Introduction to Crowdfunding in India
Crowdfunding as a concept in India is still relatively new and requires attention. While a few people in metropolis have heard the term many still think that crowdsourcing and crowdfunding is the same thing. Infact, crowdfunding is one aspect of crowdsourcing where people (crowd) come together to collectively raise funds for a cause/business.
There are 4 types of crowdfunding:
1. Reward Based Crowfunding: Investors receive a tangible item or service in return for their funds. (You invest in Pebble, and get a first edition watch.
2. Donation Based Crowdfunding: Contributions go towards a charitable cause. (You paid for 50 children in Africa to receive watches).
3. Lending Based Crowdfunding: Investors are repaid for their investment over a period of time. (You invest in Pebble, and get your money paid back over time).
4. Equity Based Crowdfunding: Investors receive a stake in the company. (If Pebble goes big, you get a percentage of the prize).
The best examples of crowdfunding websites globally have dealt with reward based and donation based crowdfunding (viz. GoFundMe, Kickstarter,Indiegogo) . A list of the best crowdfunding websites globally can be found here.
As Indians, we generally tend to be a bit picky over money matters. Most of us come from a generation when our parents didn’t have much resources while we were kids. So donation based and reward based crowdfunding has always been something for people with more disposable (read available) income.
Crowdfunding has never been seen as an alternative source of financial investment (like Bank accounts, Fixed deposits, etc) due to the general connotation that it is a form of ‘charity’.
Debt based crowdfunding is still a naive concept in the Indian market (though it commands about $11BN of the entire $16BN industry!) with a few players like Faircent and KountMoney. While Faircent deals with peer to peer lending (example: you lending some money to a friend, acquaintance, etc), KountMoney deals with procuring loans for individuals from Banks and NBFC’s (you can ignore the term for now!). At present knowledge, no players exist in debt and equity based financing for startups in India.