Crowdfunding – Is it boon for startup in India

By | December 29, 2014
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Crowdfunding is an alternate method of raising finances for a business, a project through an online campaign. It’s an idea to effectively communicate the concept to like minded individuals to seek funds.

There is a difference between Angel Investment and Crowdfunding. In angel investment, a large stake in a small business, however in Crowdfunding several investors will invest in the project.

For a project, it would be a great way to raise money to fund a prototype or beta version of their product or services. Crowdfunding helps entrepreneur to establish their brand and earn some good PR in return.

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Types of Crowdfunding:

There are several types of Crowdfunding which may be donations based or reward based funding where tangible like t-shirts or coffee mug will be given once the funding is done by an individual.

Equity based funding is also know Crowd Financing, a model where a startup is promoted thru a platform where investors are listed. In this process, investors will link up with the startups. We can also say that the fund which has been invested can be converted into equity of the startup and dividends will be given whenever the startup making profits. Risk proportion will be much higher in Equity Based Crowdfunding.

Debt based funding or Lending based funding is an attractive for those people who aims for fixed return. It will be secured against assets of the company. Risk will be very less, since it will be backed by securities provided by the company.

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However Crowdfunding is not something new for India. For ex: Reliance’s Dhirubhai Ambani started his venture in textiles few decades on the Crowdfunding principles. He collected funds from the various communities of Gujarat.

Crowdfunding is something not known in India. This may be because of risk awareness and lack of entrepreneurial skills or low trust levels.

Crowdfunding has its own flavors, totally different from the US and India. In US, US Securities Exchange Commission (SEC) has framed few guidelines which are as follows:
a) A company raising more than $500,000 must file detailed information to the SEC
b) Securities need to be purchased through online Crowdfunding portals – class will be created by SEC. Investors should hold these instruments for a year before selling them.
c) A Company has to educate its investors, like what they are buying and risk involved in it

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However in Indian scenario, most of Crowdfunding ventures are in rewards and donation space. These ventures do not attract the eyes of regulatory authorities. There are few online platforms like Razoo.com, Wishberry and Ignite. These are online platforms will charge the venture a percentage of funds received, which may vary like Wishberry charges flat Rs.5,000 for each campaign, for its consulting efforts and 10% deducted from all funds received through their platform.

Another challenge in Indian scenario, due to regulations, any company or an entrepreneur who has more than 50 investors will have to register with SEBI, which is time consuming and lengthy process.



Unlike India, the US has enacted JOBS Act which protects entrepreneur from fraud investors. However in India, there are no differentiations between amateur investor and seasoned investors. Few other factors like lack of information about Crowdfunding, regulated market place which may be online, regulatory frame work which are transparent, speedy and scalable in technology and higher penetration of internet.



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Hence Crowdfunding make attractive only in certain fields like creative fields (film production, theatre groups). It’s catching up in terms of film production. Recently a movie called ‘LUCIA’ directed by Pawan was crowdfunded through Facebook campaigns and other online platform.

Finally, Crowdfunding presents an excellent opportunity to small business had to streamline their strategy if they take this route. Campaign should be made attractive, should be dynamic and offers should be juicy to attract investors who will the prospective shareholders of the company.



Author: Venu V

i look for minute details, whatever i do. Avid reader, read lot of Hindu mythology, Technology and General news. Extreme foodie and like to taste new types of vegetarian food. Travel a lot, like to explore new places which are not explored by anyone. Participate in adventure sports like river rafting, grappling and hot air ballooning.