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Crowdfunding – Community-based Funding

Introduction

Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.

1. Types of Crowdfunding

A. Donation-Based

  • Giving money for a cause without expecting anything in return.
  • Example: Ketto, Milaap (Medical emergencies, Social causes).
  • Legal: 100% allowed.

B. Reward-Based

  • Investors get a "Reward" (product/service) in return.
  • Example: Kickstarter. You fund a new gadget; you get the first piece when it's made.

C. Equity-Based

  • Investors get shares in the company.
  • Status in India: Illegal/Restricted. SEBI does not allow public equity crowdfunding easily because small investors might get cheated. Only accredited investors can do this via specific platforms.

D. Debt-Based (P2P)

  • Lending money to get interest. (Discussed in P2P).

2. Benefits

  • Validation: If 1000 people fund your product, it validates market demand.
  • No Dept/Equity loss: In Reward/Donation based, you don't give away company control.

Summary

  • Power of Crowd: Small drops make an ocean.
  • Platforms: Ketto, Milaap, Kickstarter.
  • Restriction: Equity crowdfunding is tough in India.

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