An Outsider’s take on Crowdfunding

Hi all!!
This time around I have chosen to try and unravel this whole concept of crowdfunding, as an outsider. In doing so, I am giving in to the self perceived twin demands, of sounding out fresh trends in the domain of finance, more specifically as a means of raising funds for burgeoning entrepreneurs, and to a certain extent, as a matter of personal interest. Though at the very outset, this concept seems to be mired in vagueness and inherent risks, it is gaining huge momentum worldwide.

After having sifted through humungous amount of information, the question as usual is, where does one begin? The obvious start would be to explain the term “crowdfunding”.

Very simply, it’s asking the crowd out there, linked through the internet, either through a web based portal or a social networking site, to fund some unknown person’s business idea with their money!

May not be exactly every common man’s cup of tea and not really as easy as it sounds!! But the trend is here to stay and seems to be thriving!!

And that idea could belong to any domain, or genre like business, creative projects like books, movies, comic strips, music, art or a social cause like health and sanitation, education or disability.

That’s the beauty of this whole new program, that there are so many people out there who are willing to go that extra mile, to support good causes. I mean one can actually raise funds for just about any cause that one fancies! For eg. Sending a paralympian to participate in a competition, or even getting a gift for your loved one etc. (read TILT)

Moreover, the format of crowdfunding could vary from micro-crowdfunding, to upto 200 individuals investing in one company, to equity crowdfunding which empowers the investor to choose the project they want to fund.

But the flip side and sometimes the flop side of crowdfunding, is that it gives an unlimited freedom, to start a campaign to raise funds for anything. This is potentially disastrous, without any proper legislation in place, to monitor flow of funds.
India being home to 3000 startups, SEBI, is trying to promulgate norms along the lines of the recently amended Jumpstart Our Business Startups Act, 2012, or JOBS Act, of the US. This would make it easier to raise funds while protecting the investors, thus creating a vibrant startup ecosystem.

Apart from SEBI, RBI is also watching this scenario, especially in the crypto currencies segment, where it maintains active vigil over bitcoins involved in crowdfunding.

With all this in place, times seem to be bright on the horizon of crowd funding success stories.

For example, Kickstarter, a fundraising company launched in 2009, has successfully supported thousands of creative projects in music, games, movies and large technological products, to name a few. A recent success story is the launch of the Pebble smartwatch.

In India, despite there being a lot of crowdfunding companies, crowd funding per se seems to be poorly understood, according to people in the know-how and typically, technological products do not top the charts.

There are sites like Ketto, BitGiving, and ImpactGuru, where investors can give money for social causes, which are exempt from tax, making it attractive to investors, like Earthquake relief funds.
Interestingly enough, WitWorks.com functions in a slightly different way and crowdsources ideas and validates them. Which means that the ideas of inventors are primarily voted for and verified. That gives them an opportunity and a platform, to develop and market their products.

For WishBerry, on the other hand, which crowdfunds for the arts, the real target is to guide people, who are serious about their ideas, to make successful projects and to also coach them to make a strong campaign.

As is in keeping with the rising significance and creation of niche domains, an example worth looking at is Pubslush, a global, crowdfunding platform specifically catering to upcoming authors and publishers.

If one were to view this new development on the horizon of finance, in toto, crowdfunding appears to have generated an entire ecosystem, where creativity and social concerns are seamlessly and indelibly woven into the fabric.

Looking back, from the ancient barter system, which is still alive in special contexts, through to the monetary system, to the current era of bitcoins, civilisations, trade exchange and businesses, seem indeed, to have come, a very, very long way!!

All in all, we live in interesting times, where age old traditions of finance are being challenged amidst genuine innovation. And the only way to go ahead, is forward!
Best of Luck