Crowdfunding is a method of raising funds through the collective contribution from customers and various individual investors. This approach taps a large pool of individuals primarily online via social media and crowdfunding platforms which leverages their networks for greater reach and exposure! This type of funding is quite the opposite of traditional funding systems. Originally your funding sources would include banks, angel investors, and venture capital firms. Crowdfunding platforms, on the other hand gives the entrepreneur, a single platform to build, showcase, and share their pitch in front of many investors waiting to invest!
According to entrepreneur.com, in 2014-2016, $17 billion were raised via crowd funding worldwide and it is projected to increase up to a staggering $300 billion by 2025. That elevation of this funding has surely been exponential. Asia stands fifth in the list with respect to continents having a projected funding of $24.16 billion. The markets which raise the most amount of money is business and entrepreneurship (41%) and are witnessed to have the most attractive campaigns by the fund raisers.
Some of the ways of crowd funding include -
1. Donation based: Here, people give their money without expecting anything from you. So, there is no financial return to the investors and the contributors. Social startups usually abide by this type of crowd funding.
2. Reward based: In this type,you get something in return of your financial help. It is also said to be a subset of donation-based funding.
3. Equity based: Equity based crowdfunding allows contributors and investors to become part owners of your company by transferring funds in return for equity shares. As equity owners, your contributors receive a financial return on their investment and ultimately receive a share of the profits.
Taking it a notch above, we live in a Digital age so we can take our crowdfunding campaign online, reach many people through social media and get their attention to your product/service. Millions of fundraisers can be reached through different modules of social media. The efficiency is boosted as a single document for your purpose is highlighted to a ton of investors without going to them individually according to the traditional funding methods.
There are platforms for crowdfunding that create the contact between the business/startup and the interested funding party. Also, there are various startups which help in providing platforms for crowdfunding like Patreon, Republic and Indiegogo.
There have been many success and frauds in crowdfunding but limited failures, because however non- applicable the idea may seem someone is always interested! Many individuals assume crowdfunding is an easy or free way of making money. It requires a lot of effort to establish a project that investors might perceive as a valuable service. Success isn't guaranteed, and as crowdfunding continues to gain popularity, backers have become shrewder in what projects they support. Ubuntu Edge, a desktop android hybrid device raised more than $12 million in 2 weeks because of its attractive campaign launch due to high fan base of Linux operating system but had a target of $32 million which was not achieved and hence, is regarded one of the major failures of Crowd funding. Talking about Success of crowdfunding, Tech companies like Formlabs 3D printer, Oculus and Pebble watch have generated more than $ 15 million alone through crowdfunding.
A startup called Triton launched a campaign for crowdfunding for its product 'Gills', the product could allow you to breathe underwater by harvesting oxygen from water. It claimed that it had efficient filters with fine threads and holes, smaller than water molecules and was powered by a “micro battery” that was 30 times more powerful than standard batteries, and charges 1,000 times faster. It was obvious that what they were claiming was a hoax but yet the technological implications weren't bothered and the startup raised about $1 million.
Amidst the pandemi, Union Minister Nitin Gadkari on Thursday launched a portal for uploading ideas regarding the micro, small and medium enterprises sector. The users of this portal can rate your ideas enabling them to crowd source and also connect them with various venture capitalists. This is an excellent opportunity for everybody to boost our country's exports and hence attract more FDI (Foreign Direct Investment).
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So, crowdfunding might sound like an ideal funding for most of them hunting for investors right now. All you got to keep in mind for crowdfunding is to communicate with your investors, prepare a good pitch for them to settle in. Share all your market strategies and be open with them as much as possible. In the end, plan and be thoroughly prepared with your campaign and maybe you might end up with millions of dollars in your bank account !