HNIs Funding the Startup Dream

What is crowdfunding? Is it a viable option for you? Explore and learn how this option can benefit you. As the name suggests, crowdfunding is getting funds from a crowd of people. In today’s world the preferred route of crowdfunding is primarily online, leveraging social networks and online platforms.

Why is crowdfunding required? Because, in the initial stages of your startup, when all you have is an idea of a business, the formal sources of funds such as bank loans, venture capital etc. are not accessible to you. It is only at a later stage that angel and other investors come into the scene.

Crowdfunding as an idea itself isn’t new  bands have been doing it since the dawn of time.Amanda Palmer

Before it became a popular investment option for big and small time investors, crowdfunding was achieved through support from friends, relatives and such-like. In the traditional method, entrepreneurs would source funds from friends or relatives with access to substantial funds or assets. Considerable time was spent to review personal networks and identify potential investors. Further, you would spend more time and money to connect with them individually to share your pitch. This activity had to be repeated till you were able to raise the capital that you required. The challenge here was two-fold. First you had to convince them to invest and second you had to convince them to invest in your business. The situation is much simpler now with the availability of crowdfunding platforms that make it easier to pitch your idea to a group of interested parties. Nonetheless, you may still follow the traditional approach to raise capital for your venture.

Crowdfunding platforms offer a large pool of investors who are ready to invest. That means the first challenge of convincing them to invest no longer exists. You only need to convince them to invest in your idea, for which you create one pitch for the entire group of investors and do not have to replicate or make copies of it. Crowdfunding platforms provide support by helping you create a pitch that will have all the relevant information required by the investors in a well laid-out presentation. You have the opportunity to do your PR and marketing activities through the platform which gives you a tremendous advantage in creating relationships, as Jeffrey Deitch says:-Effective fund-raising is based on relationships. The variety of people who get access to your pitch is another advantage as their queries and suggestions give you an opportunity to fine tune your idea into a better product. The end result is that you have more time to devote to your business than spend in running after investors.

Crowdfunding can be of many different types of which there are three primary types:

Donation-based crowdfunding, where contributors provide funds without any financial returns. Funds raised for disaster relief, charities etc. come under this category.
Rewards-based crowdfunding, where the contributors are offered some form of reward as incentive for the funds provided.
Equity-based crowdfunding, where the contributors become part-owners of your company. You provide equity shares in exchange for capital.

You will not find any established set of criteria that you need to meet to be eligible for crowdfunding. If you are using the services of a crowdfunding platform, you will need to meet the criteria that each platform specifies. This will also include a credibility check that the platform will do to gauge your ability to deliver on your promises. There are some factors that you should be prepared with such as your budget or the exact amount that you want to raise, a full-time person or team to run the crowdfunding campaign and finally, your own time availability in the first three months of the campaign. Once you are accepted, the crowdfunding platform will help you create a pitch video, determine the rewards for the investors and finalize a promotion plan.

A striking crowdfunding example is Reliance Industries, which was crowdfunded by communities in Gujarat. Others in the form of microfinancing such as Sahara Parivar are quite prevalent. The film industry is also raising funds through crowdfunding. Karnataka film director, Pawan Kumar raised Rs.51 lakh. Wishberry crowdfunded Rs.4 crore for the film Goonga Pehelwan. Interestingly, the investors included startup owners like Google’s Rajan Anandan, and MakeMyTrip’s Deep Kalra.

Crowdfunding in India is picking up in a professional way. The Securities and Exchange Board of India (SEBI) is seriously looking at easing norms for crowdfunding to boost startups in India. On the other hand, the Reserve Bank of India (RBI) is also closely monitoring the crowdfunding space to check if it poses any concerns. State-based institutions such as State Planning Board, Kerala are also setting up support systems to make available crowdfunding to budding entrepreneurs.

Amazon has launched the “Amazon Launchpad” that provides a platform for startups to advertise and distribute their products to the millions of Amazon customers. More than 25 crowdfunding platforms are partnering with Amazon in this venture. Crowdfunding platforms in India still need to mature as reliable options for the Indian entrepreneur. There are several that have some projects on hand such as, etc. These companies are supported by a list of high net worth individuals (HNIs) as patrons. This list includes celebrities and corporate top-shots that are in a position to pump in funds and are willing to take the risks to support budding entrepreneurs, such as Ratan Tata, Amitabh Bachchan, N R Narayana Murthy, Anushka Sharma and many others

Well, with this bank of supporters behind you the only thing you need to worry about is to realize your dream and come out with a product that will take the market by storm!


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