“Crowd Funding comes to those who dares ” – those having a unique idea, utmost passion, complete faith , an unpredictable reason and a desire to fulfill.
Aditya had a wonderful startup idea in his passion oriented years and for which he required a huge sum of capital. He had a word with his parents, coaxed them for the business startup and then went to the bank for a loan.
Even though his startup idea was unique still he was upset while coming back home from the bank. Yes, the bank too liked the start up idea and even praised his intelligence but they stepped back to provide a loan.
The reason for their rejection was Aditya’s very quality of being unique. They suspected if the business would flourish or not. Days passed, weeks passed, months passed and after a year Aditya himself dropped the idea of a startup and accepted a job offer in an IT company. You will not become another Aditya anymore. Taking a loan from a bank and asking for financial support in entrepreneurial activities is already a thing of the past.
Crowd funding has changed everything. It is a kick start to your scooter. It helps and provides funding to the startups and capital ventures. Many projects and individuals have flourished from Crowd funding and will continue to. It is a process in which funds are collected from a large sum of people with different amounts contributed via the Internet. It is usually used to finance a project or a venture.
There are distinct types of Crowd funding -:
1. Debt based crowd funding
2. Reward based crowd funding
3. Equity based crowd funding
- Provides Capital
With growing interest in entrepreneurship the youngsters are more inclined towards entrepreneurship than doing a 9 to 5 job .But at an early age it is difficult to have a large amount of investment or even capital investment . Crowd funding is easier for entrepreneurs to find when choosing businesses without liquidation or the equity or having any debt.
- Risk minimization
Commencing a business or a firm from scratch is a challenging and a willingly dedicated task. Ninety percent of people drop the idea even before the smallest of implementation because of the risk factor for capital investment. Yet crowd funding also involves risks but it also eliminates the reasons that make the business risky.
- Appropriate Knowledge and Expertise
When funds are raised through crowd funding, the entrepreneurs obtain complete knowledge of the business or field in which they are proposing to work . If they are able to transfer their idea the way it is with appropriate material and knowledge, then only they will convince the funders to fund their business or projects. Therefore this enhances the skills and develops the entrepreneur.
On the other hand, entrepreneurs being fresher and naive to many terms and situations, funders, if they like the business proposal, provide their areas of expertise and experience to the entrepreneurs. This two way street helps the investor as well as the business.
- Strategic approach
The funders and the entrepreneurs join hands to make the business prosperous. Because each of them have individual motives but the same goal, they help each other with their proficiency in the subjects and areas , therefore working with a strategic approach.
- Business Opportunities
Crowd funders being a part of the business world are aware of the ups and downs, pros and cons and weights of the system according to whose principles the market runs. Having their money invested in, they guide and advise the entrepreneurs with an intellectual application of their experience and funds. Funders help the entrepreneurs to get as many business opportunities as possible to flourish the project.
- Marketing oriented vision
Crowd funding also acts as a marketing tool. Crowd funding spreads the real motive behind the notion of the business. This instigates the popularity of the venture and many firms, angel investors, fund providers etc. to visit, search and contact the firm’s website, about the business and the entrepreneur.
- Easier than tedious procedural and traditional method
Applying for loans, waiting for loan approval and receiving the loan is a long and pending process. Likewise receiving capital investment is a straining and tense approach. These are the traditional methods for gaining investment for a startup. The traditional sources are more risky and come with utmost uncertainty.
Whether the loan will be approved or not after waiting for a longer period or if the investment received will be equal to the amount required or less than that. Therefore, Crowd funding eliminates the high risk factor and enhances certainty. Nowadays, entrepreneurs are just a few steps away from financial support.
The process of crowd funding is free of cost. There is no nominal registration or participation fee. The entrepreneurs have to raise the complete required amount or more. Then only they will receive the investments, otherwise if the amount raised is less than the required sum, then the entrepreneurs get nothing and collected funds are returned or credited to the accounts of the investors.
If the amount is appropriate and enough then the investors become a part of the start up and on the success of the business, the entrepreneurs have to give fifty percent of the funds raised to the crowd funding platform as a commission.
History in a nutshell
Initially, crowdfunding prospered among the artists and the musicians. In 1997, a music band in Britain raised sixty thousand US Dollars online in their first online funding campaign. The Rock band hit the headlines and made the process populous and termed it as fan funding. In the early 2000s, various crowd funding platforms were created such as Kickstarter, Indiegogo.
Well renowned and world famous The Statue of Liberty has its pillars built on the basis of crowd funding. In the United States of America, the government fell short on funds for building The Statue of Liberty. Then after being published in a newspaper, the general public (1, 60, 000 people approx.) raised the required sum of capital for the completion of the project and helped the government.