Startup in today’s world has become a buzzword. Every second individual today dreams to start his own startup. In this article will let you know about the Startup finance by Crowd funding.
Starting a business/ startup requires funds and in the world where business runs on public/private funds, startups funding is an important concept to understand before starting your own startup. Funding helps the startups operate in the initial stages of the business and survive. As per the report the India youth is more curious to start their own business startups. This trend can be witnessed from the two back to back successful seasons of the business reality show Shark Tank India.
According to statistics, India has the third-largest startup ecosystem in the world.. India has unquestionably got one of the most vibrant startup ecosystems in the entire world.
Since January 2022, there have been more than 61,000 startups in India, placing it third globally behind China and the United States.
With the goal of making India a worldwide technology giant, the Indian startup scene has recently grown to be a vital development engine for the country.
Table of Contents
- What is Startup Financing
- Crowdfunding Process
- Is it really good to raise funds through crowdfunding?
- Popular Crowdfunding Sites
What is Startup Funding?
Startup funding is the money which the entrepreneur raises to start his startup. It can also be termed as a seed fund which startups raise through multiple different sources in the initial stages of the business. Funding/ Finance can be done for different purposes for launching the company, growing the operations or expansion of the business. Since, it is the new startups no public directly provides funds for such business. Therefore the major sources of raising fund for startups are:
- Venture Capital Round
- Government aids/subsidy
- Seed fund scheme (GOI)
- Crowd Funding
- Small Business loans etc.
Our major area today is to understand how one can raise funds for startups through crowdfunding. But before that understand the difference between funding and finance.
Finance generally means raising funds through equity or debt processes. Where owners either dispose of their control of a few percent of their equity or take a debt. It is a broader term as compared to funding.
Whereas funding usually means a fund/amount one receives from lenders of the money. It includes seed funding, grant or crowd funding.
Now let’s come to our core topic: Startup funding by crowd funding.
As startups are the new business ideas where entrepreneurs seek to get their fund allocation through different sources. Crowd funding is a mostly used kind of funding where startup owners gather funds through many individuals in small amounts. No single individual or body will provide large investment funding to the early stage startups. It is generally done through online campaigns. It is a new pool of getting capital for the startups.
Funding from collections from different people has been a trend for a long time. Previously it was taken as a donation from the people. Books were funded with this method in the past.
Types of Crowd Funding
Crowd funding can be of two different types:
Rewards Crowdfunding: Under this the startups owners don’t raise debt funds or offer their equity shares, they pre sell a product or service to launch their business idea.
Equity Crowd Fundings: Under this the entrepreneur sacrifice their equity share in the business to raise the funding from different investors.
Crowd funding process
Crowd funding as it is done through online campaigns.
One is required to get himself registered on crowd funding sites where startups can get individuals to fund their business ideas.
Profile creation and description of the business ideas, plans and purpose of raising the fund
Once the registration is done, founders can create their profile along with their business ideas and plans, products and service. Define your goal for raising the fund and start gathering the fund.
Initialization of funds to the account
This process takes a long time depending on the response from the fund provider, your business ideas. The fund gathered through crowd funding gets credited to the bank account you link with your crowd funding sites.
Is it really good to raise funds through crowdfunding?
The crowd funding may seem an easy and affordable source to gather funds for giving start to your startups.
But understating the pros and cons of the said process is necessary before raising funds through crowd funding.
Benefits of Crowd Funding
- Not requiring dilution of equity, Crowd funding allows investors to get some incentives for their investment apart from growth and rise in their investment. It saves the equity of the founders.
- Low cost
- Helps to create a network for long term business plans. It provides the investor for your future growth.
- It can help to test the response of the businesses and investors into your ideas and product.
Cons of Crowdfunding
- Time consuming, Crowd funding takes a long period of time to raise funds. Still it does assure you to get the investor for the fund.
- Does not provide a huge lump sum amount to give a boost to business.
Popular Crowd Funding Sites
There are bundles of websites that offers crowd funding to the startups to boost their business. Some of the best and popular crowd funding websites includes:
GoFundMe: It is the largest crowdfunding platform founded in 2010 and has more than 200 million donors. The site has raise more than $25 billion through crowdfunding.
Kickstarter: Founded in 2009, Kickstarter has completed more than 250000 crwodfunding projects and help startups to raise funds for their business. Overall it has raised around $7.6 billion from different projects.
Indiegogo: Launched in 2008 and initially started raising crowdfunding for independent films. But gradually, the site started accepting other projects as well for crowdfunding. The platform is more flexible and user friendly as compared to other sites.
At the end decision is yours
As every coin has two sides, raising Crowd funding also has both pros and cons. It depends on the business requirement and the stage of startup in the cycle whether Crowd Funding will be a good bet to raise funds or not.
It was a one detailed article on Crowd Funding of Startups, for more related and interesting articles on Startups reach out to our website and other articles.
Today India has more than 100 of unicorn startups in India. Recently, Zepto has become another Unicorn Startup of India. WIth the strong enthusiasm of the Indian youth and birth of new ideas and innovation, the startup industry of India will soon become a leader in the world. GOvernment of India has also offered support for the startups to establish their business in the form of subsidies, finance and other incentives to boost the startup in the country.Younger individuals are encouraged to work and gain experience in their areas of interest in many Indian enterprises, which are prospering. The most successful startups in India are Flipkart, Ola, and Zomato. Startups offer a fantastic opportunity to grow one’s skills and career.