How Crowdfunding can help your Start-up Project

February 22, 2016 by Jessee R

People generally think that Crowdfunding is kind of a last resort for people with ideas to receive the capital they require for funding their projects and Start-ups. I will have to say that it is a very common misconception among new entrepreneurs.

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 effectively used for generating funds to finance entrepreneurial ventures, social causes, higher studies, music albums, publishing books or even college projects. If you think on a large scale bulk share trading on a day to day basis is nothing but a glorified and refined form of Crowdfunding linked to the economy and laced with technicalities.

If you have still not given Crowdfunding a serious thought let us tell you more.

In India, the most popular way of securing Crowdfunding is the rewards or returns- based funding model. Rewards help attract donors’ attention. A reward-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 other similar incentives.

Rinkesh Shah, founder of igniteintent.com says that this model is very suitable for raising INR 5 to INR30 lakhs. Ignite intent in itself is a Crowdfunding platform which charges a fee of 7-12% on the amounts of fund raised. In other cases, people and firms may charge a project initiation fee.

Crowdfunding platforms also help fund seekers with marketing strategies, mentorship, consulting and legal advice.

What are the different types of Crowdfunding?

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Equity

Investors receive a holding in the company. It follows a revenue sharing model. Angel investors, private equity players and venture capitalists follow this model.

Lending

Investors are repaid their investment over a period of time- either just the principle amount or with surplus interest.

Rewards

Investors receive a tangible item or service in return for their funds. Depending on the amount, different rewards could be offered. Thank you notes, tokens of appreciation, contributor’s name on credits are some simple rewards which are offered in Crowdfunding. A very large number of movies are being financed this way nowadays. Click here for some examples.

Donations

Contributors donate funds like they do to charities and other non-profit organizations/causes. This represents a very small proportion of all Crowdfunding activity which is very contrary to the persisting belief that Crowdfunding is fundamentally based on donations.

Things to keep in mind when looking for Crowdfunding

Know every extent and every detail about your project.
You should be able to make people know and understand your project and its potential
Follow deadlines like religion after your initiate a Crowdfunding based project
Always be prepared about the possibility that you will not be able to procure the full amount.
Crowdfunding is best for one time projects. Don’t rely on it for long term

Is there any legality you should know?

Crowdfunding is governed by the Companies Act
The paper of Crowdfunding regulations was published in June 2014 by SEBI which proposes that the process takes place through platforms verified by it which include stock exchanges, depositories, technology incubators and associations of angel investors and private equity.

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Crowdfunding can sometimes be a great source of funds to kick start your project.