Table of Contents
- Recently, a 11 year old girl from Hyderabad has collected ₹6.2 lakh using crowdfunding to buy food for the less fortunate during the lockdown.
- Crowdfunding is a method of raising capital through the collective effort of a large number of individual investors.
- This approach taps into the collective efforts of a large pool of individuals, primarily online via social media and crowdfunding platforms and leverages their networks for greater reach and exposure.
Types of Crowdfunding
- Donation-Based Crowdfunding:
- Donation-based crowdfunding is a way to source money for a project by asking a large number of contributors to individually donate a small amount to it.
- Rewards-Based Crowdfunding:
- Rewards-based crowdfunding involves individuals contributing to a business in exchange for a “reward,” typically a form of the product or service which company offers.
- Even though this method offers backers a reward, it’s still generally considered a subset of donation-based crowdfunding since there is no financial or equity return.
- Equity-Based Crowdfunding:
- Unlike the donation-based and rewards-based methods, equity-based crowdfunding allows contributors to become part-owners of the company
- By trading capital for equity shares.
- As equity owners, the contributors receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend or distribution.
Benefits of Crowdfunding
- Reach – access to thousands of accredited investors who can see, interact with, and share the fundraising campaign.
- Presentation – By creating a crowdfunding campaign, one goes through the invaluable process of looking at the business from the top level—its history, traction, offerings, addressable market, value proposition, with digestible packages.
- PR & Marketing – From launch to close, one can share and promote the campaign through social media, email newsletters, and other online marketing tactics.
- Validation of Concept – Presenting the concept or business to the masses affords an excellent opportunity to validate and refine offering.
- Efficiency – One of the best things about online crowdfunding is its ability to centralize and streamline fundraising efforts.
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