Crowdfunding The Next Big Thing in India
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“Democratized funding”, is how Professor Jonah Berger, University of Pennsylvania, defines Crowdfunding. It is the practice of raising small amounts of capital from a large number of people to fund projects like new business ventures, startups, films & documentaries, social projects or non-profit works.
Crowdfunding is finally gaining traction in India, but the big question is: Will it deliver in India like it has in other developed countries?
The notion of crowdfunding is not new to India. Many places of worship have been built or their extensions added from funds collected from worshippers. Orphanages and shelter homes benefit from public’s regular contributions. So, Indians have been contributing to social and religious causes since times immemorial. The practice now has a name – Crowdfunding – with technology, through internet, aiding the process.
Crowdfunding, as we know today, is a tech and internet enabled practice. And internet usage has been rapidly spreading in India since the last decade. Two factors - increase in internet usage, especially on mobile, and penetration of social media amongst the internet users -have contributed to the growth of Crowdfunding in the country. India has the second-largest mobile phone subscriber base after China and Indians tend to access social media predominantly through their mobiles and according to a report - Mobile Internet in India 2016 - there were 389 million mobile internet users in the country in 2016. That is a sizeable target base for an emerging sector like Crowdfunding. Also, recently, India surpassed the U.S. to become the number 1 country for having the maximum Facebook users. In the context of crowdfunding, the Facebook metrics matters because the single most predictive factor for the rate of emergence is “social media penetration”.
A World Bank report states that “crowdfunding has emerged as a multibillion-dollar global industry. As per the projection, it has been projected that the industry is expected have a volume of $300 billion by 2030. Such projections on Crowdfunding give an extremely positive outlook to this fintech industry.
Together, these platforms are transforming the traditional funding ways in different sectors in the country. Here are some sectors where the power of crowdfunding is starting to gain momentum:
Though Indian start-ups attract billions in private equity and venture capital funds from across the globe, most have a history of financial struggles in their emergence and early phases. Start-ups in early stages, those that haven’t yet started ranking in revenue, struggle to find/raise funds.
Normally, banks do not back companies without collaterals and where the business model is unproven, other investors too hesitate. Crowdfunding, which does not discriminate on the basis of ‘assets’ and ‘track records’ can ably aid new entrepreneurs.
Emerging Businesses in USA, UK, and China routinely go the crowdfunding way. The Indian entrepreneurs are still awakening to the potential of the crowdfunding channel of raising funds though we have seen several moves recently for upliftment for start-up ecosystems. The best phase of crowdfunding in start-ups is still to come; in five years India will be one of the major players in this segment. It would help if the government comes up with business-friendly guidelines to promote not just corporate investment but also the crowdfunding investment in the start-ups.
Partnership for civic and community development
Social and community projects and development are one of the highest logging beneficiaries of the concept of crowdfunding. Malaysia is one of the best examples of the power of crowdfunding in social partnership. Here, a society changed its country’s financial condition through crowdfunding! Malaysian government had launched a crowdfunding campaign to help cover the cost of a $251 billion national debt. With the support of the people, the campaign brought in funds amounting to $1.76 million in less than 24 hours.
Sky is truly the limit in the world of crowdfunding. Crowdfunding makes it easy for society to pool its funds for its common or specific needs and in some cases, help build cities too for Civic and Community Development.
The media and entertainment industry
In the film industry, the trend of crowdfunding began in the late 1990s as a way for musicians and filmmakers to raise capital quickly from fans. Today, crowdfunding is a mainstream source of funding for independent filmmakers, music producers, artists who use platforms to raise, in some instances, even seven-figure numbers.
Crowdfunding can ignite passion in the crowds to fund artistic projects. The awareness and attention can even help new producers/directors to start with their coveted projects, just like Rajat Kapoor is raising funds through crowdfunding for his upcoming movie. Some crowdfunding platforms ensure that the creators are recognized from their film, therefore allowing the content creator to earn both money and build up the right audiences for their film or for their future work.
Helping hands for healthcare
The latest National Sample Survey report says that 44 out of every 1,000 Indians end up getting hospitalized in a year. A decade ago this figure was only 31 out of every 1,000.Medical inflation rate in India is also steep at 12-15% increase every five years. Yet, majority of Indians pay for their medical care from their own pocket.
Increasing internet penetration in rural areas in India and the spread of social media is leading to more people choose crowdfunding for medical treatments. Healthcare companies are also willing to invest in crowdfunding companies because they believe that their unpaid bills of deceased or financially challenged families can be paid via Crowd - total strangers.
I believe crowdfunding can constructively disrupt Indian economy if it's allowed to operate at full throttle which can be achieved only when equity crowdfunding takes shape in the country. Without legalized equity crowdfunding, as allowed in US, Indian entrepreneurs cannot leverage the complete power of crowdfunding. It is time India gets its own version of USA’s JOBS Act to Jumpstart Indian Businesses & Start-ups!