Crowdfunding

What is Crowdfunding?

Crowdfunding is an alternative form of finance. Whenever we need funding for any reason/cause whatsoever, we may go to our family, friends or a bank to take a loan.
Crowdfunding works in the same manner, only that it is online.

The purpose could be donations--where the money donated by you doesn't obligate the one who is taking the money. It could be reward-based---where the amount donated by you is returned in the form of certain pre-defined rewards. It could also be equity-based---where you invest in a project or a startup idea and get a share in the company.

Crowdfunding has three people basically involved---the person running the project and asking for the money, the person donating or giving the money, and the crowdfunding platform---which is an online platform connecting the other two people.

It has actually become quite cool to crowdfund your projects and it is a great way to fuel the economy. It might get risky due to information asymmetry, but it has helped people survive and thrive due to its unique initiative.

In easy terms, it is basically many people getting together to fund a project---the power of unity is clearly shown here through technology.

Some of the crowdfunding sites are---gofundme, Kickstarter, Indiegogo, ketto.org, etc.(the best one---Indiegogo)

So we have covered the questions of what, how, where, whom. The question we didn't cover and the most important of all questions is WHY?

Why should we go for crowdfunding?

Let's understand this with the help of a simple story.

Ram and Shyam are two business partners who want to set up a food truck where they will sell dishes made from organic food and the food waste would be minimal as all the food waste is decomposed which is then grown into vegetables from which the organic food dishes are made.
Traditionally, they would go to a bank and try taking a loan.The food truck only employees people who are facing mental challenges so that they can learn a new skill, meet new people, make a change and be involved.
But now due to crowdfunding, it becomes way more personalised and simple to raise money.

They go to Indiegogo, list their project and people interested in the project give them money. They list the t&c as---if you give 10$, you don't get any share back, if you give more than 10$, you will get your share back in the form of food---for example---20$=2 dinners, 50$=5 dinners and so on. The people interested in the project give money through online channels(be it in any currency form) and they also tell their friends about it(through WhatsApp, facebook, mail, etc). Sharing of communication happens seamlessly as when they give money, the information is simultaneously shared. Their friends too get interested and give them money.

They raise enough money to start the food truck.

Here the three problems of complexity, money and uncertainty in starting any kind of business are solved and simplicity is brought about. 

So why would you choose to crowdfund over traditional channels of finance?

It could be to avoid hassles but mainly it would be to personalise your funding story. It would be to take money from many people so that they are involved in your story. It would be to disrupt the market. In times of uncertainties, when banks do not lend money, it would be to chart out your path of financing. It would be to remove the middleman, to take money directly from the people. It would resonate with the idea of---by the people, of the people and for the people.

The barrier to entry falls. The projects raise money online, bringing the crowd together. It helps you know if your idea is viable in the first place and if it is, you share it with the world and the risk is also shared. In a world where money is raised through crowdfunding, it creates a world where supply follows demand and thus there is less wastage of resources. A funding which is less bureaucratic and more empowering.

Crowdfunding---A funding which is directed by the community.