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CROWD FUNDING

Crowd fundingis the practice of funding


a project by raising monetary contributions
from large no of people viainternet, mailorder subscriptions, benefit events, and
other methods.
Crowd funding is a form ofalternative
finance, which has emerged outside of the
traditional financial system.
In 2013, the crowd funding industry raised
over $5.1 billion worldwide.

CROWD FUNDING MODEL


The crowd funding model based on
three types of actors:
the project initiator who proposes the
idea and/or project to be funded
individuals or groups who support
the idea
moderating organization (the
"platform") that brings the parties
together to launch the idea

TYPES OF CROWDFUNDING
Donation model A financial
contribution to a project without any
economic benefit to the donor.
Debt model A loan where the
donor will be repaid based on agreed
terms and conditions.
Equity model Investor receives an
equity stake in the project.

ROLE OF THE CROWD


The inputs of the individuals in the crowd trigger
the crowdfunding and influence ultimate value of
the offerings or outcomes of the process.
Individual acts as an agent of the offering, selecting
and promoting the projects in which they believe.
Motivation for consumer participation stems from
the feeling of being responsible for the success of
others initiatives (desire for patronage), striving to
be a part of a communal social initiative (desire for
social participation), and seeking a payoff from
monetary contributions (desire for investment).

CROWDFUNDING PLATFORMS
As of 2012, there were over 450 crowdfunding
platforms
Relational mediators act as an intermediary
between supply and demand.
Theyreplacetraditional intermediaries
(traditional record companies, venture
capitalists).
These platforms link new artists, designers,
project initiators with committed supporters
who believe in the persons behind the projects
strongly enough to provide monetary support.

CROWDFUNDING PLATFORMS
Growth engines focus on the strong
inclusion of investors. Theydisintermediateby eliminating the
activity of a service provider
previously involved in the network.
The platforms that use crowdfunding
to seek stakes from a community of
high-net-worth private investors and
match them directly with project
initiators

DISADVANTAGES
If you don't have an engaging story to tell, then your
crowdfunding bid could be a flop.
It could be even worse if you meet your goal but
then realize you underestimated how much money
you needed. A business risks getting sued if it
promises customers products or perks in return for
donations, and fails to deliver.
angel investors and even bank officers provide more
than just money. They provide entrepreneurs with
needed advice. Business owners miss out on such
mentorship when they ignore traditional investors
and turn to the crowd.

Go fundme
Kickstarter
Indiegogo
Teespring
Youcaring
Patreon
Crowdrise
Kiva
Give forward
Donors choose

ADVANTAGES
Crowdfunding provides another strategy for
startups or early stage companies ready to
take it to the next level, rolling out a product
or service. Before, a business owner was
subject to caprices of individual angel
investors. Now its possible to pitch a business
plan to the masses.
A successful crowdfunding provides your
business with needed cash, creates a base of
customers who feel as though they have a
stake in the business' success.

CROWDFUNDING IN INDIA
Crowd-funding is not new to India. However,
the emergence of platforms that promote
crowd-funding is fairly recent to India.
These platforms help start-ups or small
businesses meet their funding requirements.
Crowd-funding has been in India for quiet a
few years now however still the quantum of
funds collected is very much low as
compared to the crowd-funding platforms in
USA and Europe.

CROWDFUNDING IN INDIA
In India, the Securities and Exchange Board of
India (SEBI) released aconsultation paperin
2014 which, inter alia, proposes a framework
for ushering in crowdfunding by providing startups and small-and-medium enterprises (SMEs)
access to the capital markets and to provide an
additional channel of early-stage funding.
Within India, if one looks a little closely, the
crowd-funding platforms themselves fall into
three broad categories namely Social causes,
Business/Startups and Arts & Culture.

CROWDFUNDING: DRIVERS IN INDIA


India is being the biggest countries for
Non Government Organisations (NGOs), so
crowdfunding stands a big chance.
Section 135 of the new Companies
Act,2013 which mandates all companies
to spend 2% of their average net profits
on all companies to spend 2% of their
average net profits on corporate social
responsibility, will also help them
crowdfunding gain attraction

A number of issues arise crowdfunding in India - requirement of


regulating crowdfunding, when pre-existing securities laws
may be interpreted to include crowdfunding activities.
The nature of crowdfunding is inherently different from venture
capital and public funding. This sets up the foundation for
which a separate exemption may be carved out of existing
securities laws
possibility of a large no of non-sophisticated investors in an
early-stage company, high chance of failure making it an
added complication.
Because of low cost of capital and relative ease with which
entrepreneurs may access and engage with crowdfunding
portals, it has been used by many startup companies to raise
smaller amounts of money for their initial stage. Startup have
inherent risk of failure. Failure statistics show over 50% of
newly founded firms will fail during their first five years.

The Companies Act, 2013 limits restrictions on


transferability of public, listed company shares.
Conversely, crowdfunded securities cannot be traded
on crowdfunding portals as on date - leading to
illiquidity
At the same time, equity crowdfunding offers a number
of advantages, the largest of which curiously enough is the lack of regulation. Companies that raise funds
from fifty or more investors are required to undertake a
public offer, regulated under the Companies Act, 2013
as well as the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009

In India, companies are prohibited from offering to issue


shares to more than 200 potential investors in a financial
year or from allotting shares to 50 or more shareholders,
without undertaking a public offer. A public offering of
shares or convertible debt securities involves the
appointment of one or more merchant bankers, a registrar
to the issue, filing of a draft offer document with SEBI,
eligibility requirements such as previous track record,
minimum promoters contribution, lock-in requirements,
requirement to have a monitoring agency, etc.
Legislation exempting crowdfunding activities from
traditional securities laws have been passed in a number
of other jurisdictions, beginning with the United States..

Three regulatory regimes can be identified in equity


crowdfunding. In the first case, regulation prohibits
equity crowdfunding in its entirety while reiterating
the existing law on fundraising by companies. In
the second case, countries have begun to consider
crowd funding as a new way of raising capital and
that it falls under the regulation of public offers of
securities. In the third case, several countries have
adopted tailored regulations which seek to
encourage this financing without apparently
compromising investor protection

CROWDFUNDING FRAUD: HOW BIG


IS THE THREAT..
The $1.5 million worth of reported scams
are less than 1 per cent of the total money
raised by Kickstarter for projects in last
five years. (source : Economic Times
Someone copied Ken Lowery and Robert
scam: Someone copied Ken Lowery and
Robert Wilson IVs Kickstarter campaign
for Like a Virus, including the video, and
made it into an IndieGoGo campaign
planning to pocket the money an d run.