Crowdfunding is one of the most innovative ways to raise funds for a cause. Modern day crowdfunding is incorporated from the west and is done online.There are other known methods of fundraising as well, but crowdfunding, mainly the types of crowdfunding such as equity-based crowdfunding will be discussed in this post.
Before we get into detail with the different types of crowdfunding,
What is crowdfunding? And how does crowdfunding work?
Crowdfunding is a practice of raising funds from individuals to support your cause. Crowdfunding operates on the principle of trust and support. If people believe in your cause, they will help you by contributing a nominal amount. But, before that, the crowdfunding campaign has to be started with keeping many things in mind. It does require effort to publicize and promote your cause. Online crowdfunding sites like Milaap is one of the best places you can put up your cause and publicize it.
Types of Crowdfunding:
- Equity-based crowdfunding
Today we'll be focusing mainly on Equity-based crowdfunding.
As we've discussed, crowdfunding is mainly of four types. People often get confused with the concept of equity crowdfunding. In other forms of crowdfunding such as donation-based, an individual who is contributing towards the project is known as a donor, whereas in equity-based, the person who helps is known as an investor.
In India, the rules regarding crowdfunding are moderated by the market regulator SEBI(Securities and Exchange Board of India). In the initial stages of crowdfunding in India, there were no set regulations, but later on, SEBI has set up certain guidelines for people to follow.
Equity-based crowdfunding is termed illegal in India. Apart from Equity-based crowdfunding, other forms of crowdfunding such as donation-based and reward-based are completely legal.
In equity crowdfunding, investors invest money to support the company. In return, they're entitled to a small share of equity in the same company itself.
In this form of crowdfunding, investors, don't invest smaller amounts but spend larger amounts usually around a lakh rupees.
This crowdfunding technique is often used to raise money for the launch of the company, and not just supporting the cause, but mainly the growth of the enterprise. In India, these funds are raised by an Angel or a VC for a startup. People resort to angel funding when banks are denying a loan. It's because banks have lengthy procedures before giving out a loan.
Relief from taxes is also provided to those who invest via equity, in countries like the UK. It depends on the laws of the country.
Crowdfunding for startups in India:
In India, crowdfunding for startups either has to be in the form of donation-based funding or debt based funding; Startups can't get crowdfunding as equity based. A startup can get crowdfunded either offline or online, using platforms like Milaap, Gofundme.etc
There have been successful instances of offline crowdfunding which took place in the past. Any crowdfunding, either online or offline requires a little effort to make campaigns and publicize them. Since centuries, authors are resorting to the practice of crowdfunding to evaluate their idea. If people liked the idea of the book, they contributed towards it, and the author published the book.
Startups have numerous advantages of crowdfunding. Crowdfunding platforms let people evaluate the plan the startup has, and it provides valuable feedback. It also shows the interest of the consumers, and it greatly popularizes your brand.
If you have an idea and want to make it a reality, use crowdfunding. It'll not only make your idea a reality but provide an excellent learning opportunity as well. Choose a good crowdfunding site like Milaap and begin your entrepreneurship journey.