What is Crowdfunding and How Start-ups and Businesses can Use it

Crowdfunding is a method of raising money from a group or ‘crowd’ of people, primarily via the internet.

It can be used to raise money for a variety of causes, such as start-up businesses, creative projects, fundraising campaigns, personal expenses, and charitable giving.

It involves people donating money either on a one-time basis or in exchange for rewards or a future financial return.

Generally, a crowdfunding campaign involves asking many people to contribute a small sum of money to the project in order to reach the campaign goal.

Crowdfunding websites allow entrepreneurs, charities, and other organisations to share their project’s story, list their funding goals, and allow interested backers to make pledges (or donations) of money.

The project will usually receive the money after the crowdfunding campaign ends if the goal has been reached.

In some cases, the money may be taken from donors even if the goal is not met.

Funds can be used for a variety of different projects, such as launching a new business, a cause based non-profit, or an invention.

Types of businesses suitable for crowdfunding

Not all businesses are suited to crowdfunding. Some businesses are tailor made for crowdfunding while others will have a hard time raising funds this way.

I have compiled a list of businesses that can yield good results with crowdfunding –

  1. Startups and Small Businesses
  2. Nonprofit Organizations
  3. Real Estate Projects
  4. Films and Media Projects
  5. Music and Art Projects
  6. Restaurants
  7. Eco-Friendly Businesses
  8. Social Enterprises
  9. Technology-Based Companies
  10. Medical Research Projects
  11. Education and Tuition Ventures
  12. Publishing and Writing Projects
  13. Retail Businesses
  14. Personal Investing and Trading
  15. Sports and Recreational Activities

How to run a successful Crowdfunding Campaign

When using crowdfunding, campaigners should keep these key points in mind –

Choose the right platform: Research different crowdfunding platforms to find the most suitable one for your project.

Create an Engaging Campaign: Your crowdfunding campaign must capture the attention of potential backers.

Put together an outstanding video, pictures, and a great story about your campaign and your cause to increase engagement.

Set Realistic Goals: Only set a goal amount that you have a good chance of achieving.

Setting a low goal can give you momentum and help to build trust among your backers.

Develop Engaging Rewards: Rewards are a great way to get supporters to invest more in your campaign.

Develop engaging rewards that will benefit your backers and make them more likely to contribute more.

Grow Your Network: Growing your network and getting the word out about your campaign is essential to your success.

Leverage your social media networks, run online ads, host online events and use other tactics to get as many people as possible to visit your campaign page.

Show Your Progress: Show your backers how your project is progressing by posting updates on your crowdfunding page.

This helps to inform backers and increases their confidence in you and your project.

Show Your Appreciation: Thank your backers for their support. Show them that you value them and appreciate their contribution.

Make them feel involved in the project by getting their feedback and responding promptly.

The various types of Crowdfunding

Based on the way money is raised crowdfunding can be several types.

Donation-based crowdfunding: This type of crowdfunding allows individuals to make donations to a project they believe in.

Funds are typically used to pay for materials, travel expenses, hosting costs, and other expenses associated with the project.

Equity-based crowdfunding: This type of crowdfunding is an investment opportunity for contributors who receive financial returns usually in the form of cash, stocks, or other equivalent.

Rewards-based crowdfunding: Here, project creators offer contributors with rewards in exchange for their financial support.

These rewards typically depend on the amount contributed to the project, ranging from small items like t-shirts and stickers to higher-priced items or experiences.

Debt-based crowdfunding: This type of crowdfunding involves contributors lending funds to a project for a specified duration of time, with the promise of repayment with interest.

Peer-to-peer lending: Peer-to-peer lending is similar to debt-based crowdfunding in that contributors lend money to a project with a promise of repayment with interest.

The difference lies in the fact that peer-to-peer lending services are typically provided by a third-party platform.

How to market a crowdfunding project

Marketing a crowdfunding campaign can be a challenging task. But with the help of the internet the efforts can be multiplied quickly.

Create a compelling digital presence: Develop a website and social media accounts dedicated to your crowdfunding campaign that clearly explain your project and gives potential donors an easy way to donate.

Make sure it includes high-quality visuals and graphics to make it stand out.

Reach out to potential donors: Leverage your current network of contacts to spread the word about your campaign.

Reach out to influential friends and family, colleagues, and acquaintances. You can also launch an email marketing campaign to get the word out.

Create a video: Create a compelling and emotional video to explain your project and why it’s important.

Use this video on your website, social media, and other platforms to help spread the word and excitement about your campaign.

Offer incentives: Offer incentives such as rewards for donating certain amount, exclusive offers for early donors, or exclusives for bigger donations to encourage people to get involved.

Promote on crowdfunding platforms: Take advantage of established crowdfunding platforms such as Indiegogo and Kickstarter to make sure your project reaches more potential donors.

Use paid advertising: Utilise paid channels such as Facebook Ads and Google Ads to amplify your reach and take your campaign to the next level.

Don’t forget to track your campaigns to make sure you’re getting the most out of your investment.

Foster relationships: Connect with influencers, prominent figures, and other well-known individuals who have an interest in your project or in crowdfunding in general.

This can help increase your reach even further.

Analyse data: Review data from your tactics to understand what’s working, what’s not, and how you can make improvements.

This will not only help you create a better crowdfunding campaign, but help you make the most out of the campaign you’re currently running.

What are the benefits and drawbacks of using crowdfunding

Benefits of crowdfunding

Increased exposure – Crowdfunding platforms can be used to gain exposure for a particular idea or product.

By promoting campaigns, entrepreneurs and inventors can create a global network of supporters, investors and passionate individuals.

Low cost – Crowdfunding requires less of a financial commitment than traditional methods of fundraising.

The entire process can be done online, eliminating the need to pay for printing and travel costs associated with organising events.

Fast funding – With crowdfunding, entrepreneurs can receive funding much more quickly than with traditional forms of fundraising.

Online platforms make it easy to get the funding needed to finance a project within weeks or even days.

Potential for financial returns – Crowdfunding can provide investors with the potential for financial returns through donation tiers and rewards, as well as a share of equity if the project goes public.

Drawbacks of crowdfunding

Competitiveness – With many crowdfunding projects seeking funds at any given time, it can be difficult to stand out and make an impression.

It is important to have an engaging pitch and promotional materials in order to draw attention to the project.

Risk of failure – The success of a crowdfunding campaign is far from guaranteed.

Many projects fail to reach their funding goals, leaving those involved without the necessary resources to move forward.

Potential for fraud – As with any online platform, there is a risk of fraud and financial misconduct.

It is important to do due diligence before committing to a project, investigating for signs of a potential scam.

Time consuming – Crowdfunding campaigns require a significant amount of time and effort in order to be successful.

There is a lot of preparation involved, from creating a marketing plan to crafting a compelling pitch.

Common mistakes by Crowdfunding campaigners

There are some common mistakes made by campaigners when taking funds from a crowd.

Failing to establish a budget: Campaigners often overlook one of the most important aspects of planning a successful crowdfunding campaign – setting a realistic and attainable budget.

Establishing a budget helps ensure that resources are spent effectively and efficiently, and allows the campaign to better track their progress throughout.

Not planning early enough: Crowdfunding campaigns often require extensive preparation if they are to be successful.

Neglecting to take the time to plan, develop goals, build a strategy and account for any legal restrictions are all common mistakes that campaigners make that can severely limit the success of a campaign.

Not reaching out to friends and family: Friends, family and local contacts can provide a crucial base of support for any crowdfunding campaign.

Engaging the right people and leveraging their networks can make a huge difference to the success of a campaign.

Under-utilising social media: Social media is an important tool for any crowdfunding campaign, especially when it comes to reaching a wider audience.

Ignoring potential social media opportunities can be a costly mistake.

Not updating backers regularly: Regular updates on the progress of a campaign are essential for keeping backers in the loop.

Not staying in communication with backers could lead to a decrease in support and a decrease in momentum.

The key challenges faced by crowdfunding campaigns

Every crowdfunding campaigns faces some key challenges including –

Lack of funds: Crowdfunding campaigns can be difficult to fund since they are typically small, short-term projects and lack the large scale of traditional fundraising efforts.

Limited resources: Crowdfunding campaigns often don’t have access to enough resources to produce and market their campaigns adequately.

Lack of visibility: It can be difficult for crowdfunding campaigns to gain visibility and reach potential backers without having a dedicated marketing and publicity budget.

Unclear regulations: Regulations and laws can be confusing when it comes to crowdfunding and this can lead to issues with payment processing and ensure campaigns are compliant.

Low awareness: Campaigns may struggle to reach their target audience and secure enough pledges if they are not well-known.

Scams: Unfortunately, it is not uncommon for dishonest people to use crowdfunding campaigns to scam their donors.

This can be difficult to stop and makes it even more difficult for honest campaigns to succeed.

Legality of crowdfunding in India and the regulations around it

Yes, crowdfunding is legal in India and the regulations around it are provided in Rule 8 of the Companies (Acceptance of Deposits) Rules, 2014.

There are multiple platforms in India which offer crowdfunding and donation services.

Websites such as Ketto, Fueladream, ImpactGuru, Donatekart, Wishberry, BitGiving, and Milaap are some of the popular crowdfunding platforms in the country.

Organisations and businesses such as NGOs, professional athletes, creative projects, medical and educational initiatives, social enterprises, and individual start-ups are eligible to accept crowdfunding in India.

However, non-profit organisations must register as charitable or non-governmental organisations in order to be able to raise fund through these websites.

The key regulations of crowdfunding in India include:

  1. Non-profit organisations must provide proof of identity and must register with the appropriate government authority.
  2. Companies must ensure that their crowdfunding campaigns follow the guidelines of the Reserve Bank of India.
  3. Organisations must ensure that the donations they receive are collected through government-approved and secured payment gateways.
  4. Organisations must follow the Know Your Customer (KYC) process in order to receive donations from verified sources.
  5. Organisations must disclose information such as the purpose of fundraising, details of trustees, key financials and performance metrics, as well as the campaigns risks and rewards.

Crowdfunding in India is an easy, convenient, and transparent way to raise funds that can help create a new income stream for nonprofits, businesses, and individuals.

Impact of Crowdfunding

Crowdfunding has had a significant impact on small businesses.

By providing access to capital and enabling businesses to go through the traditional banking process from the comfort of their own homes, small businesses now have greater opportunities to grow, attract investors, and develop innovative products and services.

Crowdfunding has allowed businesses to reach out to a much wider audience, allowing companies to gain visibility and increase their customer base.

Many crowdfunding platforms provide valuable resources for small business owners, such as advice and guidance for business strategies, marketing, and compliance.

Finally, crowdfunding offers a more transparent way for investors and entrepreneurs to assess the viability of a business, making it easier for small businesses to identify potential investors and receive funding.

Top 5 Crowdfunding platforms in India

There are several crowdfunding platforms a business or start-up can choose from. Here is a list to make things easier.

Ketto: Ketto is India’s leading crowdfunding platform that has been featured in global media such as the Wall Street Journal, Forbes, The Economist, BuzzFeed, and more.

It has raised over US$8 million for hundreds of different causes across India, including education, healthcare, social causes, and creative projects.

Impact Guru: Since its launch in 2014, ImpactGuru has raised over US$2.5 million for social, healthcare, and educational causes across India.

Its notable campaigns have included the Swacch Bharat Abhiyaan, Karuna Chennai Flood Relief, and the fight against Dengue.

Fueladream: Another popular crowdfunding platform in India.

Founded in 2014, it has since raised over US$6 million for various causes and impact-driven initiatives across the country.

Bit Giving: An award-winning crowdfunding platform that has raised more than US$2 million for charitable causes across India.

It’s best known for allowing donors to choose the causes they want to support and track their donations in real-time.

Wishberry: India’s biggest crowdfunding platform for creative projects.

Founded in 2013, it has since raised US$1.5 million for hundreds of different Indian projects, including films, music, books, theatre, and other forms of art.

These platforms are chosen in no particular order and you are required to do due diligence before using any platform.