not want to take loan, then they can resort to crowdfunding, so through this post you are being informed about crowdfunding.

Crowdfunding

Crowdfunding is a type of business investment. A group of investors invest surplus capital in business ventures that need funds regularly. Under this, a small amount is contributed online from a large number of people. It is a low cost and effective way of raising funds of a business. Investors can invest in projects and businesses through various websites and help small entrepreneurs obtain funding for their businesses. These websites also help NGOs to raise money and are helpful in financing various social functions such as medical treatment, education funding or disaster relief.

Types of crowdfunding

There are mainly four types of crowdfunding, which are –

Donation-based crowdfunding – Donation-based crowdfunding (donation-based crowdfunding) is similar to charitable donation. In this type of funding, the propagandist mainly uses money for social work such as treatment, funding of education of the poor, disaster relief etc. In this, the publicist does not have to return the money to the donor.

Reward-Based Crowdfunding – In reward-based crowdfunding (reward-based crowdfunding), the return is linked to the reward-linked one, and depends on the project you are funding. This is similar to donation based crowdfunding, as you do not get returns on invested capital or equity.

Investment-Based Crowdfunding – In investment-based crowdfunding, you can invest in a business and get equity in return. This model of investment is mainly based on the ability of the enterprise to succeed in the future and the valuation of its share values.

Peer-to-peer lending – It is also known as the debt-based crowdfunding model. This is a very common form of crowdfunding in India, which allows interested lenders to invest in a project or business of their choice. In this the investor gets interest on the invested amount and the entrepreneur’s fund at a lower interest rate than the market. This model of investment benefits both parties. There is no middleman, which results in lower interest rates. Recently RBI has prepared guidelines to monitor and regularize P2P lending.

How does crowdfunding work?

Crowdfunding mainly involves small amounts of money collected from investors for a particular project or a business venture. It is mainly used by small businesses that do not have access to the stock market to raise funds. Crowdfunding is a good way to expand business or arrange working capital without a bank loan. Crowdfunding is mainly done through online websites. These websites provide a platform for businesses to raise money from people. You can view the business in which you want to invest through these sites. However, to get detailed information about a project or to invest in it, you have to register in the website. Fundraising campaigns mainly include business information, business overview, business plan, management details and the money that is required for the project. Rewards, equity, etc. are offered to investors in exchange for investment by companies or enterprises. If you want to invest in such businesses, then you should know about the following things –

  • How much money does the venture want to raise through fund raising?
  • How much money has he raised yet?
  • Which of the rewards or equity is he offering?
  • For what purpose will the investment be used?
  • How many people have invested in the project?
  • Is investment beneficial for you?

How to do crowdfunding for a startup?

Startups and small businesses raise money by attracting potential investors using web-based platforms. Crowdfunding websites usually charge these businesses. Reward-based crowdfunding and donation crowdfunding are common in India. Such funding is mainly used to collect funds for social functions. Interested investors invest money through these platforms. Crowdfunding platforms deduct some money and give the remaining amount to the startup. To raise money, startups have to work hard to update and inform investors. Along with this, the emphasis has to be placed on increasing and achieving your business goals. It is estimated that the crowdfunding industry in India is worth Rs 300 crore. Below is a list of the top 10 crowdfunding websites that help raise money for medical emergencies, creative ventures, startups, social functions, education and even personal needs. Following are the top 10 crowdfunding platforms in India –

  • Ketto
  • Milaap
  • ImpactGuru
  • Wishberry
  • Fuel A Dream
  • Dream Wallets
  • BitGiving
  • The HotStart
  • Catapult
  • Start 51