Crowdfunding Blackbook Project

K.C.
College Crowdfunding
EXECUTIVE SUMMARY
Crowdfunding is a collective effort by people who network and contribute

collectively for a cause or a business idea.This seems very similar to the traditional
concept of charity or social cooperation but unlike funding here is done with an
objective of earning some return either monetary or intangible. The modern day
crowdfunding is associatedwith internet and the use of social media for fundraising.
In India crowdfunding is still in its nascent stage eventhough the potential is
incredibly high. The paper studies the select Indian online crowdfunding platforms
(CFPs),their area of focus, fund raising strategies, and their revenue models. CFPs not
only support business activities butalso social causes.
E.g. Ketto (www.ketto.org) supports NPO, creative and social causes through the
platform. The CFPs were selected to represent a diverse set of crowdfunding sectors
and the availability of data.
Recently, a new way of funding arose: crowdfunding. Crowdfunding entails soliciting
for a large number of small amounts of money to an undefined group of people – the
crowd. Despite the popularity of these radically new ways of acquiring funding for
virtually any type of corporate and non-corporate project, little is known about
people’s donating behaviour on crowdfunding platforms. With crowdfunding
becoming more popular as a successful alternative to traditional funding methods, it
becomes crucial to understand the drivers of crowdfunding success or failure. Aside
from a present as a token of gratitude, donors making donations on crowdfunding
platforms usually do not get anything in return for their donation. This means they do
not acquire venture’s ownership, voting rights or profit shares in exchange for their
contribution. Funds raised on crowdsourcing platforms could therefore be regarded as
gifts.
Pg. 1
K.C. College Crowdfunding
1.1. INTRODUCTION
Crowdfunding is a process of soliciting funds from the general public to support an

idea or create projects or fund businesses. It directly connects people with money to
the people who need it. It is nothing else but the crowd’s collective pocketbook. It
allows large groups of people to replace banks and other institutions as a source of
funds. The concept of collective funding of a project by a group of people is as old as
time.
Crowdfunding is a collective effort by people who network and contribute
collectively for a cause or a business idea. This seems very similar to the traditional
concept of charity or social cooperation but unlike funding here is done with an
objective of earning some return either monetary or intangible. The modern day
crowdfunding is associated with internet and the use of social media for fundraising.
In India crowdfunding is still in its nascent stage even though the potential is
incredibly high. The paper studies the select Indian online crowdfunding platforms
(CFPs), their area of focus, fund raising strategies, and their revenue models. CFPs
not only support business activities but also social causes. E.g. Ketto (www.ketto.org)
supports NPO, creative and social causes through the platform. The CFPs were
selected to represent a diverse set of crowdfunding sectors and the availability of data.
The four different types of crowdfunding methods include:
• Debt-Based Crowdfunding: In this method investors are essentially lending money
under the premise that they will be receive a return on their investment over a certain
time interval and at a certain interest rate.
• Equity-Based Crowdfunding: In this method investors receive a stake in the
company. Similar to owning shares, you may receive dividends, or a distribution of
the profits earned.
• Reward-Based Crowdfunding: In this method investors receive a tangible item or
service in exchange for their funds. The reward is not in the form of monetary gain.
• Donation-Based Crowdfunding: In this method your contributions simply go
towards a charitable cause you’d like to support with the only return being the
positive vibes you get from doing a good deed.
The modern day crowdfunding is the modified, internet model of the same old
concept. The Web has made the entire process of floating an idea and raising funds
Pg. 2
for the same much easier and faster. Apart from getting access to funds, another major
advantage is to getting validation of the idea or concept. One of the first instances of
using internet to raise funds occurred in 1997 when the British rock group Marillion
raised $60,000 from its fans to fund its North American tour. ArtistShare was the first
US-based company to establish the crowdfunding website in 2001.
Crowdfunding platforms can serve as a more reliable and faster means of borrowing
than your local bank, which tends to be overregulated. Once we receive all of the
items in the application, the developer is called to discuss details and answer any
questions. If everything looks good, the loan is presented to our Executive team to
determine the Interest Rate, Points & Structure of the loan. We will directly contact
the developer to present the Engagement Contract and answer any questions they may
have. Once the developer agrees to the Terms, an appraisal and legal work are
ordered. All of this usually takes about 24 hours and then the appraisal is ordered. The
appraisal will usually take 4-5 days to be completed and returned to the Underwriter
for review. Once everything is signed off by the Underwriter, it is scheduled to close.
In total, a loan can close as quickly as 5 days with short term rates as low as 9.99%
and two points in origination fees. As an online crowdfunding service with hundreds
of investors, we have the ability to form creative capital structures that will work for
your specific plans, covering both hard and soft costs.
Crowdfunding is a process of seeking funds from the general public to create project
or support an idea or fund businesses. It is an internet enabled way used by business
or other organizations to raise money in the form of either donations or investments
from various individuals. This is the new form of capital formation emerged in an
organized way in the wake of the 2008 financial crisis largely because of the problems
faced by entrepreneurs, artisans, and early stage enterprises in raising finance.
Traditional banks less interested to provide finance to entrepreneurs started to look
elsewhere for capital.
Crowd funding began as an online extension of traditional financing by friends and
family: communities pool money for fund members with wise business ideas. In less
than a decade, crowd funding has gained traction in a number of developed econo-
mies, including Australia, The United Kingdom, the Netherlands, Italy and the United
States. This exciting phenomenon is spreading across the developed world and is now
attracting considerable interest in the developing world as well.The modern day
crowd funding is the modified, internet model of the same old concept. The Web has
Pg. 3
made the entireprocess of floating an idea and raising funds for the same much easier
and faster. Apart from getting access to funds,another major advantage is to getting
validation of the idea or concept.One of the first instances of using internet to raise
funds occurred in 1997 when the British rock group Marillionraised $60,000 from its
fans to fund its North American tour. ArtistShare was the first US-based company
toestablish the crowdfunding website in 2001.
Crowdfunding has become one of the most popular online trends over the last two
years. However, many people are still confused as to how the phenomenon actually
works, and more importantly how it can benefit them.
Crowdfunding is solicitation of funds in small amounts from several unsophisticated
investors via web- based platform or social media to fund new business ventures, art,
film etc. While India has seen the surge of numerous non-equity crowdfunding
platforms step-up for funding art, films, charity in the recent years, there is no equity
based crowdfunding platforms yet as it is a grey and murky area and proper reforms
are yet to take place facilitating equity crowdfunding model to work. While the
consultation paper issued by SEBI in 2014 is definitely a silver lining, still clear rules
should be framed by regulators to make the crowdfunding story a success.
Crowdfunding is solicitation of funds in small amounts from multiple investors
through a web-based platform or social networking site for a specific project, business
venture or social cause. Crowdfunding is a way of raising money for funding creative
projects like film, art or to support some business venture or some social or public
interest causes by means of collecting money from hundreds of unsophisticated
investors via a crowdfunding platform or though social media.
In the aftermath of the 2008 financial crisis, small businesses found it increasingly
difficult to raise funds. As a response, crowd-funding has emerged as a viable
alternative for sourcing capital to support innovative, entrepreneurial ideas and
ventures. Crowdfunding which began as an online extension of traditional financing
by friends and family: Communities pool money to fund members with business ideas
has gained huge momentum in developed economies like USA, UK, Italy, Australia
and Netherlands. It has been estimated that Kickstarter, market leader in donation
based crowd sourcing has by March 2014 surpassed USD 1 billion.
India is not far behind and already non-equity based crowd-funding platforms exist in
India like Wishberry and Fund my Dream which have been successful in crowd
funding projects. However the existing Company laws and SEBI (Securities and
Pg. 4
Exchange Board of India) laws prevent start-up friendly Indians from participating in
equity based crowd-funding which was why SEBI released a consultation paper on
crowd funding in 2014. The consultation paper though is a huge step taken by the
Government for setting up of regulatory framework for managing crowd-funding in
India, has received several criticisms as the paper has focused more on investor
protection than giving the small and medium enterprises a chance to get their ideas
financed. Recently SEBI has put the consultation paper in back burner by citing that
such a regulatory framework in India would be premature and the paper has not taken
account of cross-border crowd-funding transactions.
This paper discusses about the shortcomings of the proposed SEBI regulation
mechanisms and proposes a way ahead which could make crowd funding a successful
story in India.
Pg. 5
HOW DOES IT WORK?
Crowdfunding is the practice of funding a project or venture by raising small amounts

of money from a large number of people, typically via the Internet. Crowdfunding is a
form of crowd sourcing and alternative finance. In 2015, over US$34 billion was
raised worldwide by crowdfunding.
Although similar concepts can also be executed through mail-order subscriptions,

benefit events, and other methods, the term crowdfunding refers to Internet-mediated
registries.This modern crowdfunding model is generally based on three types of
actors: the project initiator who proposes the idea or project to be funded, individuals
or groups who support the idea, and a moderating organization (the "platform") that
brings the parties together to launch the idea.
Crowdfunding has been used to fund a wide range of for-profit, entrepreneurial

ventures such as artistic and creative projects, medical expenses, travel, and
community-oriented social entrepreneurship projects.It has also been criticised for
funding quackery, especially costly and fraudulent cancer treatments.
Crowdfunding is a collective effort of individuals who pool their resources to support

initiatives promoted by other people or organizations. Using social networks and the
viral nature of online communication, individuals and companies have raised billions
of dollars in debt, equity, and donations over the past decade. Crowdfunding emerged
from innovation in technologies that made it possible for businesses, NGOs and
individuals to secure funding with no or limited intermediation. The market has
grown in developed countries, partially as a response to the credit crunch resulting
from the 2008 financial crisis. Thanks to a rapid and unprecedented expansion of
Internet and mobile access, it soon expanded to developing countries. Crowdfunding
has grown rapidly from a Silicon Valley social experiment to a multi-billion dollar
industry from US$1 billion in 2011 to US$34 billion in 2015. It also expanded from
financing charities into enterprise financing and quickly overtook angel investing to
become one of the largest sources of financing for SMEs, second only to venture
capital. The industry is expected to reach an annual volume of US$100 billion by
2025 and becoming the leading financial channel for SMEs. Crowdfunding in
developing countries raised US$430 million in 2015, with India, the Philippines, and
Pg. 6
Nepal in the top three. Four different models of crowdfunding have emerged: 1.
Donations-based: The crowdfunder donates funds without expecting any return.
Donations are typically used to support disaster relief, famine, education programmes,
etc. JustGiving and GoFundMe are among the largest donations-based platforms.
Globally, over US$2.85 billion in donations were raised in 2015. 2. Rewards-based:
The crowdfunder transfers funds with the expectation of a reward, which may be in
the form of a token gift or an early/exclusive release of a product or service offered by
the startup company. Kickstarter and Indiegogo are among the most successful
crowdfunding platforms built on rewards-based model of crowdfunding. Since its
launch in 2009 through April 2017, more than 123,000 projects have been funded
through Kickstarter with nearly US$3 billion pledged. All-or-nothing (AON)
campaigns require a project to hit 100 percent of its funding target. If the target is not
achieved, funds are returned. Keep it all or flexible funding (KIA) campaigns instead
allow the project sponsor to keep the amounts raised. AON campaigns have more
backers and raise a higher amount of funds compared with KIAs: an assessment of the
campaigns run in the years 2011–2013 via Indiegogo (https://www.indiegogo.com/en)
found that AON projects’ average funding was US$31,397 compared with US$20,478
for KIAs; 34 percent of AON campaigns reached their goal, compared with 17
percent of KIAs . 3. Lending-based or Peer-to-Peer (P2P): the fastest growing type of
crowdfunding has a 73 percent market share. The crowdfunder lends money to
individuals or companies in return for interest. While there are platforms exclusively
targeting socially-oriented lending, the majority operate as commercial platforms in
direct competition with other financial intermediaries. KIVA is providing small loans
(from US$100-US$100,000) to farmers, NGOs and SMEs that make positive impact
and has already provided more than US$1 billion in small loans. 4. Equity-based
crowdfunding: The crowdfunder purchases equity in a company. Equity is a new, yet
rapidly growing, model in crowdfunding with over US$2.5 billion invested in 2015.
Equity-based crowdfunding could reach up to US$36 billion by 2020 and eventually
surpass venture capital by value. Equity-based crowdfunding remains highly
dependent upon supportive regulatory frameworks, which often restrict equity
investment to professional investors. A successful crowdfunding campaign may draw
on a platform with a wide audience, such as Kickstarter, Indiegogo, Kiva, or
GoFundMe. New platforms may also be established under certain circumstances.
There are numerous resources on crowdfunding, including blogs, books, networks,
Pg. 7
and training, including guides on running campaigns from Indiegogo, Fundable,

Kickstarter, Crowdfunding Guides and Shopify.
 Crowdfunder: The crowdfunder can be a backer, donor, or investor.
Individuals make the most of the market, but private and public institutions
can invest and/or donate as well.
 Beneficiary-investee: Any person or organization seeking funds for a
company, product, project, or initiative. There is a vast range of actors from
small companies, NGOs, individuals, start-ups, etc.
 Crowdfunding platforms: Online platforms connecting the crowdfunders with
the beneficiary or investee. They charge commissions for participation and/or
on interest/dividends. Platforms can provide a wide range of services,
including financial due diligence, contracting, etc.
 Third party verifier and other service providers: Platforms and
beneficiaries/investees can rely on a number of service providers. Platforms
may need to buy services—e.g. financial due diligence—or outsource the
assessment of social and environmental outcomes.
 Sponsors: Beneficiaries may obtain support in designing and running

crowdfunding campaigns. These services can be offered pro-bono or on a
commercial basis.
Potential in monetary terms (revenues, realignment or cost-savings) Crowdfunding

has grown substantially, from US$1 billion in 2011 to US$34 billion in 2015
(Massolution). P2P lending (US$25 billion), donation (US$2.9), rewards (US$2.7
billion) and equity crowdfunding (US$2.5 billion) make up most of the market. These
amounts are already comparable with venture capital, which is investing an average of
US$30 billion each year. The market may surpass the US$100 billion threshold before
the World’s 2025 estimate. Donation and reward crowdfunding have historically
taken the largest share of the market and were only recently surpassed by P2P
lending. Equitybased and lending-based crowdfunding platforms are expanding at the
most rapid rate, in the UK at nearly 300 percent in 2015 (NESTA). The shares of the
different crowdfunding models are different between developing and developed
countries: in 2015 43 percent of crowdfunding in developing countries was classified
as donation, 38 percent as lending, 11 percent as equity, and 7 percent as reward.
Pg. 8
Crowdfunders invest mostly in business and entrepreneurship (40 percent), social

causes (20 percent), films and performing arts (12 percent), and real estate (6 percent).
In addition to the above, specialized platforms have also emerged, targeting
subsectors like agriculture, retail, food, and housing and services. Environmental
projects are at the periphery; while platforms like Indiegogo and Kiva have started to
enlist green projects, they remain a minority. An exception is renewable energy with
an estimated €200 million in crowdfunding transactions that is facilitated by 25
specialized platforms. The different crowdfunding models and platforms’ own
strategies have produced a broad range of results in the amount of resources
mobilized. Kiva, which serves small entrepreneurs through a network of microfinance
organizations, has facilitated the disbursement of 1,6 million loans to the tune of
US$1 billion as of October 2017. Of the Kiva borrowers, 749,149 have come from
least developed countries, 81 percent being women. Kickstarter has allocated over
US$815 million from 4.9 million backers to nearly 50,000 projects. To date, the most
successful project was the video game “Star Citizen”, which collected more than
US$145 million. In Nepal, where a devastating earthquake killed over 8,500 and
affected 5.6 million people in 2015, US$23 million was raised from individuals
sending money to their families, diaspora groups supporting their communities, and
other international donors, much of it through crowdfunding.
Pg. 9
When is it feasible?
Each crowdfunding model is tied to different regulatory requirements which may vary
substantially between countries. Legal requirements can be cumbersome depending
on the model pursued (e.g. equity based crowdfunding is most demanding), the
crowdfunding platform location, the project sponsor or beneficiary, and if it entails an
international transaction. The Cambridge Centre for Alternative Finance identifies
four main regulatory regimes
1. Lack of legislation. In some instances, generic provisions that protect investors may
apply.
2. Intermediary/platform regulation–controls are established on some forms of
crowdfunding e.g. equity and lending—with registration and other governance and
reporting requirements.
3. Banking regulation–lending and equity platforms are considered banks, requiring a
banking license for certain crowdfunding operations.
4. Two-tiered regulation–crowdfunding platforms are monitored at the federal level
(such as the Securities and Exchange Commission in the USA) along with state-level
agencies. Some US states impose bans on some forms of crowdfunding, e.g. equity,
while others may provide exemptions. Some countries have more favourable
legislation—e.g. the UK, the Netherlands, Germany, and the USA. Regulatory
reforms are advancing and more countries have updated their regulatory framework to
facilitate crowdfunding.
The UK and Sweden have already completed more than one round of reforms. A short
summary of existing regulations is provided: Europe: Member states have country-
specific provisions with limited harmonization. The European Commission helps by
assessing national frameworks and identifying best practices. The Current State of
Crowdfunding in Europe and Sustaining Momentum reports provide detailed
information. United States: Reward based or donation based crowdfunding are widely
accepted. If a company offers equity investment, SEC oversight rules apply. Further
information may be found in Hitting Stride and Breaking New Ground.
Asia: The regulatory environment is diverse and rapidly changing. Some countries,
such as Singapore and Thailand, have opted to regulate alternative finance using pre-
existing regulatory frameworks, but others, like Malaysia, New Zealand, and South
Korea have created bespoke regulations to govern equity and debt-based operations.
Pg. 10
Further information may be found in Harnessing Potential. Latin America and the
Caribbean: Latin America and the Caribbean lags behind, with two-thirds of surveyed
platforms in Breaking New Ground reporting no regulations or that crowdfunding is
illegal. Mexico does not have supportive legislation, while others, like Brazil, are
discussing reforms. Middle East & Africa: Israel and the UAE offer the most
progressive regulatory environment. In Africa, South Africa and Kenya are the most
advanced but still with crowdfunding activities not clearly regulated. Further
information may be found in Africa and Middle East and Crowdfunding in East
Africa. Since crowdfunding platforms may operate across borders, international
provisions also apply, particularly in relation to money laundering and the fight
against terrorism. The largest platforms—Kickstarter, and RocketHub—have become
fully compliant with international anti-money laundering laws. Credible
crowdfunding systems require more than enabling legislation. Their success also
relies on supportive ecosystems and other enabling factors. These include forward-
looking regulations that balance the need for investor protection with capital
formation; effective technological solutions that include reliable broadband Internet or
mobile data networks; and supportive institutions that offer training, mentoring, and
other services to beneficiaries and investees. 12/6/2017 Crowdfunding | UNDP
http://www.undp.org/content/sdfinance/en/home/solutions/template-fiche12.html 3/6
Minimum investment required and running costs Running costs incurred by
beneficiaries/investees to run crowdfunding campaigns can be separated into direct
fees paid to the platform used and marketing costs: Platform fees: Platforms usually
charge fees, which typically run between 3 percent and 8 percent depending on the
platform and the type of crowdfunding. For example, Kickstarter and Indiegogo
receive fees upon the success of the campaign (between 4 percent and 5 percent) plus
credit card processing fees Some platforms (e.g. Kiva or Generosity do not charge
commercial fees but ask for cost-recovery contributions to cover their operational
costs. Equity (additional) fees: Equity investees are often subject to additional fees
that do not apply in other models. These may include accounting fees, legal and
securities costs, shareholder services, and reporting requirements. For instance, in the
US these costs could range from US$10,000 to US$40,000. Marketing: Costs include
communications, IT, design, and video production. Successful campaigns are often
supported by well-designed marketing strategies and professional service providers.
Larger crowdfunding campaigns are reported to invest between US$500-US$2,500 in
Pg. 11
professional photography and between US$1,000-US$5,000 in professional video-

making. Online advertising in social platforms may cost US$50-$100 per day or
US$3,000-US$10,000 in total, sometime reaching 20 percent of the budget for start-
ups. Such campaigns may hire a marketing consultant. Project specific costs:
Innovative product-based campaigns require investment in prototypes as proof of
concept. Actual costs are highly specific and may vary from a few thousands to
hundreds of thousands of US$. Time requirements: Estimates on how much time is
spent on preparing crowdfunding campaigns are available, but they are highly
dependent on the scale of the project, investees’ team, outsourcing strategy, and the
type of project crowdfunded. In what context it is more appropriate When launching a
crowdfunding project, it is important to understand what the project objectives are and
who the target audience is. Different models of crowdfunding are best suited for
different types of projects: Donation: Projects where the beneficiary cannot offer
anything in return for financial support. This is typically reserved for charity and
philanthropic activities, such as the Nepal relief efforts that raised US$23 million.
Reward: Projects where the beneficiary may offer a non-financial reward to
supporters. This is typically seen in projects that are creative, social, or
entrepreneurial in nature and that serve as a means to pre-purchase a product, such as
furniture manufactured from plastic waste Rewards can also be non-financial, such as
an experience or recognition. P2P lending: Individuals or businesses needing debt
financing. For instance, a solar electricity development project for 31,000 in Kenya.
Usual considerations on lending apply, i.e. capacity to repay, quality of business
planning, availability of collateral, etc. Equity: Start-ups or businesses needing growth
capital, e.g. a company that developed low carbon-bamboo tissue products. Equity
crowdfunding is also widely used in real estate.
Pg. 12
Motivations of Companies for Crowdfunding
In their interviews with crowdfunding-experienced entrepreneurs Belleflamme et al.

( 2013b ) identifythree main reasons for choosing crowdfunding to finance projects.
All of the respondents stated thatcollecting funds was the main reason for using
crowdfunding. Other motives mentioned were attractingthe public’s attention and
receiving feedback for their products or services. Gerber et al. ( 2012 ) come tovery
similar conclusions. They performed semi-structured interviews with market
participants andidentified five categories of motivation: financing, forming
relationships and networks, self-affirmation,replication of success stories and
increased awareness of the product. Crowdfunding offers, according toHemer et al.
( 2011 ), the ability to obtain funding in the early stages of a company’s life cycle and
thus anopportunity to close the early-stage gap. Further motives for crowdfunding that
were identified were thespeed and flexibility of funding, few formal obligations,
testing the product on the market, multipliereffects, positive signalling effects and the
use of the “wisdom of the crowd” for various company tasks(Hemer et al., 2011 ;
Hienerth & Riar, 2013 ; Macht & Weatherston, 2014 ; Surowiecki, 2004 ).In recent
years, companies have begun using their customers’ knowledge for company
purposes(Kleemann, Voß, & Rieder, 2008 ). Crowdfunding now offers consumers the
chance to adopt the role ofinvestors (Ordanini, Miceli, Pizzetti, & Parasuraman, 2011
). Those who are willing to invest are largelythose who believe in the success of the
company and its products or services. The company is legitimisedby the market
(Martin, 2012 ) if crowdfunding is successful and at the same time it helps to build
acustomer base. Burtch et al. ( 2013a ) confirm with empirical data that crowdfunding
leads to increasedvisibility and higher product consumption. Mollick and
Kuppuswamy ( 2014 ) found that crowdfunding ismore than just a financing method
for companies because it facilitates better access to customers, morepress coverage,
and greater interest from potential employees and outside funders.In addition,
crowdfunding allows companies to exploit their market potential more
effectively(Belleflamme et al., 2010 ; Hu et al., 2014 ). Belleflamme et al. ( 2010 )
and Hu et al. ( 2014 ) show in atheoretical model that reward-based crowdfunding
(pre-ordering) allows for price discriminations.Companies have difficulty identifying
customers who are willing to pay a premium for a product beingavailable earlier.
Pg. 13
These customers can be identified through crowdfunding, which allows companies

toskim the market for these premiums. Later, Belleflamme et al. (2013a ) expanded
their model andincluded a decision problem for companies to choose between
crowdfunding as a pre-ordering model anda profit-sharing model.
Motivations of Capital Providers
Capital providers in crowdfunding are not just financially motivated. Social reputation
and intrinsicmotives play a significant role (Allison et al., 2014 ; Lin et al., 2014 ).
The motives to participate incrowdfunding are heterogeneous and depend on the
respective crowdfunding model (Lin et al., 2014 ;Ordanini et al., 2011 ). Interviews
with founders and employees of three crowdfunding platforms showthat capital
providers have some common characteristics: they are innovation-oriented, are
interested ininteracting with others, identify themselves with the company or the
product, and are interested in thefinancial result (Ordanini et al., 2011 ). These
motives were also confirmed by Gerber et al. ( 2012 ) ininterviews with capital
seekers and capital providers. The latter strive for financial and non-financialrewards,
they like to support the project or company and they want to be active in social
networks. Hemeret al. ( 2011 ) further identify the interest in using the product or
service and the attainment of self-affirmation and fun, which is associated with this
type of investment.
Pg. 14
Importance of Social Networks
The desire to interact in social networks has been identified as a key motive for capital
providers toparticipate in crowdfunding transactions. Several studies examine the
effect of social networks on thedecision behaviour of capital providers. It has been
shown that social networks reduce informationasymmetries and thus, increase funding
probability (Everett, 2010 ; Freedman & Jin, 2008 , 2014 ; Lin etal., 2009 , 2013 ;
Liu et al., 2013 ; Zvilichovsky et al., 2013 ). One possible consequence of this
socialnetwork effect for capital providers is the mimicking of others’ behaviour
(“herding”) (Herzenstein,Dholakia, et al., 2011 ; Lee & Lee, 2012 ; Yum et al., 2012
; Zhang & Liu, 2012 ). Herzenstein, Dholakia,et al. ( 2011 ) and Zhang and Liu
( 2012 ) found that herding behaviour in P2P lending markets contrastswith findings
in online auction markets, such as Ebay. They conclude that herding behaviour in
crowdfunding is strategic and rational because it seems to reduce the default rates of
loans. Kuppuswamyand Bayus ( 2013 ) investigated herding behaviour in reward-
based crowdfunding by analysing data fromKickstarter. They discovered that projects
typically have a U-shaped pattern of project support. Accordingto Kuppuswamy and
Bayus ( 2013 ), herding behaviour in reward-based crowdfunding is due to
payoffexternalities. Backers tend to support projects closer to their funding goals as
they are more likely tosucceed and thus, backers expect their contribution to have a
higher impact. In addition, Kuppuswamyand Bayus ( 2013 ) found that investments
by family and friends as well as promotional activities have apositive influence on the
funding process, particularly at the beginning and end stages of the
funding.According to Lu et al. ( 2014 ), promotional activities are important when the
funding starts but later in theprocess interaction between participants is the main
driver for funding success (Lu et al., 2014 ).However, Lin et al. (2014 ) identified
different archetypes of crowdfunders which seem to react differentlyto social
influences and signals of quality.
Pg. 15
Signals in Crowdfunding Transactions
The importance of the timing of investments has also been studied in donation-based
crowdfunding. Theresults are consistent. The behaviour of peers seems to provide a
signal to subsequent capital providers(Burtch et al., 2013a ; Koning & Model, 2013 ;
Smith et al., 2013 ; Wash, 2013 ). This signalling effect ofpeer behaviour has also
been studied by Ward and Ramachandran ( 2010 ) in the reward-based
experiencegoods market. In a theoretical model, they showed the impact of peer
behaviour and test their resultsusing archival data from the platform SellaBand. Ward
and Ramachandran ( 2010 ) identified a positivecorrelation of an investment decision
with the results of similar, already-funded projects, the actions ofother capital
providers, popularity rankings and blog posts. Qiu ( 2013 ) also found that blog posts
(word-of-mouth effect measured by tweets), media coverage and, in particular,
features of the promotingplatform, have a positive effect on crowdfunding
transactions. Kim and Viswanathan ( 2013 ) studiedcrowdfunding in the mobile
application market and find that early investments by experts send positivesignals and
increase the likelihood of subsequent funding from the crowd. Furthermore,
recommendationsfrom friends and acquaintances can also send positive signals and
increase funding probability (Lin et al.,2013 ; Liu et al., 2013 ; Moritz et al., 2014 ).
Hildebrand et al. ( 2013 ) found that endorsements frompeers are only understood as
credible signals if the endorsements are linked with investments of therespective
person (“skin in the game”).Ahlers et al. ( 2013 ) investigated which signals are
relevant for investment decisions in crowdfundingmarkets. The authors analysed
archival data from the Australian equity-based crowdfunding platformASSOB. They
found that ventures with more board members, higher levels of education and
betternetworks send out positive signals and are more likely to be funded. The exit
strategy, the existence of afinancial plan and the age of the capital-seeking venture
also play significant roles.According to Mollick ( 2013 ), capital providers in
crowdfunding markets and venture capitalists trustsimilar quality signals (e.g.
previous successes of entrepreneurs, external references). This result is
rathersurprising because crowd investors are usually not professional investors with
the same degree of know-how (Agrawal et al., 2013 ; Fink, 2012 ; Heminway, 2014 ;
Kim & Viswanathan, 2013 ; Macht &Weatherston, 2014 ; Mollick, 2013 ;
Pg. 16
Schwienbacher & Larralde, 2012 ). Distortions in venture capitalfinancing created by

the location of companies (Tyebjee & Bruno, 1984 ) and the gender of
theentrepreneurs (Harrison & Mason, 2007 ) were absent in crowdfunding markets
(Barasinska & Schäfer,2010 , 2014 ; Greenberg & Mollick, 2014 ; Mollick,
2013 ).In P2P lending markets, capital seekers often voluntarily provide personal
information, such as maritalstatus, number of children, photos, personal descriptions
and descriptions of the project. It has been foundthat these soft facts have a positive
effect on establishing trust and thus influence the likelihood ofsuccessful financing,
lower interest rates and a decrease in the probability of loan defaults (Allison et
al.,2014 ; Berkovich, 2011 ; Duarte et al., 2012 ; Gao & Lin, 2014 ; Herzenstein,
Sonenshein, et al., 2011 ;Pope & Sydnor, 2011 ; Ravina, 2012 ; Yang, 2014 ). Iyer et
al. ( 2009 ) found that, similarly to banks,
capital providers in P2P lending markets primarily rely on hard facts (i.e. credit
ratings) to makeinvestment decisions. But, the poorer the credit ratings, the more soft
facts are taken into account(Berkovich, 2011 ; Iyer et al., 2009 ; Michels, 2012 ).
However, in light of data protection, potentialcapital seekers should weigh exactly
what and how much personal information they need to disclose toachieve their goals
(Böhme & Pötzsch, 2010 )
Pg. 17
DEFINITIONS
1.Fred Wilson, a prominent venture capitalist, calculates that if Americans used just
1% of their investable assets to crowdfund business they would release a $300 billion
surge of capital.
—The Economist
2.Crowdfunding has the potential to revolutionize the financing of small business,

transforming millions of users of social media such as Facebook into overnight
venture capitalists, and giving life to valuable business ideas that might otherwise go
unfunded.
—Wall Street
Journal
4. Besides, isn’t this the type of innovation we should be encouraging? Unlike exotic
derivatives and super- fast trading algorithms, crowdfunding generates capital for job-
creating small businesses.
—New York
Times
5.Robert Litan of the Kauffman Foundation, a think- tank, believes venture- capital
firms would boost crowdfunding if, say, they lent their reputations to young firms and
promised to invest later if they met certain targets. With so much promising
experimentation in the works, Mr. Litan says, “Let’s just hope the SEC doesn’t kill it
off before it gets started.”
—The Economist
Pg. 18
Advantages Of Crowd Funding
It is a new concept in India and many of us are unaware about its advantages. Crowd
funding has proved to be very advantageous.
1. Lack of money becomes a hurdle in the way of talented people. Crowd funding helps
to cross that hurdle and fulfill dreams.
2. It is open to anyone with potential and a dream. Artists, musicians, painters, dancers,
singers, photographers, writers, scientists, event managers anyone can benefit from
crowd funding.
3. It helps collect funds for the project quickly and easily. Don’t have to invest lifetime
savings or wait for years to save money to make ones dream come true.
4. Crowd funding minimizes the tedious fundraising process (and its associated time and
cost) so entrepreneurs spend more time where it counts, on the business. Scrappy
entrepreneurs from humble means are no longer disadvantaged when trying to launch
companies from scratch.
5. Anyone who is interested and has a little capital to spare can participate in financings.
Ultimately, the industry shifts from “rich gets richer” to “smart gets richer.”
Diversification of the investor base is good for management, who receives a wealth of
points-of-view but is no longer beholden to a small number of parties.
6. Complex, difficult, and niche ideas get funded. Entrepreneurs not constrained to 5-7
year payback windows can pursue models with high creativity, democratized
invention, and positive externalities in society. Unusual companies have the oppor-
tunity to form, recruit sharp minds and push boundaries.
Pg. 19
Disadvantages Of Crowd Funding
1. By putting less of their own skin in the game and no longer facing investors one-on-
one, entrepreneurs lose out on the truly valuable step of convincing others
2. Crowd funding information is highly asymmetric with respect to what VCs and (to a
lesser extent) angels obtain in diligence. Investors are susceptible to fraud or just plain
incompetence.
3. Crazy ideas get funded. More ideas get funded today than can possibly return capital,
but with crowd funding the percentage of successes markedly decreases. A lion’s
share of crowd funded investments will never make money and investors will be out-
of-luck. While small, fragmented investments limit the catastrophic risk to any single
investor, too many failures will give crowd funding a bad rap and prompt regulatory
tightening.
History
Crowdfunding has a long history with more than one root. Books have been
crowdfunded for centuries: Authors and publishers would advertise book projects
in praenumeration or subscription schemes. The book would be written and published
if enough subscribers signalled their readiness to buy the book once it was out.
The subscription business model is not exactly crowdfunding, since the actual flow of
money only begins with the arrival of the product. The list of subscribers has, though,
the power to create the necessary confidence among investors that is needed to risk
the publication.
War bonds are theoretically a form of crowdfunding military conflicts. London's
mercantile community saved the Bank of England in the 1730s when customers
demanded their pounds to be converted into gold - they supported the currency until
confidence in the pound was restored, thus crowdfunded their own money. A clearer
case of modern crowdfunding is Auguste Comte's scheme to issue notes for the public
support of his further work as a philosopher. The "Premiere Circulaire Annuelle
adressée par l’auteur du Systeme de Philosophie Positive" was published on 14 March
1850, and several of these notes, blank and with sums have survived.The cooperative
Pg. 20
movement of the 19th and 20th centuries is a broader precursor. It generated

collective groups, such as community or interest-based groups, pooling subscribed
funds to develop new concepts, products, and means of distribution and production,
particularly in rural areas of Western Europe and North America. In 1885, when
government sources failed to provide funding to build a monumental base for
the Statue of Liberty, a newspaper-led campaign attracted small donations from
160,000 donors.
Modern crowdfunding is a new phenomenon mostly with its use of social media. It
first gained popular and mainstream use here in arts and music communities. The first
instance of crowdfunding was in 1997, when fans underwrote an entire U.S. tour for
the British rock group Marillion, raising US$60,000 in donations by means of a fan-
based Internet campaign. The idea was conceived and managed by fans without any
involvement
from the band,although Marillion themselves used this method successfully to fund
the recording and marketing of their 2001 album Anoraknophobia, the first
crowdfunded recording. They continued to do so with subsequent
albums Marbles (2004),Happiness is the Road (2008), and Sounds That Can't Be
Made (2012).
In the film industry, independent writer/director Mark Tapio Kines designed a website

in 1997 for his then-unfinished first feature film Foreign Correspondents. By early
1999, he had
raised more than US$125,000 on the Internet from at least 25 fans, providing him
with the funds to complete his film. In 2002, the "Free Blender" campaign was an
early software crowdfunding precursor.The campaign aimed for open-
sourcing the Blender 3D computer graphics software by collecting $100,000 from the
community while offering additional benefits for donating members.Crowdfunding
gained traction after the launch of ArtistShare, in 2003.
However, Sellaband, started in 2006 as a music-focused platform, initially controlled
the crowdfunding market. This can be contributed to creators and funders, who
perceive the platform to be more valuable with more members. Later, Kickstarter
gained popularity for its wide-ranging focus. Both platforms prohibit equity
funding. However, Sellaband offered revenue sharing, a type of equity crowdfunding,
Pg. 21
for three years after the platform’s founding. It was later controlled by a German
company and heightened security restrictions.The phenomenon of crowdfunding is
older than the term "crowdfunding". The earliest recorded use of the word was
by Michael Sullivan in fundavlogin August 2006.
1.2 Statement of Problem

Lack of finance is the one of the important problems in the business. There are so
many entrepreneurs who have fabulous ideas but lack of funds for commercialization
of this idea. Here is the need of crowdfunding. It is a collective effort by people who
network and contribute collectively for a business idea or a project. The funding is
done with an objective of earning some return either monetary or tangible. In modern
day crowdfunding is related with internet and the use of social media sites for
fundraising. In India crowdfunding is still an infant stage even though the potential is
very high. The paper studies the opportunities and challenges faced by the Indian
online crowdfunding platforms (CFPs) their fund raising strategies, area of focus and
their revenue models. CFPs support business activities as well as social causes.
Crowdfunding concept emerged in US and UK, is an alternative way of raising
capital. It use internet or social networking sites such as linkedIn, Facebook, Twitter
or some other websites. Crowdfunding is a process of one party financing a project by
requesting and receiving small contribution from many parties. Crowdfunding linked
investors with small business startups and projects through an online transaction sites
that removes barriers to entry.
Pg. 22
1.3 Objectives
1.3.A. Major Objectives Of Crowdfunding
1. Key factors that have facilitated crowd funding in developed countries.

2. Models of crowd funding.
3. The legal issues and challenges in India.
4. Risks in crowd funding and how to mitigate them
5. Pros and cons of crowd funding
Objectives of Founders
Unlike many other forms of venture financing, projects engaging in “crowdfunding”
have a wide variety of goals. Many crowdfunded projects seek to raise small amounts
of capital, often under $1000, to initiate a particular one-time project (an event, for
example). In these cases, capital is often provided by friends and family. Increasingly,
however, crowdfunding appears to be a viable source for entrepreneurial seed capital,
allowing entrepreneurs to raise the initial money required to start their new venture.
For example, of the fifty highest funded projects through 2012 on Kickstarter, the
premier crowdfunding site, 45 have turned into ongoing entrepreneurial firms. It is
unclear, however, the degree to which crowdfunding will ultimately substitute for
other forms of more formal venture funding, especially as the rules around
crowdfunding for equity are evolving, and early stage investors typically offer much
more to new ventures than simply funding — including advice, governance, and
prestige. Thus, crowdfunding financing can be used to fund a wide range of
traditional and non-traditional founders.
However, funding need not be the only goal of a crowdfunding effort, even in an
entrepreneurial context. As an example of other goals, crowdfunding has been used by
founders to demonstrate demand for a proposed product, which can lead to funding
from more traditional sources. A case of this use of crowdfunding can be found in the
Pebble “smart watch,” which was initially rejected for venture capital funding but was
able to secure a large amount of VC funding after its Kickstarter campaign.
Pg. 23
Conversely, a lack of demand makes it easy for founders to “fail quickly” if they see
little interest in a project, without the need to invest additional capital or effort.
Crowdfunding has also been used for marketing purposes, creating interest in new
projects in the early stages of development. This has been especially important in
industries where projects seek to create ecosystems of complimentary products. The
crowdfunding success of Pebble and Ouya, a videogame console, led other developers
to write applications for these products even before they were released, helping build
competitive advantage even before the projects were released to the public. Press
attention also potentially follows crowdfunding campaigns, which can be beneficial to
founders. Thus, crowdfunding, like other forms of venture finance, offers a potential
set of resources that go beyond capital which can be beneficial to founders.
Objectives Of Backers
In addition to encompassing a wide range of potential projects, and founding goals,

crowdfunding also differs from other methods of start-up funding because the
relationship between backers and founders varies by context and the nature of the
funding effort.
There are four main contexts in which individuals fund projects, but these contexts
often overlap as projects may allow funders to achieve several different goals
simultaneously.
Some crowdfunding efforts, such as art or humanitarian projects, follow a patronage
model, placing funders in the position of philanthropists, who expect no direct return
for their donations. The second model, the lending model, is one in which funds are
offered as a loan, with the expectation of some rate of return on capital invested. In
the case of microfinance loans, the lender may be more interested in the social good
promoted by the venture than any return generated by the loan, thus including
patronage model elements as well.
The third approach, commonly called reward-based crowdfunding, is the most
prevalent as of the time of this writing. In this approach, funders receive a reward for
backing a project. This can include being credited in a movie, having creative input
into a product under development, or being given an opportunity to meet the creators
Pg. 24
of a project. Alternately, reward-based crowdfunding treats funders as early

customers, allowing them access to the products produced by funded projects at an
earlier date, better price, or with some other special benefit. The “pre-selling” of
products to early customers is a common feature of those crowdfunding projects that
more traditionally resemble entrepreneurial ventures, such as projects producing novel
software, hardware, or consumer products.
Even in the absence of equity crowdfunding, investor model crowdfunding can take
other forms, including, for example: shares of future profits or royalties; a portion of
returns for a future planned public offering or acquisition; or a share of a real estate
investment, among other options.
Even within these contexts, the actual goals of funders are extremely heterogeneous.
Individuals may invest in a patronage model project in order to support a cause that is
viewed as important, to personally support the project founders, as a political
statement, as a joke, or for any one of a number of other reasons. Motivations may be
similarly complex for other approaches to crowdfunding as well.
Pg. 25
2. CONCEPTUAL FRAMEWORK
Crowdfunding is a new technology-enabled innovative process that is changing the

capital market space.However, until the advent of crowdfunding, technology has had
little influence on the capital markets in that entrepreneurs and small business were
restricted to seeking capital to meet their funding needs through traditional channels
shrouded by information asymmetry and personal networks. However, this left a large
segment of fund-seekers unserved by current practices. New innovations, such as
crowdfunding, emerge in response to these unfilled needs and gaps in services
currently provided. The unfilled gap in the capital market place can best be
understood by noting that typically, start-up firms use venture capitalists, angel
investors and banks deem as informal investing for raising funds. However, the
capital markets are still in many instances operating on rules and regulations
established as a reaction to the stock market crash in 1929. In addition, the dot.com
bust of the early 2000s along with the economic crisis beginning in 2008 greatly
constrained the capital markets, significantly reduced debt financing for small and
medium sized businesses, and curtailed venture capital (VC) financing by over 82
percent between 2000 and 2009, which made access to funding the most critical
resource for entrepreneurs and businesses in the early stages of formation. And while
evidence shows that VC funding levels have returned to 2007 levels, these sources are
investing much later in the business cycle; thus, start-up firms remain starved for
cash. Despite these funding difficulties, or perhaps because of these difficulties, a new
process for obtaining capital has emerged in response to the current ineffective
institutionalized capital markets. Known as crowdfunding, the concept involves using
the Internet and the power of the crowd to raise capital in an open and transparent
manner. The crowdfunding phenomenon represents an ICT enabled solution to the
constraints and limitations that have arisen from institutionalization and economic
pressures in the capital markets. Given the importance of entrepreneurs’ and small
businesses’ role in a strong economy, understanding the use of technology to
overcome many of the current financial constraints in the capital markets is critical to
a growing economy. Given the newness of this funding source and the increasing
Pg. 26
reliance that entrepreneurs will likely have on crowdfunding, we need to better

understand this phenomenon. However, to date, little has been written about it in a
comprehensive, cohesive manner, and we sense that a certain amount of confusion
surrounding crowdfunding exists.
2.1. Crowdsourcing And Crowdfunding
Crowdfunding draws inspiration from concepts like micro-finance (Morduch, 1999)

and crowdsourcing (Poetz andSchreier, 2012), but represents its own unique category
of fundraising, facilitated by a growing number of internetsites devoted to the topic.
Crowdfunding is based on the principle of crowdsourcing. It is an application of
crowdsourcing.Jeff Howe defines crowdsourcing as the power of the many that can be
leveraged to accomplish feats that were oncethe responsibility of a specialized few, in
his book Crowdsourcing: How the Power of the Crowd Is Driving theFuture of
Business.Wikipedia is one of the best known examples of a crowdsourcing model. It
is an online encyclopaedia that iscompletely written by users, containing over 3
million articles in English. A large number of people, each one ofwhom putting a little
effort in reaching a big goal together.
Pg. 27
2.2. The Crowdfunding Operations
Pg. 28
2.3. Major Models Of Crowdfunding
2.4. Founders
We use the term “founder” to represent those individuals who post their idea on a
crowdfunding website to receive funding. Individuals seeking funding come from a
wide variety of backgrounds and have a wide range of goals. A variety of terms have
been used in the literature, such as “creator”, “borrower”, “entrepreneur”, “firm”,
“founder”, “owner”, and “start-up”. However, many of these labels are too narrow
and invariably leave out a portion of participants. For example, not all individuals
seeking funding may classify themselves an entrepreneur or have a goal of starting a
business. Of terms currently in use, we propose the term “founder”, defined as “a
person who founds or establishes” to refer to those who start communities, charitable
organizations, and businesses. The comprehensiveness of its meaning, and its current
usage in the literature, lends credibility to the term. The crowdfunding phenomenon is
driven by founders’ unfulfilled need for capital. The founders’ role in the
Pg. 29
crowdfunding ecosystem is to envision a product or project and then present their

ideas clearly and compellingly to would-be backers through the use of a
crowdfunding website. During the campaign, founders control access to information
by being accessible and transparent. In addition to raising capital, founders may use
crowdfunding to test market an idea to gain exposure for future funding to gain
validation and to build relationships by fostering open communication and
collaboration with backers. Founders come to crowdfunding with a wide range of
experience and can vary from firms with credentialed teams to individuals with little
to no experience who are just starting college. Two aspects are important to consider:
1) business experience, and
2) product experiences and skills.
Founders with business experience have started previous businesses or been involved
in start-up firms and have the advantage of a better understanding of what is needed to
take a business from concept to a running concern. The second type of experience is
related to the actual product or project itself. For example, an artist raising money on
Sellaband.com may be an accomplished musician, but may have little business
experience in marketing or distributing their produced album. The founders overall
experience varies along these two dimensions: a founder may be strong in both
business and project expertise, may being strong in only one dimension, or may have
little experience or skill in either dimension.
Pg. 30
2.5. Backers
Equally important to the crowdfunding ecosystem are the backers of crowdfunded

projects. The role of the backer goes beyond just contributing money: they also play a
role in testing the market and providing judgment toward what is a good idea and
whether a concept is worth pursuing. Backers can contribute monetarily and/or
through the use of social media and their own personal networks by spreading the
word about a project. Because their role extends beyond a purely monetary one, we
use the broader term, “backer”, in favour of other terms such as “consumer”,
“contributor”, “crowd funder”, “funder”, “investors”, and “lender”, all of which are
currently in use in the literature. There are numerous theories that may explain a
backer’s motivation for contributing to a crowdfunding campaign. Backers participate
because they want to be part of the project or may want others to recognize their
participation. Early adoption may play a role, and evidence suggests that some
backers focus on the material return received in exchange. Although limited research
has been conducted on backers’ motivations for contribution in the crowdfunding
context, in reality, it is most likely a combination of these factors. In exchange for
their choices and contributions, backers receive extrinsic rewards (e.g. a return on
their investment, a copy of the product, etc.) and an intrinsic reward (e.g., a “warm
glow” or the feeling of being a part of something).
Pg. 31
2.6. Angel/VC/Funds/Banks
We group this set of entities together as those who more traditionally fulfil the role of
providing capital to founders. Current practices dictate a small group of gate holders
who, through algorithms, personal networks, and back-room deals determine which
founders will receive funding and which will not. Competition is high for VC funds,
and anecdotal evidence suggests that less than one in one hundred to perhaps one in
one thousand business plans presented to a VC are ever funded. Crowdfunding, on the
other hand, is a new technology-enabled innovation that significantly alters the
institutionalized process of raising capital by founders and has been referred to as the
democratization of entrepreneurial funding. The question remains open about what
impact crowdfunding will have on this group of stakeholders: will these traditional
stakeholders be displaced or will they embrace crowdfunding? New entrants in a
market can have several impacts: they can provoke a more highly competitive
marketplace in which margins are reduced and consumers benefit. Alternatively,
when demand for the product is strong, new entrants do not reduce the market share
of existing firms but instead enlarge the market. So far, the latter seems to be the case
with crowdfunding. There are several reasons for this. First, many projects are not
appropriate for funding through traditional means because they have an unproven
track record, may not have the growth potential that VC firms or angel financing seek,
may be more artistic/less commercially focused, or because the funding is for a
specific project as opposed to starting or growing a business. For these projects,
traditional forms of financing were never an option and, thus, crowdfunding has
enlarged the market. Other instances show how traditional sources of financing may
look to crowdfunding as a value-added step through which a market can be identified.
For example, a VC firm may be morewilling to back a company if they have
successfully proven, through crowdfunding, that a market exists.
Pg. 32
2.7. Crowdfunding Ecosystem
Each arrow represents:
a. A founder posts their idea/project on a crowdfunding website.

b. The website provider provides space to describe the project and features such as the
ability to post a video, communicate with
backers, tools to analyse traffic to the project page, and integration with third party
payment processing systems to distribute funds
to founders.
c. Backers use the crowdfunding website to explore projects and decide whether to
contribute.
d. The website providers allow communication between the backers and the founders
and provide secure payment processing
system to collect the funds from the backers.
e. Founders will continue to use the traditional capital markets for some projects.
f. Traditional capital markets will turn to crowdfunding websites in some instances;
for example, to validate whether a market exists
and explore different price points.
g. All crowdfunding activity occurs in the context of laws, regulations, and ethics
Pg. 33
3. ESSENCE OF CROWDFUNDING
3.1. Types of Crowdfunding
Crowd-funding: An Infant Industry Growing Fast, Crowd-funding can be divided into

three categories:
I. Donation-Based Crowdfunding,
A. Reward-Based Crowdfunding,
B. Charity-Based Crowdfunding,
II. Debt-Based Crowdfunding,
III. Equity-Based Crowdfunding.
Pg. 34
I. Donation-Based Crowdfuning
This is the most popular type of crowdfunding at this time. Donation crowdfunding
has two types:
A. Rewards crowdfunding,
B.Charity crowdfunding.
A. Reward-Based Crowdfunding
Rewards-based crowdfunding is where contributions are exchanged for current or

future of goods or services. Individuals or companies who launch campaigns may
compensate contributors with something like a t-shirt, a copy of whatever they’re
building or even just a thank you.
Rewards-based crowdfunding is perhaps the most prolific form of crowdfunding
currently taking place in the US. Kickstarter and Indiegogo facilitate Anyone can go
create a web page on these sites and pitch an idea. A famous example of this is the
Pebble Watch. Pebble used Kickstarters to pitch their idea: a relatively inexpensive e-
paper watch that could be customized with apps to do things like display calendar
notifications and emails. They outlined their idea on Kickstarter, made a video about
the product and set a goal of $100,000 to complete R&D. A donation of $100 earned
you a promise that you’d receive the watch when they are done. Different donation
amounts had different rewards attached. You could even donate $10,000 for 100
watches!
Had the $100,000 goal not been met, the donors would get their money back and
everyone goes on their merry way. Specific rules on funding vary by web site. In the
case of Pebble, the goal was met, so the money was transferred from Kickstarter to
Pebble. Kickstarter charges a 5% commission. Pebble is now obligated to give
everyone what they paid for. By the time the campaign was over Pebble had collected
$10 million, or 100 times their initial goal. Pebble now has the capital they need to
create the product and they’ve already tested the market. They’re off to the races.
Pg. 35
Appropriate for: Projects in the arts (movies, art, music, etc.), companies looking to
test markets, charitable groups and causes.
B. Charity-Based Crowdfunding
Charity-Based crowdfunding takes place when an individual, company or

organization accepts charitable donations. Pretty simple, right? This has been taking
place for a long time, albeit it may not have always been called
“crowdfunding.” Wikipedia, the Red Cross, political parties, etc. all participate in
donation-based crowdfunding.
Appropriate for: Non-profits and causes.
II. Debt-Based Crowdfunding
Debt-based crowdfunding is another form of crowdfunding that is gaining attraction.

This model of crowdfunding involves requesting support and resources from other
investors in exchange for interest.
Debt-based crowdfunding, which is also commonly referred to as “crowd lending”,
has proven to be a great alternative for start-ups, because although it is similar to
acquiring a traditional bank loan, but often with competitive and lower interest rates,
with more flexibility and options to secure resources.
It is a great opportunity for small business owners and start-ups to acquire financial
support and resources outside of traditional lending forms, such as banks and credit
unions.
From the perspective of an investor entering into debt crowdfunding, an investor
receives shares for their investments, with the expectations that the organization or
start-up they are investing in will pay dividends on profit shares. Additionally, the
start-up may grow and develop over time to a point where an investor can sell those
shares at a higher rate than when they were purchased.
Pg. 36
In debt crowdfunding you are also investing in a security of the company (namely a
debt instrument of some type) where your goal is to loan your money to the company
with a fixed repayment term and the company pays you a specified interest rate during
the term of the loan.
Investors can work with various debt instruments when entering into a debt-based
crowdfunding agreement. Some instruments allow for entering into shares that relate
to potential company growth whereas others are strictly interest-based. Additionally,
there are secured and unsecured debt instruments. Interest rates are typically based on
the level of risk associated with a particular start up or entity.
III. Equity-Based Crowdfunding
Where rewards-based crowdfunding fails, equity crowdfunding picks up some of the

slack. It plays better with existing businesses whose products or services may lack
some of the sexiness we’ve seen on popular rewards-based portals. And while the
downside includes some equity dilution with the private placement, it typically lends
itself better to sophisticated investors with comfort in a specific market niche. Such an
investor could prove more beneficial than the capital s/he provides to the campaign.
Networks, experience and personal contacts may make all the difference in the
success or failure of the business.
Currently, most equity crowdfunding campaigns are attracting less than 20 investors,
which lends itself to a much more manageable group. While we certainly shouldn’t
place backers and investors in the same bucket, the post-campaign time demand from
said groups are worth noting. For instance, having 2,000 backers in a rewards-based
campaign is likely to prove a larger drain on resources than say five investors with
deep pockets from an equity-based campaign. Both groups can be unforgiving and
unrelenting when it comes to delivering on promises touted in the campaign, but the
larger the group, the more resources will be needed to fend off the fray.
The statistic that 8 out of 10 start-ups fail is fairly accurate. That’s why many expect
the future growth in crowdfunding is likely to lend itself more to existing, successful
businesses seeking growth or working capital financing in exchange for equity, debt
or warrants. It’s a more plausible scenario because investors like safe bets with nearly
Pg. 37
guaranteed cash flows. When the dust finally settles, we’ll certainly see some more
big wins like Oculus Rift, but the safe bets in existing businesses, product lines and
business teams are likely to provide less risky returns than the high risk gamble of
putting all you crowdfund investment into a bunch of mobile app or gaming start-ups.
In essence, some equity crowdfund investments will look more like debt instruments
or traditional private equity while others will mirror traditional venture capital plays.
3.2. A Note On The Full Implementation Of Crowdfunding
While we’re not at the stage where online fundraising allows for non-
accredited crowdfund investors to purchase securities using a credit card, I expect
we’ll be there soon enough. Full equity crowdfunding will certainly present its own
challenges, but until it’s fully implemented, the aforementioned “pointers” apply.
Shareholders should always keep in mind that neither equity or rewards-based
crowdfunding are mutually exclusive. Both forms could be used in tandem or at
separate intervals to help provide a boost to the business or a specific project. The
timing, nature, structure and target demographic of either type of campaign is likely to
be wildly different. The knowledge of being successful on Kickstarter is likely not
going to transfer over when you need to create a pro-forma financial statement for
Equity net. Most consultants good at drafting a private placement, including attorneys
and accountants, are certainly not going to be good at assisting with a creative video
for your campaign.
The best approach for any small business deciding what type of crowdfunded finance
is right for their particular situation will always be an “it depends” scenario. It does
help to know the ins and outs of both options to ensure shareholders make the right
decision relative to their individual situation and business needs.
Pg. 38
3.3. Role
The inputs of the individuals in the crowd trigger the crowdfunding process and
influence the ultimate value of the offerings or outcomes of the process. Each
individual acts as an agent of the offering, selecting and promoting the projects in
which they believe. They sometimes play a donor role oriented towards providing
help on social projects. In some cases, they become shareholders and contribute to the
development and growth of the offering. Individuals disseminate information about
projects they support in their online communities, generating further support
(promoters). Motivation for consumer participation stems from the feeling of being at
least partly 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). Additionally, individuals participate in crowdfunding to see new and
innovative products before the public. Early access often allows funders to participate
more directly in the development of the product. Crowdfunding is also particularly
attractive to funders who are family and friends of a creator. It helps to mediate the
terms of their financial agreement and manage each group’s expectations for the
project.
An individual who takes part in crowdfunding initiatives tends to reveal several

distinct traits: innovative orientation, which stimulates the desire to try new modes of
interacting with firms and other consumers; social identification with the content,
cause or project selected for funding, which sparks the desire to be a part of the
initiative; (monetary) exploitation, which motivates the individual to participate by
expecting a payoff. Crowdfunding platforms are motivated to generate income by
drawing worthwhile projects and generous funders. These sites also seek widespread
public attention for their projects and platform.
Crowdfunding websites helped companies and individuals worldwide raise US$89
million from members of the public in 2010, $1.47 billion in 2011, and $2.66 billion
in 2012 — $1.6 billion of the 2012 amount was raised in North America. In 2012,
Pg. 39
more than one million individual campaigns were established globally and the
industry was projected to grow to US$5.1 billion in 2013 and to reach US$1 trillion in
2025. A May 2014 report, released by the United Kingdom-based The Crowdfunding
Centre and titled "The State of the Crowdfunding Nation", presented data showing
that during March 2014, more than US$60,000 were raised on an hourly basis via
global crowdfunding initiatives. Also during this period, 442 crowdfunding
campaigns were launched globally on a daily basis.
3.4. Platforms
As of 2012, over 450 crowdfunding platforms had been established. Project creators

need to exercise their own due diligence to understand which platform is the best to
use depending on the type of project that they want to launch. Fundamental
differences exist in the services provided by many crowdfunding platforms. For
instance, Kick-starters, Crowd Cube and Seders are Internet platforms which enable
small companies to issue shares over the Internet and receive small investments from
registered users in return. While Crowd Cube is meant for users to invest small
amounts and acquire shares directly in start-up companies, Seders pools the funds to
invest in new businesses, as a nominated agent.
Curated crowdfunding platforms serve as "network orchestrators" by curating the
offerings that are allowed on the platform. They create the necessary organizational
systems and conditions for resource integration among other players to take
place. Relational mediators act as an intermediary between supply and demand. They
replace traditional intermediaries (such as 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. Growth engines focus on the strong inclusion of
investors. They "disintermediate" by 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.
Pg. 40
3.5. Kickstarters
Kickstarter is an American public-benefit corporation based in Brooklyn, New

York which has built a global crowdfunding platform focused on creativity. The
company’s stated mission is to help bring creative projects to life. Kickstarter has
reportedly received more than $1.9 billion in pledges from 9.4 million backers to fund
257,000 creative projects, such as films, music, stage shows, comics, journalism,
video games, technology and food-related projects.
People who back Kickstarter projects are offered tangible rewards and one of a kind
experiences in exchange for their pledges.This model traces its roots to subscription
model of arts patronage, where artists would go directly to their audiences to fund
their work.
3.6. Model
Kickstarter is one of a number of crowdfunding platforms for gathering money from

the public, which circumvents traditional avenues of investment. Project creators
choose a deadline and a minimum funding goal. If the goal is not met by the deadline,
no funds are collected, a kind of assurance contract. The platform is open to backers
from anywhere in the world and to creators from the US, UK, Canada, Australia, New
Zealand, The Netherlands, Denmark, Ireland, Norway, Sweden, Spain, France,
Germany, Austria, Italy, Belgium, Luxembourg and Switzerland.
Kickstarter applies a 5% fee on the total amount of the funds raised. Their payments
processor applies an additional 3–5% fee. Unlike many forums for fundraising or
investment, Kickstarter claims no ownership over the projects and the work they
produce. The web pages of projects launched on the site are permanently archived and
accessible to the public. After funding is completed, projects and uploaded media
cannot be edited or removed from the site.
There is no guarantee that people who post projects on Kickstarter will deliver on
their projects, use the money to implement their projects, or that the completed
Pg. 41
projects will meet backers' expectations. Kickstarter advises backers to use their own
judgment on supporting a project. They also warn project leaders that they could be
liable for legal damages from backers for failure to deliver on promises. Projects
might also fail even after a successful fundraising campaign when creators
underestimate the total costs required or technical difficulties to be overcome.
Asked what made Kickstarter different from other crowdfunding platforms, co-
founder Perry Chen said: "I wonder if people really know what the definition of
crowdfunding is. Or, if there’s even an agreed upon definition of what it is. We
haven’t actively supported the use of the term because it can provoke more confusion.
In our case, we focus on a middle ground between patronage and commerce. People
are offering cool stuff and experiences in exchange for the support of their ideas.
People are creating these mini-economies around their project ideas. So, you aren’t
coming to the site to get something for nothing; you are trying to create value for the
people who support you. We focus on creative projects—music, film, technology, art,
design, food and publishing—and within the category of crowdfunding of the arts, we
are probably ten times the size of all of the others combined."
3.7. Categories
Creators categorize their projects into one of 13 categories and 36 subcategories. They

are: Art, Comics, Dance, Design, Fashion, Film and Video, Food, Games, Music,
Photography, Publishing, Technology and Theatre. Of these categories, Film & Video
and Music are the largest categories and have raised the most amount of money.
These categories, along with Games, account for over half the money raised. Video
games and table top games alone account for more than $2 out of every $10 spent on
Kickstarter.
Pg. 42
3.8. Guidelies
To maintain its focus as a funding platform for creative projects, Kickstarter has
outlined three guidelines for all project creators to follow: creators can fund projects
only; projects must fit within one of the site's 13 creative categories; and creators
must abide by the site's prohibited uses (including charity, fraud like and awareness
campaigns). Kickstarter has additional requirements for hardware and product design
projects. These include
 Banning the use of photorealistic renderings and simulations demonstrating a

product
 Banning projects for genetically modified organisms.
 Limiting awards to single items or a "sensible set" of items relevant to the project
(e.g., multiple light bulbs for a house)
 Requiring a physical prototype
 Requiring a manufacturing plan
The guidelines are designed to reinforce Kickstarter’s position that people are backing
projects, not placing orders for a product. To underscore the notion that Kickstarter is
a place in which creators and audiences make things together, creators across all
categories are asked to describe the risks and challenges a project faces in producing
it. This educates the public about the project goals and encourages contributions to the
community.
3.9. Project Cancellations
Both Kickstarter and project creators have cancelled projects that appeared to have
been fraudulent. Questions were raised about the projects in internet communities
Pg. 43
related to the fields of the projects. The concerns raised were: apparent copying of
graphics from other sources; unrealistic performance or price claims; and failure of
project sponsors to deliver on prior Kickstarter projects.
4. ESSENCE OF CROWDFUNDING II
4.1. Benefits For The Creator
Crowdfunding campaigns provide producers with a number of benefits, beyond the

strict financial gains. The following are non-financial benefits of crowdfunding:
 Profile – a compelling project can raise a producer's profile and provide a boost to
their reputation.
 Marketing – project initiators can show there is an audience and market for their
project. In the case of an unsuccessful campaign, it provides good market
feedback.
 Audience engagement – crowd funding creates a forum where project initiators
can engage with their audiences. Audience can engage in the production process
by following progress through updates from the creators and sharing feedback via
comment features on the project's crowdfunding page.
 Feedback – offering pre-release access to content or the opportunity to beta-test
content to project backers as a part of the funding incentives provides the project
initiators with instant access to good market testing feedback.
Some of the advantages of the crowdfunding mechanism are that due to less
regulatory framework, easy access to capital is possible which boosts the growth of
micro, small and medium scale industries and start-ups leading to recovery and boost
of economy and enhanced job creation. Unlike banks which have a rigid regimes of
raising capital, un-collatarised peer to peer lending leads to higher generation of
capital at minimum amount of times and inculcate the habit of saving and investment
in public.
Pg. 44
The web hosting platforms are cost efficient and hence charge nominal fees for
service rendered. The added advantage is the convenience as they are easily
accessible to millions of users internationally who surf internet. Platforms are flexible
as the entrepreneur can change advertisements as and when it suits them all of which
leads to prompt raise of money giving a boost to the economy
There are also financial benefits to the creator. For one, crowdfunding allows creators
to attain low-cost capital. Traditionally, a creator would need to look to "personal
savings, home equity loans, personal credit cards, friends and family members, angel
investors, and venture capitalists." With crowdfunding, creators can find funders from
around the world, sell both their product and equity, and benefit from increased
information flow. Additionally, crowdfunding that supports pre-buying allows
creators to obtain early feedback on the product. Proponents of the crowdfunding
approach argue that it allows good ideas which do not fit the pattern required by
conventional financiers to break through and attract cash through the wisdom of the
crowd. If it does achieve "traction" in this way, not only can the enterprise secure seed
funding to begin its project, but it may also secure evidence of backing from potential
customers and benefit from word of mouth promotion in order to reach the
fundraising goal. Another potential positive effect is the propensity of groups to
"produce an accurate aggregate prediction" about market outcomes as identified by
author James Surowiecki in his book The Wisdom of Crowds, thereby placing
financial backing behind ventures likely to succeed.
Proponents also identify a potential outcome of crowdfunding as an exponential
increase in available venture capital. One report claims that If every American family
gave one percent of their investable assets to crowdfunding, $300 billion (a 10X
increase) would come into venture capital. Proponents also cite that a benefit for
companies receiving crowdfunding support is that they retain control of their
operations, as voting rights are not conveyed along with ownership when
crowdfunding. As part of his response to the Amanda Palmer Kickstarter controversy,
Albini expressed his supportive views of crowdfunding for musicians, explaining:
"I've said many times that I think they're part of the new way bands and their audience
interact and they can be a fantastic resource, enabling bands to do things essentially in
cooperation with their audience." Albini described the concept of crowdfunding as
"pretty amazing."
Pg. 45
4.2. Crowdfunding Cons
1. It’s stressful. Talk to almost anyone who has run a crowdfunding project, and
they’ll tell you that running a campaign isn’t easy, and that it’s usually filled
with unexpected ups and downs – even when successful. On the emotional
roller coaster scale, think Space Mountain… not the kiddie rides.
2. Plotting successful crowdfunding ventures demands a different kind of
preparation than traditional product pitches. You’re reaching out to end
consumers, not professional investors – a completely different and far more
diverse audience. This may require knowledge of consumer marketing, social
networks and social marketing techniques in order to converse with these
customers, as well as some familiarity with customer acquisition and
conversion as well.
3. It puts you and your ideas out directly in front of the public – and, potentially,
the line of fire. Crowdfunding isn’t for the faint of heart or the terminally
bashful. There’s also no opportunity to operate in stealth mode, meaning that
competitors may be able to capitalize on public knowledge of your company
or product.
4. Success requires investing tireless effort into ongoing social marketing
campaigns, and constant self-promotion, throughout the entire duration of the
fundraising campaign. If you’re shy, guarded or soft-spoken by nature, you’ll
have to get over these tendencies to run a successful crowdfunding campaign –
or find someone else to serve as a project spokesperson.
5. It requires that you be very creative about drumming up interest in your

project, and it means you will be constantly looking for new ways to publicize,
Pg. 46
promote and otherwise call attention to your campaigns and surrounding

efforts.
6. It doesn’t always work. That’s not to say that you should be discouraged about
the chances of successfully crowdfunding a project, but you do have to be
realistic, and prepare yourself for potential failure. This often means having to
have a Plan B – and C, D, etc.
7. Crowdfunding requires that your project – whatever its theme, scope or
contents – be something that interests a sufficient number of people strongly
enough to motivate them to part with hard-earned cash. Part of the process of
evaluating whether to undertake a crowdfunding effort is to take a careful,
critical look at your project and assess the size of the potential audience to
whom it will appeal, as well as the perceived value it will bring them. When
you are executing the campaign, you’ll have to target this market specifically,
and you’ll need to strategize how to engage them where they consume media,
news, opinions and insights on a regular, running basis – no small task.
Some of the risks related to Crowd funding are that there is no secondary market to
dump the equity shares if they turn unproductive or in case of defaults. Companies
Act, 2013 prohibits any kind of secondary market for private listing and hence
investors are stuck with bad equity shares which are a huge risk as around 86% of
crowd funding investment turns out to be bad. The second risk is that in peer-to-peer
lending there is a high rate of defaults as borrowers with no collateral as guarantee
take the money from the lenders.
Third kind of risk is from the portals which also serve as intermediaries between
investor and entrepreneur may temporarily or permanently shut down due to overdue
maintenance, hacking etc. When this happens there is a chance that investors will not
get their money as the money is kept by the portals for safe keeping until the target
amount is reached. One such example is in 2011, Quackle which closed suddenly
overnight leaving no information on the borrowers or lenders and consequently the
contracts could not be fulfilled resulting in 100% loss. Also as intermediaries, portals
face a significant risk of liability arising out of false disclosures by fundraisers. Since
in most countries, the platforms are unregulated and crowd funding are in nature of
cross-border transactions, complex legal issues arise in case of recovery of money for
defaults. Due to the unsophisticated nature of the platforms, it paves way for serious
Pg. 47
cyber crimes from overloading the platform’s infrastructure, to confusing accounts

and/or identity theft.
The fourth kind of risk posed to contributors is the lack of transparency and
information asymmetry. The information provided in the portal are inadequate many a
times and it always requires specializedknowledge to know whether the proposed
product will generate revenue or not and since the unsophisticated investors lack such
specialized knowledge, they can be duped easily. Similarly, music or visual art related
projects involve a high degree of subjectivity as to its revenue generation capability.
Since investors have nil background in such ventures, many a times they invest
money in movies or music concerts which fail to generate expected revenue. Further,
when investing in a crowdfunded project, contributors are reliant solely upon the
representations of fundraisers and do not undertake a due diligence on the company
that they are investing into. The platforms do not verify or review the veracity of the
claims made by the entrepreneurs made in the platforms. The lack of a detailed review
on the fundraising company opens up the possibility of fundraising companies to
conceal information relevant to the future of the company, whether actively or
passively. Hence, many times information may be false or misleading to dupe money
out of innocent investors. Also the lack of requirement of a detailed review by a
industry specialist opens gateway for more fraud and loss of money.
Pg. 48
4.3. Risks And Barriers For The Creator
Crowdfunding also comes with a number of potential risks or barriers. For the creator,
as well as the investor, studies show that crowdfunding contains "high levels of risk,
uncertainty, and information asymmetry."
 Reputation – failure to meet campaign goals or to generate interest results in a

public failure. Reaching financial goals and successfully gathering substantial
public support but being unable to deliver on a project for some reason can
severely negatively impact one's reputation.
 IP protection – many Interactive Digital Media developers and content

producers are reluctant to publicly announce the details of a project before
production due to concerns about idea theft and protecting their IP from
plagiarism. Creators who engage in crowdfunding are required to release their
product to the public in early stages of funding and development, exposing
themselves to the risk of copy by competitors.
 Donor exhaustion – there is a risk that if the same network of supporters is

reached out to multiple times, that network will eventually cease to supply
necessary support.
 Public fear of abuse – concern among supporters that without a regulatory

framework, the likelihood of a scam or an abuse of funds is high. The concern
may become a barrier to public engagement.
For crowdfunding of equity stock purchases, there is some research in social

psychology that indicates that, like in all investments, people don't always do their
due diligence to determine if it's a sound investment before investing, which leads to
making investment decisions based on emotion rather than financial logic. By using
crowdfunding, creators also forgo potential support and value that a single angel
investor or venture capitalist might offer. Likewise, crowdfunding requires that
creators manage their investors. This can be time consuming and financially
burdensome as the number of investors in the crowd rises. Crowdfunding draws a
crowd: investors and other interested observers who follow the progress, or lack of
Pg. 49
progress, of a project. Sometimes it proves easier to raise the money for a project than
to make the project a success. Managing communications with a large number of
possibly disappointed investors and supporters can be a substantial, and potentially
diverting, task.
Some of the most popular fundraisings are for commercial companies which use the
process to reach customers and at the same time market their products and services.
This favours companies like microbreweries and specialist restaurants – in effect
creating a "club" of people who are customers as well as investors. In the USA in
2015, new rules from the SEC to regulate equity crowdfunding will mean that larger
businesses with more than 500 investors and more than $25 million in assets will have
to file reports like a public company. The Wall Street Journal commented "It is all the
pain of an IPO without the benefits of the IPO." These two trends may mean
crowdfunding is most suited to small consumer facing companies rather than tech
start-ups.
4.4. Important Factor Associated With Successful Fundraising?
The factors that lead to successful fundraising for entrepreneurial ventures have been
of great interest to scholars, usually in the context of venture capital. Since
investments are uncertain, investors often need to act on partial information about
particular ventures. Particularly important in the selection process, given the often
diffuse and unreliable data that surrounds new ventures, are potential signals of
quality. Researchers have identified several key quality signals that lead to investment
in more traditional face-to-face investment settings, including the quality of the
preparation demonstrated by aspiring entrepreneurs. The presumption is that these
signals reveal the underlying quality of projects and ensure that higher-quality
projects are more likely to receive funding.
Crowdfunding, of course, is a very different setting for entrepreneurial fundraising,
and it is much less clear how individuals demonstrate preparation or draw on strategic
networks in a virtual environment. Even more critically, it is not even obvious that
quality need be an important determinant in funding. Indeed, critics of crowdfunding
have raised concerns that project quality may not be as clear or as influential to
Pg. 50
funders in crowdfunding settings compared with more traditional investments. If

signals of quality are less salient in crowdfunding, it suggests that this form of
financing may be inefficient in selecting high potential entrepreneurs, and open to
fraud and misuse. However, if crowdfunding responds to known quality signals in the
same way as other providers of entrepreneurial capital, it reinforces both the validity
of these factors in predicting the performance of entrepreneurial ventures and the
ability of crowdfunding to select appropriate ventures to back. Thus the response of
crowd funders to quality signals indicates whether crowdfunding backers assess the
prospects of success of projects, or whether their decision-making is solely based on
other, naiver investment criteria.
4.5. Implications Of Crowdfunding
We are about to experience the grandest expression of human creativity and economic
growth ever seen in the history of human civilization. Innovative breakthroughs that
took decades to create, fund, develop and bring to market will now take mere months.
New ideas will be free market tested earlier in their development cycle and discarded
or funded at a faster rate. The old innovators mantra of try a lot of stuff and keep what
works will be applied at hyper speed rates.
It is universal amongst mankind that right after the health and security of their family
what is most sought is a good job. Crowdfunding creates jobs.
Crowdfunding is human will have expressed in pure form. A person with a vision
becomes a dream funded on a mission. It is the explosive combination of democracy
and free market capitalism. It’s democracy and capitalism in action: think you have a
great idea? Convince enough people and you can make it a reality. If not, back to the
drawing board. It allows new ideas to get funded and to be free market tested at a
lower cost, with less complexity, in less time than ever before. Experimentation has
now become possible for millions that were previously excluded from having any
chance for their idea to be tried. I am confident that this simple breakthrough socio-
economic tool is about to herald in mankind’s greatest era.
Every human has a need to feel a part of some great cause and rewarding project. The
greatest tragedy of this recession is not the toll on all our bank accounts it is the toll
on the human spirit. Crowdfunding is about to be the spark that energizes people to
follow their dreams, and to join others that they believe in, to pursue a cause worthy
Pg. 51
of pursuing. Now more than ever we crave something to believe in, something to
support, a reason to care.
A case can be made that the real cause of this worldwide recession is a loss of
confidence in these five major forms:
 Loss of consumer confidence to buy things.
 Loss of investor confidence to invest.
 Loss of business confidence to buy and hire for growth.
 Loss of bank confidence to make loans to businesses.
 Loss of availability of credit to potential buyers.
We believe crowdfunding can be the spark that ignites growing confidence in all five
of these essential areas. When people are given the opportunity to pursue their dreams
they light up the world around them with enthusiasm, which leads to accomplishment,
gratitude and increased confidence.
This simple adaptation in the way new ideas are funded is what we have needed to
grow, not only economically but also socially. It is perhaps the most important
innovative economic development ever. It changes everything. Communities
empower individuals and individuals empower communities. Now suddenly everyone
everywhere has a decent shot at getting a million dollars in funding on any given day.
Talk about waking people up to hope and excitement. Talk about a true meritocracy –
this is it. You are now truly as good as your idea and your ability to gather support. It
is far more efficient than the old models of financing.
The funds of the crowdfunding actually go primarily to the producers and not to non-
value adding middlemen and bureaucrats. Customers become investors become
apostles, mentors and supporters. A community with a common mission. A win
scenario for all. There is no more powerful force on earth than a person given a fair
chance to pursue the true dreams of their heart.
Crowdfunding engages customers and involves them. In the modern age engaging
customers is essential to growth.
Crowdfunding has the opportunity to fuel another development whose time has come
– conscious capitalism or social good entrepreneurship and the age of the social good
entrepreneur. Doing well by doing good is about to become the norm not the
exception. We will see the birth of a new stock exchange that is more deeply
connected with our fundamental desire to support the happiness of people, their
Pg. 52
health, sustainable communities and our environment. A more caring approach to

customers, co-workers, investors and the community will be good business because
consumers and investors will reward these types of enterprises.
A new way of work and monumental shift in the relationships between consumers,
employees and employers has begun to happen. Everyone is about to become an
entrepreneur. What used to be known as your employer will now be the anchor
customer of your independent contracting business. Thirty years from now when a
young person is asked the simple question “what do you do?” the reply will rarely be
one single answer. Most people will have at least three streams of income.
There are more than 7 billion people worldwide with 2 billion with access to the
Internet. All 7 billion people have similar needs, wants and desires. Human nature
after all is relatively consistent. We all want food, shelter, means of transport,
entertainment, security, joy and happiness. Until all 7 billion of us have had all our
needs and desires met, a potential growth market exists for entrepreneurs to fill.
Modern communication tools such as the Internet and efficient means of transport
have set the stage for world commerce to boom. The two missing elements have been
that most people with dreams could not find financing and most people interested to
buy things could not find financing. Crowdfunding and microloans implemented
through crowdfunding can address both of these missing pieces that will enable the
highest level of economic growth we have ever experienced.
What’s new about crowdfunding you ask that is not already in place? Why will this
simple innovation have such profound impact? Here is a listing.
There were so many obstacles and upfront costs to funding new ideas with the old
methods that it discouraged most to participate.The average IPO in the USA costs
more than $2.4 million up front to have the first right to sell shares of a company to
the public with limited general solication allowed. Crowdfunding will be the spark
that gets people that never before thought of investing in a start-up in their community
to do so now.
Social sharing of great new ideas is contagious. Multiple social media platforms
stretching the world have been developed with billions of participants. The
crowdfunding law change will unleash the enormous power of social media to mate
good ideas led by good people with capital. This will change the world. The small
entrepreneur with little resources to start will now be empowered. Economic growth
is driven by innovation. Innovation is driven by experimentation.
Pg. 53
Crowdfunding funds experimentation. Lots of funders equals lots of help equals a

better chance of success.Ben Franklin said, “Money is a proliferative by nature. To
make the second dollar is much easier than the first. The trouble is making the first.”
Crowdfunding provides the first dollar. Consumers that are investors are a powerful
combination to propel a company upwards. Early adopters should be the ones that get
the reward opportunity to invest early in a great new idea. Their feedback often is
what creates the final successful version of the product.
Why shouldn’t small time Facebook users be the ones to profit from Facebook stock
appreciation instead of outside big scale financiers that likely have never been a
Facebook participant. There is a social justice to crowdfunding that makes sense.
Crowdfunding is more likely provide more fair and equal access to capital to women,
minorities and youth than the old gatekeeper systems of the past.
Crowdfunding is social networking meets angel investing. There are approximately
60,000 angel investors in the USA and surrounding now. Crowdfunding is likely to
create more than 60 million new angel investors around the globe. This is a powerful
transformational development that alters the landscape of financing forever more.
Albeit rare, with Crowdfunding in action there will be housewives that think of an
idea on Monday and will have $1 million in the bank to pursue their dream by Friday.
Peers that believe in them and their cause will fund good ideas expressed by people
that gain trust quickly. Since most crowdfunding investments will be small it will
enable new experiments to be tried. With micro financing testing new ideas and
testing new investments can be done with a minimization of individual pain in the
case of failure. People may gamble a $25 bet on a long shot that normally would
never get funded if the minimum investment VC style were expected to be $250,000.
Some of these long shots that get funded by crowdfunding, that would have never
have received funding with the old financing paradigm, are going to be the ones that
change our world for the better.
Crowdfunding is going to be a tool for people to invest in their own communities.
This type of helping hand support to people in your own communities will help create
sustainable economic health. The growing movements of Local Investing, Buy Local
and Impact Investing will all be supported with Crowdfunding at a primary financial
tool.
Crowdfunding will be teamed with crowdsourcing of information and resources.
Every enterprise will become an exercise in the power of collaborative communities.
Pg. 54
Of the 7 billion people on earth perhaps ¾’s or 5 billion are engaged in work that does
not energize them to be the grandest vision of themselves. Crowdfunding has the
potential to do more than anything before in getting more people than ever excited to
go into work each day.
Artistic creativity is already well into a new Renaissance with crowdfunding leading
the way. Great artists of types, especially in music, that would have never been given
a chance to express their art are getting that chance now thanks to crowdfunding.
Crowdfunding in the form of small donations in mass has already transformed
politics. We would like to see campaign reform laws established that limit to $200
donations to politicians and only allow them to come from individuals, not
corporations or any other source.
Charitable organizations doing good work have applied the power of social media in
raising funds with enormous success in the past decade. The crowdfunding of
charitable causes via social media has altered the way non-profits operate and has
given them a low cost tool to have further reach than ever before.
4.6. GLOBAL EXPERIENCE OF CROWDFUNDING
There are 500+ CFPs worldwide. They collectively raised $2.7 billion in 2012, across
more than 1 million individual
campaigns globally. The same is estimated to be $5.1 billion for 2013.
Top 3 global players

www.kickstarter.com
www.indiegogo.com
www.rockethub.com
Pg. 55
4.7. Crowdfunding In India
The idea of crowdfunding has been adopted in India even before the coining of the
term. For Example, donations collected to raise a temple. But online crowdfunding
space in India is in its nascent stage. However, the emergence of online platforms
that promote crowd-funding is fairly recent to India.
Currently, no crowd-funding regulation exists in India, but the Securities and
Exchange Board of India (SEBI) released a consultation paper last year where it
spoke about need for regulation. We expect the regulations to be bought in and the
acceptance of crowd-funding among the Indian backers at a lower speed though.
An official from SEBI stated that apart from setting up new rules after discussions
with the stakeholders, any crowdfunding involving sale of securities can be either
regulated under SEBI’s existing norms for Collective Investment Schemes or
Alternative Investment funds.
Indian entrepreneurs are looking for a successful and widely accepted Indian version
of global crowdfunding platforms like Kickstarter, Indiegogo which not only aids
Start-ups/Individuals to launch a product but also to test the acceptance of the product
in the market.
India is a huge, developing country and enormous economy. With a population of

over 1.2 Billion, and a middle class that is expanding dramatically, one would expect
the capital formation power of crowd funding would be taking hold in this dynamic
country. Equity crowd funding is not live yet in India, but it is expected to hit the
country at some point in the near future. In the next six months or so, many crowd
funding platforms are expected to be in India. Worldwide, nearly a thousand such
platforms will be launched. Recently, platforms such as Wishberry and Ignite Intent
have been launched in the country. Most of them are in the rewards and donation
space, as there aren’t too many regulatory issues around this model.
There have been attempts at crowd funding for events like the Goa Project and
campaigns like Teach for India. Crowd funding is slowly becoming an alternative
funding channel for the film industry. Film Director Pawan Kumar from Karnataka
recently raised Rs 51 lakh using Face book and other platforms.
Pg. 56
Challenges In India
1. The idea of crowd funding is not new in India. Places of worship, for example, are built
overnight using a large number of donations. However, the concept of online crowd
funding is new to the country.
2. The industry is also not very investor-friendly. It seems people are still not ready for
this concept.
3. Low trust levels of doing the things online are also a challenge. India’s ecommerce
space needs to really mature before anything substantial can happen in this space.
People need to be spending more and more online for them to even start thinking
about backing online projects online.
4. Ecommerce in India only got a boost when they initiated the concept of cash on
delivery. Similarly, crowd funding will have to look at building an offline base to
finally induce mass awareness and encouraging larger participation.
Legal Issues
There are legal issues around crowd funding in India, since equity-based online crowd
funding is not legalized in India yet. It was made legal in the US recently when the
Jumpstart Our Business Startups Act (JOBS) act was passed. Some of the key points
of this Act are:
• The JOBS Act has put much restriction on the amount that can be borrowed via crowd
funding.
• The Act has put an audit compulsion by certified public accountant in some cases of
crowd funding. Disclosures need to be made by the company raising funds and
utilizing it.
• The company needs to explain everything about its project for which it is raising funds.
The fund utilization plan needs to be disclosed.
Here in India, the concept is catching up fast and is posing a danger at the same time,
as very soon these funds could scale up. Many money laundering schemes might run
in the name of crowd funding via social media, pushing SEBI to set up a regulatory
Pg. 57
framework if it is found that such platforms involve large amounts of money or

issuance of securities.
A discussion is on to find a nodal agency for such activities following a talk with
various stakeholders like banking regulator RBI, Finance Ministry and Corporate
Affairs Ministry. An official from SEBI stated that apart from setting up new rules
after discussions with the stakeholders, any crowd funding involving sale of securities
can be either regulated under SEBI’s existing norms for Collective Investment
Schemes or Alternative Investment funds.
Proposed crowdfunding regime in India
The Securities and Exchange Board of India (SEBI) in June, 2014 came out with a
Consultation Paper on Crowd Funding in India to provide a brief background of
crowdfunding and a regulation framework which can be adopted to make
crowdfunding mechanism workable in India. The Consultation Paper discusses about
the different types of crowdfunding and the types of crowdfunding model which has
been adopted in foreign countries. It talks about the existing fundraising models in
India and a possible crowd funding model which India might adopt. However, the
Consultation Paper has lot of pitfalls and causes confusion in the mind of the reader.
The Consultation Paper proposes an orthodox crowdfunding model which will
strangle the innovative ideas of entrepreneurs and will ensure that such ideas never
see the light of the day. We will discuss the shortcomings of the consultation paper in
the next section.
Loopholes in the proposed crowd-funding regime in India
Section 2(68)(iii) of the Companies Act49 prevents private companies to invite public
to subscribe to their shares. Whereas Section 42(2) of the Companies Act limits the
investors who can subscribe to such shares upto two hundred persons. Crowdfunding
is a unique and unconventional model and it has both the characteristics of both public
and private placement. The question that arises is whether equity crowdfunding
Pg. 58
should be treated as public offer or not and unfortunately the consultation paper is
silent about it.
The next issue that arises is the question of jurisdiction as crowdfunding lies in the
middle of extremes, private placement and public offer. SEBI claims by issuing the
Consultation Paper that it can make regulations on crowdfunding but however it is
based on a shaky premise. MCA has the power to make rules on residuary matters but
the scope of such application has been limited to matters which have been specifically
provided in the Act. Since crowdfunding is a new concept, it has excluded from the
scope of Section 24 of the Act50 and hence MCA cannot exert jurisdiction over
48Ibid.
49 S. 2(68)(iii), The Companies Act, 2013 50 S. 24, The Companies Act, 2013
8
crowdfunding matters. Also the Securities Laws (Amendment) Act, 1995 demarcates
a clear boundary between the activity of MCA and SEBI and crowdfunding having
components of both private placement and public offer fall within the ambit of
overlapping jurisdiction of the SEBI and MCA.51 Hence SEBI cannot have exclusive
jurisdiction over crowdfunding activities and framing of any rule to control such
activities would be fundamentally flawed.
Another issue which is of deep concern is that crowdfunding platforms can only be set
up by Class I entities, Class II entities and Class III entities. While the eligibility
criteria of Class I entities are governed by the Securities Contracts (Regulations) Act,
1956 and Depositories Act,1996, Class II and III entities are defined in the
Consultation Paper itself. Such pigeonholing into three distinct entities would curb
donation or reward based crowd funding platforms to run equity based crowd funding
campaigns.52 While such classification will help to prevent frauds, it will
nevertheless prevent business from developing as no business entity can develop in an
atmosphere of doubt and suspicion. Indian regulators should take a leaf from foreign
jurisdictions so that the platforms are given opportunities to explore. Indian regulators
should keep in mind that there will always be risks in this kind of investment but
wisdom lies in managing the risk well and not altogether stifling the competitiveness
of these nascent crowdfunding platforms.
Pg. 59
Indian Experience Of Crowdfunding
Crowdfunding is relatively a new concept in India and the usage of Internet for raising
funds is even less. According
to a World Bank report (2012), India has only 10 CFPs as against 344 in the US and
87 in the UK.
Few well known CFPs in India -

Catapooolt - http://www.crowdfundinsider.com/
Ignite Intent – http://www.igniteintent.com/
Ketto - http://ketto.org/
Pick A Venture - http://signup.pikaventure.com/
Start 51 - http://www.start51.com/
Wishberry - https://www.wishberry.in/
Apart from the local players, many global CFPs have also launched their local
platforms for India e.g. Grow VC -
http://india.growvc.com/. This means, the initiator has various options for launching
his/her idea and same way the
investor has various options to select the right idea and the CFP based on his
preferences.
 A study by Catapooolt summarises the key demographics of the
investors/crowdfunders in India.
 Average contribution per project: Rs 2,800/-
 Average number of contributors per project: 24
 Most contributors are from cities Mumbai and Delhi. Almost 60% of current
funders are coming from nonmetrosand international destinations.
 Most crowdfunders are currently males aged between 25-40 years
Pg. 60
4.8. The Risks In Crowd Funding And How To Mitigate Them
Crowd funding comes with risk to the investor. CFI is not unique in this regard, but it
does have characteristics that require regulatory protection and robust investor
education for crowd funding to contribute meaningfully and successfully to a coun-
try’s economy. Crowd funding markets have been operating in many countries for
several years with few reported instances of fraud. However, as the market expands,
there will inevitably be attempts to circumvent regulations and defraud investors.
Despite this, the biggest concerns regarding risk are business failure and execution or
fulfillment challenges. Failure may result from poor management decisions, lack of
funds, or miscalculations of market demand. Execution or fulfillment challenges may
occur in some successful crowd funding campaigns when a company is not ready
with, for instance, the necessary logistics and manufacturing capacity to meet the
demand generated by their campaign. These risks may be mitigated through regula-
tion, technology, social and cultural approaches:
• Regulation
• Technology
• Social
• Cultural
Pros
 An effective way to capture remittances.

 AlliedCrowds suggests that if 10 percent of the global remittance market were
captured, diaspora crowdfunding could grow to US$58 billion in 2015.
 Promote a culture of entrepreneurship, offering new avenues for matching
entrepreneurs with investors. It may serve project owners that cannot access
traditional or commercial finance.
 It allows project owners to validate ideas and interventions before targeting
traditional donors or financial organizations. Eighty percent of social
enterprises in a recent survey highly ranked crowdfunding’s non-financial
Pg. 61
benefits such as marketing and supporter engagement (Crowdfunding Good

Causes.
 Crowdfunding platforms may be cost-effective intermediaries as they help
individual investors and donors navigate complex foreign legal frameworks,
allowing them to invest abroad at affordable rates.
 The financial risk of small projects—that are usually perceived as riskier—can
be shared with a wider group of investors. Holds the promise of democratizing
start-ups’ financing; 85 percent of surveyed social enterprises ranked
“allowing investees to raise money from individuals rather than institutions”
as moderately to extremely important in their decision to use crowdfunding.
 Angels and venture capitalist firms can use crowdfunding platforms to
discover, communicate with, and invest in start-ups they would not have
otherwise found.
Cons
 Time, costs, and knowledge necessary to design an effective communication
strategy and crowdfunding campaign may discourage the most vulnerable
segments of the society to seek to benefit from crowdfunding.
 Project owners may need to disclose precious commercial information that
may impair the ability to protect intellectual property rights or business
strategies.
 Although mobile technology and Internet access are expanding, the need for
web-based technology is an entry barrier for many in developing countries.
 Difficulty for investors to monitor project status and success after the resource
mobilization phase is closed.
 Lack of standards in monitoring impact and project results apply to
crowdfunding projects. Lack of knowledge, skills, and capacity was identified
as a barrier for 66 percent of social enterprises surveyed by Crowdfunding
Good Causes.
 Lack of supportive regulatory environments. Not understanding regulations
was a barrier for 76 percent of enterprises surveyed by Crowdfunding Good
Causes.
Pg. 62
Risks
 Cyber Security: 76 percent of platform operators believe there is medium to

very high risk of a potential cyber-security breach.
 Fraud: 64 percent of platform operators associated medium to very high risk.
 Use of crowdfunding platforms for money laundering; the risk being no
greater than in other international financial transactions.
 Collapse of platforms due to mal practice ranked second highest among
perceived risks, with 69 percent of platforms viewing this as a medium to very
high risk.
 Expected changes in the regulatory frameworks, including tax provisions.
Political and commercial risks in equity and lending based crowdfunding.
Crowdfunding models’ specific risks are not reviewed in detail, e.g. in AON
campaigns project sponsors may not reach the funding target.
 Reputation from failure to deliver perks/ rewards to backers. Inability to verify
the social and environmental impact or related malpractices.
Pg. 63
4.9.How Can The Design Be Ameliorated To Improve The Impact?
 Innovative fintech solution, crowdfunding can channel significant private

financing to development. More importantly, crowdfunding is not only about
securing more or better funding, but is a means to raise awareness, initiate
debate, and build social capital. Organizations have benefited from
crowdfunding to engage supporters, investors, and donors. Crowdfunding can
alleviate human suffering by connecting people in need with donors,
volunteers, or philanthropy. Charities and development organizations have
used crowdfunding extensively to raise grants, both for their development
projects and their institutional resources. There is evidence crowdfunding can
leverage philanthropic giving: according to NESTA, for donations and
reward–based crowdfunding, only 23 percent and 21 percent respectively
stated the money they donated or pledged would otherwise be used for
charitable giving. According to NESTA, 29 percent of backers on donation–
based crowdfunding platforms had given advice and feedback to campaigns
and 27 percent had offered to help or volunteer with the project. Moreover,
companies have also started to match donations made by employees with
corporate funds. Crowdfunding can stimulate innovation and jobs. By
improving and facilitating access to finance to SMEs, it can support job
creation. A good example being Kiva, has attempted to measure the impact of
crowdfunding. Three quarters of those who participated in reward or equity–
based crowdfunding reported that they were successful in launching a new
product or service. Seventy percent of SME borrowers have seen their
turnover grow, and 63 percent have recorded growth in profit. A third of those
who raised funds via P2P business lending or invoice trading have reported
that they would have been “unlikely” or “very unlikely” to get funding
elsewhere. Seventy–nine percent of businesses had attempted to get a bank
loan before turning to P2P business lending, with only 22 percent being
offered finance. Crowdfunders like to see regular progress reports on the
platform or social media, not only because they may have a personal stake, but
Pg. 64
because they also genuinely care about the product/project. This demand has
pushed for better monitoring practices. On the beneficiary/investee side by
nurturing connections with backers, they were able to create trust-based
relationships, a unique asset for future resource mobilization. While rewards
and donation-based crowdfunding platforms are effective fundraising tools for
NGOs, there is great potential to leverage debt and equity crowdfunding for
bankable projects and SMEs. Development, public authorities, philanthropies
and other donors can leverage grants to facilitate the transfer of billions of
dollars worth of crowd investments towards projects with measurable social
and environmental impact. Funding from public institutions or large
philanthropic organizations can be matched with crowdfunding to leverage
resources, participation and results. For example, the UK Government has
used the crowdfunding platform Funding Circle to provide co-lending to
British SMEs. The UK’s Department for International Development has
matched funding for crowdfunded projects in developing countries to reduce
investors’ risk. Similarly a public programme from Denmark is exploring how
crowdfunding can be used to support and select start-ups: in the scheme
companies that have raised funds from a reward-based platform can seek a
matching grant between €67,000-€207,497. The following considerations
could improve the social and environmental impact of crowdfunding:
 Incorporation of sound social and environmental standards and
accountabilities within the business operations of crowdfunding platforms.
 Encourage transparency, accountability, and rigorous reporting to reduce
greenwashing, fraud and malpractice.
 Support regulations that protect investors but not at the expense of market
efficiency and the needs of capital formation.
 Improve the measurement of social and environmental impacts using the large
amount of data/information collected by crowdfunding platforms.
 Pursue economies of scale in projects that are scalable.
 Improve financial and technical literacy among social entrepreneurs as well as
non-traditional investors.
Pg. 65
 Support the crowdfunding ecosystem through strong social media; market

penetration; expanded access to the Internet; and partnerships with
entrepreneurial hubs, incubators, and accelerators
4.10. India’s Top Peer-To-Peer Lending Platforms
Co-founders: Smita Ram and Ram N. K
Founded in Bengaluru in 2008, RangDe.org is an internet-based peer-to-peer micro-

lending platform that facilitates micro or low-cost loans to rural entrepreneurs across
India with the help of funders. A remarkable aspect is that over 93% of borrowers
have been women.
This not-for-profit crowdfunding portal has attracted 9,699 social investors and
helped disburse 50,008 loans for a section of Indian population who are usually
overlooked by banks and financial institutions. So far they have raised social
investments of approximately USD 7 million while repaying very close to USD 5
million. Borrowers pay interest rates ranging between 4.5% and 10% p.a. for
collateral free loans. Rang De gets a nominal cut of 2% on all the loans repaid by
borrowers.
Rang De has been funded by the World Bank through Development Marketplace
(DM) and is a recipient of several social change-related awards including South Asian
International Fund Raising Group’s Fund raising Campaign of the year Award and
2013 Millennium Alliance Award.
The organization has a network of 25 field partners in 16 states of India who

physically take the money to the borrowers and can contact them if they fall in to
arrears.
Pg. 66
Co-founders: Rajat Gandhi, Vinay Matthews, Nitin Gupta
Located at Gurgaon, Faircent is a peer-to-peer lending platform and a virtual

marketplace where borrowers and lenders can interact directly, without the
involvement of banks. In practice the platform allows lenders and borrowers to
negotiate directly the terms of loans including interest rates and the duration of the
loan.
Faircent is thus able to eliminate high margins on loans and keep institutional charges
low. It charges a one-time listing fee of around USD 23 plus an administration fee
depending on the size of the loan and interest amount, but doesn’t earn from interest
that is paid.
Faircent has more than 6,000 potential lenders and 26,000 want-to-be borrowers on its
platform and has disbursed total loans worth almost USD 973,000 in the last 24
months.
Pg. 67
4.11. Top Donations Crowdfunding Platforms
Co-founders: Kunal Kapoor, Varun Sheth and Zaheer Adenwala
Founded in 2012, Mumbai-based Ketto supports fundraisers in three main categories:
1. Community/social projects (NGOs/Non-Profits/Charities),
2. Creative arts (Movies/Music/Theatre/Fashion/Technology)
3. Personal development (Health/Education/Travel).
They also encourage corporates to search for projects to support as a way of

demonstrating Corporate Social Responsibility, and allow NGOs to use Ketto as an e-
commerce sales channel.
Ketto offers fundraisers a unique cash pick-up facility and charges 5-8% of the funds
raised or USD 30 (whichever is higher in case of individuals and corporates) along
with payment gateway charges.
Project creators keep all the money that is raised even if they fall below the target they
set for their project. The platform has so far raised USD 5,990,400 through more than
100,000 backers to support over 10,000 projects (averaging just under USD 600 per
project).
Pg. 68
Co-founders: Priyanka Agarwal, Anshulika Dubey
Wishberry is a donations-for-rewards crowdfunding platform founded in 2010 in

Mumbai and is exclusively dedicated to funding creative projects – music, stand-up
comedy, film production, art, dance, design, photography, publishing, theatre.
A Wishberry adviser, a ‘Campaign Coach’, is appointed to each project to help the
project creators write an effective pitch, make a good video (a video is compulsory)
and handle the logistics of choosing, sourcing and distributing the rewards. This helps
them achieve a very high 70% success rate.
It has so far completed 325 projects raising almost USD 1.3 million from more than
11,000 backers in around 60 countries. This is an average of nearly USD 4,000 per
project. The contributors are rewarded with non-monetary incentives such as invites
to film premiers, limited edition merchandise, experience in the making of the project,
a named credit and so on.
It charges a one-time non-refundable fee of USD 52.37 plus 10% commission of the
funds raised – charged only if the funding goal is reached. For a monthly fee they also
provide digital marketing and PR services.
Wishberry works on an ‘All or Nothing’ policy (which they also claim pushes up the
success rate) and allows fundraisers a maximum of 60 days to reach their target.
Pg. 69
Founder: Ranganath Thota
Bengaluru-based FuelADream launched in April 2016 with 14 projects. It is a

rewards-based crowdfunding platform and focuses on creative arts projects, social
causes and charities.
It gives its fund raisers the choice of either AON (All or Nothing) or KWYG (Keep
What You Get) campaigns. When an AON campaign doesn’t reach its goal, all the
money collected is returned to funders.
The company has its own content and marketing team that will help put together the
online pitch and help design a rewards system for each project. It charges USD 44.89
as a one-time non-refundable advance fee (currently waived as it builds up a customer
base) and 9% of the total amount collected during the campaign whether an AON or a
KWYG model. Along with 14% Service tax and transaction fees it can mean over
25% of the money raised goes in fees.
FuelADream seems to be going for quality rather than quantity and will restrict itself
to hosting a maximum of 20 new projects per month. Notable campaigns so far
include a battery powered e-bike and a canal to irrigate a village’s arid farmland .
They also intend to make campaigns available in multiple languages.
Pg. 70
Founder: Satish Kataria
From start-ups to Parallel Cinema and from DJS Racing Car to India’s leading
political party AAP, Catapooolt has helped fund raisers bring to life creative, sports,
and political projects, social enterprises and business start-ups.
Founded in July 2013, the crowdfunding platform has helped fund over 40 projects to
raise almost USD 150,000 from over 2,000 contributors. 53 active projects are
currently listed 9at 17 August 2016).
Catapoolt offers three unique tier rewards to its contributors, and claims to be the only
crowdfunding platform that gives fundraisers access to distribution in 300,000 retail
outlets with exposure to their walk-in customers across India. It charges around USD
23 as a project submission fee along with 10-15% of the total funding raised.
Pg. 71
Founder and CEO: Ishita Anand
Founded in 2013 with headquarters in New Delhi, Bit Giving is a crowdfunding

platform that enables artists, engineers, and creators of all kinds to come together in a
bid to share their stories and raise funds online for entrepreneurial, creative and social
projects. Almost 15 per cent of campaigns are focused on raising funds for medical
treatment.
Bit Giving has so far completed over 650 projects and notable success stories include
projects to help Nepal after their earthquakes, sending an Indian athlete to the
Olympic games, a project to help farm widows in Marathwada, and funding two
months’ hospital treatment for a teenager with a rare disease.
Bit Giving charges 6-10% commission on the amount funded, depending on whether
the seekers are non-profits, individuals, organizations or corporates.
Bit Giving rewards its contributors through non-monetary incentives such as social
media call-outs, personalized cards, pre-orders or discounts on products, VIP passes
or tickets to workshops etc.
Pg. 72
Co-founders: Chet Jain, Chaitanya Atreya, Rich Mastuura
Founded in October 2014 in Palo Alto, California by two Indians and an American,
Crowdera is a completely free global crowdfunding platform that launched for Indian
fund raisers recently in April 2016.
Until this period, the crowdfunding platform had raised over USD 537,000 helping
several prestigious non-profits, individuals, and organizations.
The platform is currently funded by some friends and their third co-founder Rich
Mastuura. The team intends to start monetizing in 2017 from the CSR activities of
enterprises and foundations across the world.
Crowdera doesn’t charge any commission at all and has a motto: Doing good must not
be penalized.
Pg. 73
4.12. Top Hybrid Donations And Loans Platforms
Co-founders: Mayukh Choudhury and Anoj Vishwanathan
Based in Bengaluru and founded in 2011, Milaap began as a crowdfunding platform

for micro-loans for people in rural India, helping low-income borrowers with projects
such as education, energy and water and sanitation.
Milaap added donations on its portfolio in 2014 and now allows donations and micro-
lending for emergencies, neighbourhood projects, medical conditions, natural
calamities and micro business projects.
Milaap has donors and lenders from over 120 countries for close to 50,000 projects,
and has raised over USD $12.7 million.
It charges 5-8% of the funds raised from campaign owners.
Pg. 74
Co-founders: Khushboo Jain and Piyush Jain
Beginning as a crowdfunding platform for non-profit organisations in 2014, Impact

Guru is a Harvard iLab incubated fintech platform based in Mumbai.
It helps individuals, non-profits, social enterprises, start-ups, corporates for their
fundraising needs. It engages in donations, rewards crowdfunding and investment
fundraising.
In April this year, it had raised a seed round of USD 500,000 from Singapore-based
venture capital fund RB Investments and private investment platform Fundnel. In the
last year, the total funds raised by Fundnel and Impact Guru add up to $8.5 million.
More than 100 causes and organizations from six countries have been benefited by
Impact Guru’s campaigns. While it is free to launch a campaign on Impact Guru, the
platform charges a 5% fee along with transaction costs if a fund raiser chooses a
‘Default’ package on the portal.
Given that the pace of change only ever moves faster, we shall have to see how India
either adapts to encourage and enable innovation or remains cautious and holds the lid
down on entrepreneurial opportunities.
Pg. 75
4.13. CASE STUDY: PEBBLE WATCH
The Pebble Smartwatch, often known now as the Pebble Classic, is an

American smartwatch developed by Pebble Technology Corporation, and is the first
generation of the Pebble watch line-up. The smartwatch was pledged from
a Kickstarter campaign, proving massively successful, collecting around $10 million
for development of the smartwatch.
Pebble connects to both Android and iOS phones, so they can display notifications
from the phone. An online app store distributes Pebble compatible apps from many
third party sellers. In 2015, Pebble Technology released its second-generation Time,
with a colour display, microphone, and updated design.
Pebble Technology Corporation raised $10.3 million through a Kickstarter campaign
running from April 11, 2012, through May 18, 2012; this was the most money raised
for any product on the site at that time. Best Buy, an American consumer electronics
corporation, began selling Pebble smartwatches in July 2013, and sold out within five
days. On December 31, 2014, Pebble sold its one millionth smartwatch. In 2015,
Pebble launched the Pebble Time and Time Steel with Kickstarter, raising
$20,338,986 from over 75,000 backers, breaking records for both on the site.
Pg. 76
DEVELOPMENT
The Pebble Smartwatch was designed based on a concept by Eric Migicovsky

describing a watch that could display messages from a smartphone and select Android
devices. Migicovsky successfully took his idea through the Y Combinatory business
incubator program, and unusually for a start-up company at Y Combinatory,
Migicovsky's business actually generated revenue during the program. Migicovsky
was able to raise US$375,000 from angel investors such as Tim Draper of Draper
Fisher Jurvetson, but was unable to raise additional funds. Discussing his inability to
raise further funds, Migicovsky told the Los Angeles Times, "I wasn't extremely
surprised... hardware is much harder to raise money for. We were hoping we could
convince some people to our vision, but it didn't work out."
FUNDING
After raising venture capital for the product under their former name Allerta (which
had already developed and sold the in Pulsesmartwatch for BlackBerry devices), the
company failed to attract traditional investors under their new Pebble brand name, so
the company requested crowd funding in April 2012.
Migicovsky's company Pebble Technology launched a Kickstarter campaign on April
11, 2012, with an initial fundraising target of $100,000. Backers spending $115 would
receive a Pebble when they became available ($99 for the first 200), effectively pre-
ordering the $150 Pebble at a discounted price. Within two hours of going live, the
project had met the $100,000 goal, and within six days, the project had become the
most funded project in the history of Kickstarter to that point, raising over
$4.7 million with 30 days left in the campaign.
On May 10, 2012, Pebble Technology announced they were limiting the number of
pre-orders. On May 18, 2012, funding closed with $10,266,844 pledged by 68,928
people.
Pg. 77
PRODUCTION
Pebble worked with consulting firm Dragon Innovation to identify suppliers and
manufacturers. After overcoming manufacturability difficulties with the prototype
design, Pebble started mass production with manufacturer Foxlink Group in January
2013 with an initial production of 15,000 watches per week. Shipping was originally
expected to begin September 2012, but Pebble Technology encountered
manufacturing difficulties and began shipping units on January 23, 2013. Pebble
shipped 300,000 units by December 2013 during its first year of production, over
400,000 by March 2014, 450,000 as of July 2014, and 1 million by December 31,
2014.
CURRENT SCENARIO
It has now become a very successful company producing various types of watches
with innovative features within a range of $25 to $300.Pebble is now a product which
has gained a good image in the market, also competing with apple watch and is doing
really good. This wouldn’t have been possible without crowdfunding and without the
help of kick-starters.
Pg. 78
5. REVIEW OF LITERATURE
Crowdfunding is a novel method for funding a variety of new ventures, allowing

individual founders of for-profit, cultural, or social projects to request funding from
many individuals, often in return for future products or equity. Crowdfunding projects
can range greatly in both goal and magnitude, from small artistic projects to
entrepreneurs seeking hundreds of thousands of dollars in seed capital as an
alternative to traditional venture capital investment (Schwienbacher and Larralde,
2010). It is more of an informal form of financing projects – either commercial or
non-commercial. Here, a large number of people (the crowd) fund small amounts of
money to accumulate into an investment large enough to finance a project (or a start-
up company).
Crowdfunding is a collective effort by people who network and pool their money
together, usually via the internet, in order to invest in and support efforts initiated by
other people or organizations (Ordanini, 2009). New ventures require resources to
succeed, and one of the most critical of these is financing (Gompers and Lerner, 2004;
Gorman and Sahlman, 1989; Kortum and Lerner, 2000). Over the past few years,
crowdfunding has emerged as novel way for entrepreneurial ventures to secure funds
without having to look for venture capital or other traditional sources of venture
investment. Schwienbacher and Larralde (2010) define crowdfunding as an open call,
essentially through the Internet, for the provision of financial resources either in form
of donation or in exchange for some form of reward and/or voting rights in order to
support initiatives for specific purposes. Thus, the crowd generates financial support
for already proposed initiatives. The crowdfunding mechanism is also related to social
networking, where consumers actively participate in online communities to share
information, knowledge and suggestions about a new initiative and/or brand.
However, crowdfunding goes beyond conventional social-network participation by
incorporating more proactive roles for consumers, such as selecting new initiatives to
support and providing financial backing for them.
Crowdfunding is a novel method for funding a variety of new ventures, allowing
individual founders of for-profit, cultural, or social projects to request funding from
many individuals, often in return for future products or equity. Crowdfunding projects
can range greatly in both goal and magnitude, from small artistic projects to
entrepreneurs seeking hundreds of thousands of dollars in seed capital as an
Pg. 79
alternative to traditional venture capital investment (Schwienbacher and Larralde,

2010). It is more of an informal form of financing projects – either commercial or
non-commercial. Here, a large number of people (the crowd) fund small amounts of
money to accumulate into an investment large enough to finance a project (or a start-
up company).
Crowdfunding is a collective effort by people who network and pool their money
together, usually via the internet, in order to invest in and support efforts initiated by
other people or organizations (Ordanini, 2009). New ventures require resources to
succeed, and one of the most critical of these is financing (Gompers and Lerner, 2004;
Gorman and Sahlman, 1989; Kortum and Lerner, 2000). Over the past few years,
crowdfunding has emerged as novel way for entrepreneurial ventures to secure funds
without having to look for venture capital or other traditional sources of venture
investment.
Schwienbacher and Larralde (2010) define crowdfunding as an open call, essentially
through the Internet, for theprovision of financial resources either in form of donation
or in exchange for some form of reward and/or voting rights in order to support
initiatives for specific purposes. Thus, the crowd generates financial support for
already proposed initiatives.
The crowdfunding mechanism is also related to social networking, where consumers
actively participate in onlinecommunities to share information, knowledge and
suggestions about a new initiative and/or brand. However,crowdfunding goes beyond
conventional social-network participation by incorporating more proactive roles for
consumers, such as selecting new initiatives to support and providing financial
backing for them.
Pg. 80
6. RESEARCH METHODOLOGY
This research is a descriptive study in nature. The secondary data was collected from
various websites, journals and news papers.As an exploratory study, the goal of this
project is to develop initial evidence about the nature of crowdfunding and its role in
entrepreneurship research. This method is appropriate for an evolving topic in the
evolving field of entrepreneurship, as this initial data can serve as a useful base for
future theory-building. Thus, rather than formal hypothesis testing, the remainder of
the paper will examine the key issues around crowdfunding from the perspective of
entrepreneurship: its links to existing theory, the effects of a new form of fundraising,
and the success or failure of the process.
As the goal of this paper is to provide the widest possible perspective on
crowdfunding, I used data extracted from Science Direct, Kickstarter, the largest and
dominant crowdfunding site, and such various other sites. Kickstarter uses a reward or
patronage model, but it is also the inspiration for the recent legalization of equity
crowdfunding, with many of its features written into the JOBS Act. Thus, Kickstarter
is likely to serve as a broadly useful model for examining crowdfunding efforts.
OBJECTIVES OF THE STUDY

 To understand the crowd funding scenario in India.
 To study the functioning of various Indian online CFPs.
DATA COLLECTION
In order to study Indian online CFPs, six fundraising websites were selected on the
basis of availability of
information, locational presence, scale and also the type of crowd.
The contents of these websites were then compared on the basis of seven key
parameters selected after initial
screening and analysis of all the websites.
The study is restricted to Indian online CFPs.
Pg. 81
INDIAN ONLINE CROWD FUNDING PLATFORMS
The crowdfunding websites were compared on the basis of following parameters.

These parameters were selected
based on the comparison of crowdfunding websites done by inc. com, a leading global
CFP.
 Operations
 Founders
 The Catch
 Cost
 Funds Raised
 Types of Projects/Campaigns
 Campaign Page
Pg. 82
Pg. 83
7. Data Analysis & Finding
Ketto is the only platform dedicated to social causes and to ensure positive funding
response from the crowd, ittakes support from various celebrities. Rest others give
relatively more emphasis on innovative and creativeprojects.For this, Ketto has
adopted donation based model whereas other CFPs have adopted reward based
modelKetto by having a social cause focus does not charge any fees from the initiator
and Ignite Intent with acommercial focus also does not charge any fees as it supports
projects floated by college students.Ketto is the only platform that has received
foreign grant.When most CFPs have domestic focus, Catapooolt has domestic as well
as global orientation.Wishberry has floated the highest number of campaigns so far,
may be because it offers the longest period tothe initiators to keep their projects
floated. It also has the largest pool of contributors who collectivelycontributed the
most.Catapooolt and Start51 assist not only in fundraising but also offer advice to the
initiators.It is further observed that each CFP as well as each project is unique by
itself. With the built-in focus group andpurpose, the CFP offers support to the initiator
in terms of promotion of the idea, approachingthe crowd as well asproviding advisory
services. Whereas each project within the ambits of the CFP, defines its purpose, fund
target,
duration and rewards but the ultimate onus lies on the initiator.
Pg. 84
8. Suggestions, Recommendation And Conclusion
There is no doubt that crowd funding is rapidly being looked upon as a serious way of
raising funds for startups and new businesses. The US and European agencies have
started implementing laws for this to function. There are serious concerns, which
make it mandatory to bring this method under the laws of the land. India may soon
bring in the requisite laws to support this in a big way, as efficient crowd funding
system can really play the role of catalyst in bringing the startup ideas into reality.
Having read this project, it should by now be patently obvious: While crowdfunding
is one of the most exciting things to happen to entrepreneurs and start-ups in decades,
and offers considerable upsides, it isn’t for everyone. However, it may provide just
the spark of ignition your company needs to take off – and rocket into the
stratosphere. Yes, great risks exist, just as they do with any other method of raising
capital or attracting investors. But rewards far outweigh potential drawbacks for many
of today’s most savvy creators, including both experienced entrepreneurs and
everyday individuals alike.
Moreover, for the independent creator, crowdfunding presents one of the most
exciting means of raising project capital seen in decades, and most promising ways to
gauge consumer appetite for new ideas witnessed in the history of the industry.
Similar to the shareware revolution of the 1990s which made companies like id
Software and games like DOOM multi-million dollar franchises and household
names, its potential seems boundless. Not only does the phenomenon potentially
allow entrepreneurs and start-ups with great ideas to directly connect with, attract, and
tap into the support of a new or existing fan base. It also allows creators with wildly
new and original ideas, or those who’ve been previously rebuffed by unsympathetic
investors, to greatly mitigate the risks presented with new ventures by making it
possible to do so prior to product completion.
Also important to bear in mind: Crowdfunding is a marathon, not a sprint. As with
any start-up venture, succeeding with the methodology requires extensive planning
and forethought – and the skill and flexibility to change and adapt to new
developments on a dime. To achieve success in crowdfunded ventures, you not only
Pg. 85
need to understand your target audience; how to reach and speak to them; and be able
to communicate your vision clearly, as well as construct a compelling argument for
your product. You must also be able to assemble, mobilize and empower a
community of partners, fans, friends and supporters, and sustain their awareness in
what is at heart a fickle and ever-changing industry.
The good news for both inventors and innovators is that crowdfunding is becoming
more publicly recognized and legitimized as a means of funding projects with each
passing day.
The study concludes that the primary focus of the platforms under study is fundraising
for either social-cause basedor creative based projects. This supports the operations
and strategies adopted by them.
 Business model in all CFPs is either reward based or donation based
 An investor can contribute as low as Rs.50
 Minimum amount permitted to float a project for fundraising is as low as
Rs.1,000
 Further, these CFPs either do not charge anything or charge a nominal amount
from the initiator.
Crowdfunding is in nascent stage in India. It will take time to increase the awareness
and change the mindset of people. In a way it is not a new concept in India. For ages,
donations have been taken to build temples, cash coversare taken at marriages, and
religious festivals are celebrated through contributions. But fund raising
throughcontributions from public through internet based platforms is relatively an
innovative concept.Crowdfunding is not a fundraising method that replaces all the
traditional funding techniques but it is best to think it
as simply a new method of obtaining funding and should be evaluated in light of other
alternatives that are available to the initiator. While looking forward, crowdfunding
has a bright future as internet penetration and e-commerce success will pave the way
for crowdfunding. This will help CFPs to float equity based and lending based
campaigns.
A business start-up does not have the option to adopt to equity based crowd-funding
model of investment in India despite India seeing a surge in successful start-ups in the
last couple of years as the present laws bar such type of crowd funding model. Also
there is no regulation at present to regulate cross-border crowd funding schemes.
Pg. 86
Hence there is a crying need for a new set of reforms in the existing Company and
SEBI laws to encourage start-ups in India. In the light of recent notice issued by SEBI
which has questioned the legality of equity crowd-funding platforms in India, it is a
huge set-back for business start-ups relying on such business model for raising capital
as half a dozen crowd-funding platforms like Equity Crest, Let’s Venture, Term Sheet
has been termed unauthorised and illegal.
Also, using the Internet for raising capital to fund business start-ups has its own share
of issues. The main concern is safety and Internet security. Lack of proper laws and
awareness will lead to possible threats from hackers. Therefore regulators should keep
in mind that if Internet platforms are not secured from possible cyber attacks then the
benefits of crow-funding model will never be realised.
Lack of proper regulations in place will keep the investors who wish to invest via
crowd-funding model in a limbo Therefore it is necessary for the regulators to
consider what information about founder of the business, the nature of business, how
will the money be used in achieving the business goal should be mandatorily provided
to the potential investors so that they can take informed decisions. The present Modi
Government all set to encourage start-ups in India gives us hope that clear regulatory
frame work will soon be in place to make such crowd funding platforms work in
India.
Suggestions
Worth noting: Crowdfunding and will inevitably change how some types of projects
are financed at a fundamental level. Just as services like Amazon.com and eBay have
transformed how new products are marketed and sold, and used products recycled and
monetized, consider: Crowdfunding sites such as Kickstarter, its peers and successors
could very well revolutionize how products are conceived, tested, retailed and
marketed; consumers interact with their favourite brands; and the way in which
surrounding communities of like-minded individuals are developed, nurtured and
maintained.
But don’t get too swept away in the hype. An entirely new form of investing and
retailing, crowdfunding is also experiencing considerable growing pains as it fights to
gain legitimacy, comply with international law, and attract a burgeoning audience of
Pg. 87
supporters, composed of both financial backers and inventors alike. Destined to be

subject to significant swings in consumer expectation, competition, and demand,
tomorrow’s crowdfunding industry may look little like what we see today. As such,
staying up to date on current trends and market forces influencing the business is
critical. The shape of project pitches, and the sites that host and facilitate them, will
greatly change over time.
Moreover, it pays to remember: Even when campaigns end, the work doesn’t – you
can’t afford to forget about backers once fundraising campaigns have concluded. As
your most ardent brand evangelists, best customers, and those certain to be first in line
the next time your new project idea hits, it’s vital to give them the attention and
respect that they deserve. Think hard about how to engage with them and keep
conversations running – they’re the essential glue that holds crowdfunding together,
and are helping propel the practice’s future to new and previously unforeseen heights.
Better still, given the continued popularity of new programs like Kicking It Forward
and growing number of solutions rapidly becoming available to self-starters, the sky’s
the limit. Whether going it solo, or turning to other experienced creators to help fund
new crowdfunding ventures, opportunities bring great ideas to life – and be successful
doing so – suddenly abound. True, the field will only become more competitive. But
if you’re prepared, and truly have something to offer audiences for the better, it’s
worth the effort. In the end, you have preciously little to lose by attempting to
crowdfund a venture, and the fulfilment of your dreams to gain.
To conclude, above mentioned is a very detailed insight into crowdfunding- a long
and winding road with great potential. If done right,it’s one of the biggest
opportunities that a venture can seize to begin and continue its journey towards all
around growth and development.
There should be internet based crowdfunding platforms to act as intermediaries
between investor and companies interested in raising funds. Such crowdfunding
platforms must fulfil all the guidelines issued by the regulatory authority and also
must get itself registered with SEBI. Platforms must maintain proper book of accounts
and do full public disclosure from time to time. Platforms will have the duty to collect
the money of the investors and deposit it in suspense account of a bank and will be
disbursed at stages as the product reaches completion stage.
Pg. 88
The companies wishing to raise funds via this platform must get itself registered by
submitting the proposed plan of action to the platform. It will be the duty of platform
to keep the blue prints with utmost secrecy. The Company must also submit the MOA
and AOA with the platform. Any investor wishing to invest in the company will be
given full access to the documents of the company.
Further, a chat window should be provided in the crowd-funding platform so that the
investors can have one to one discussion with the members of the Company and ask
them about the business plan and have their doubts cleared.
Also amendment of Section 42 of the Companies Act is required for the smooth
functioning of crowd funding regime in India.
Pg. 89
8. BIBLIOGRAPHY
Books
1. Howe, Jeff, 2008: Crowdsourcing: How the Power of the Crowd is Driving the
Future of Business,
Random House Business Books
2. Young, Thomas, 2013: The Everything Guide to Crowdfunding, Aadams Media
3. Agrawal, Ajay, et. al., The geography of crowdfunding, NBER working paper

series.
4. Douglas Cumming, Sofia Johan, Demand Driven Securities Regulation: Evidence

from Crowdfunding,
5. Mollick, Ethan, The dynamics of crowdfunding: An exploratory study, Journal of

Business Venturing
6. Ordanini, Andrea, et. al., Crowdfunding: transforming customers into investors

through innovative serviceplatforms,
Websites
1. http://crowdsourcingweek.com/blog/indias-top-ten-crowdfunding-platforms/
2. https://www.ketto.org
3. http://crowdsourcingweek.com/blog/indias-top-ten-crowdfunding-platforms
4. https://www.wishberry.in/#/home
5. http://www.crowdfunding.nl/wp-content/uploads/2012/05/92834651-Massolution-
abridged-Crowd-Funding-Industry-Report1.pdf
6. http://crowdsourcingweek.com/blog/indias-top-ten-crowdfunding-platforms/
7. http://crowdfunding.org/
Pg. 90
8. http://www.crowdsourcing.org/document/crowdfunding-industry-report-abridged-
version-market-trendscomposition-and-crowdfunding-platforms/14277
9. http://www.douwenkoren.nl/en/how-does-crowdfunding-work/
10. http://www.forbes.com/sites/katetaylor/2013/08/06/6-top-crowdfunding-websites-
which-one-is-right-foryour-project/
11. http://www.inc.com/magazine/201111/comparison-of-crowdfunding-websites.html
12. http://inc42.com/magazine/entrepreneurship/ketto-org-crowdfunding-platform-
socialdomain/#ixzz2zDkBr1FP
13. http://inc42.com/magazine/buzz/funding-roundup-silverpush-catapoolt-wittyparrot/
#axzz2zDk7GaPL
14. http://www.infodev.org/infodev-files/wb_crowdfundingreport-v12.pdf
15. https://www.igniteintent.in
16. http://indiacrowdfunding.wordpress.com/
17. http://ketto.org/
18. https://www.kickstarter.com/help/stats
19. http://www.mid-day.com/articles/indian-entrepreneurs-are-following-the-crowd-to-
makemoney/213055#sthash.KkiiwN7q.dpuf
20. http://www.massolution.com
21. http://ncfaindia.org/crowdfunding-in-india
22. http://signup.pikaventure.com/
23. http://tech.firstpost.com/news-analysis/meet-wishberry-a-made-for-india-kickstarter-
like-crowdfundingplatform-217091.htmlhttps://www.wishberry.in/
Pg. 91
10. Annexure
Name:
What is your age?
o 18 – 24
o 25 – 35
o 36 – 45
o 46 – 55
Gender
o Male
o Female
o Prefer not to say
o Other
Occupation
o Student
o Service
o Professional
o Self Employed
o Other
Do you understand the term crowdfunding?
o Yes
o No
o Maybe
Do you know any companies raised with the help of crowdfunding?
o Yes
o No
o Maybe
Pg. 92
What type of sustainable projects would you be interested in investing?
Lending to renewable energy projects
Lending to SMEs to enable energy efficiency projects
Lending to wider sustainable projects and companies
Early shareholder/funder for innovative clean technology start-ups
Donation
Rewards campaigns (e.g. pre-sale of a sustainable product)
I am not interested in funding any type of sustainable crowdfunding projects
Other:
Question Title
*7. Would you be interested in seeking crowdfunding support for your own
company/projects?
Yes
No
What category best applies to you?
Private individual
Start-up/SME
Sophisticated investor/professional investor
Ethical investor
Sustainability/environmental professional
Pg. 93
Government official
What do you think is the most effective way to have a successful crowdfunding
campaign? *
o Releasing PR
o Have enough backers in the beginning to drive momentum
o Social Media coverage
o Family and friends support
o Online crowdfunding services
o Email Marketing
o SEM (Search Engine Marketing)
o Other:
If a certain type of service can help your campaign, which would you want to try
most *
o A service that provides deep social media reach
o A service that gives extensive media coverage
o A service that gets you backers
o A service that focuses on email marketing
o A service that focuses on SEM
o A service that evaluates your project success rate
o Other:
Any comments regarding crowdfunding.
Pg. 94

Crowdfunding Blackbook Project

Uploaded by

Copyright:

Available Formats

Crowdfunding Blackbook Project

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Crowdfunding Blackbook Project

Uploaded by

Copyright:

Available Formats

What are the different types of crowdfunding?

What are the different types of crowdfunding?

What factors contribute to a successful crowdfunding campaign?

What factors contribute to a successful crowdfunding campaign?

K.C.

Crowdfunding is a collective effort by people who network and contribute

Crowdfunding is a process of soliciting funds from the general public to support an

HOW DOES IT WORK?

Crowdfunding is the practice of funding a project or venture by raising small amounts

Although similar concepts can also be executed through mail-order subscriptions,

Crowdfunding has been used to fund a wide range of for-profit, entrepreneurial

Crowdfunding is a collective effort of individuals who pool their resources to support

and training, including guides on running campaigns from Indiegogo, Fundable,

 Sponsors: Beneficiaries may obtain support in designing and running

Potential in monetary terms (revenues, realignment or cost-savings) Crowdfunding

Crowdfunders invest mostly in business and entrepreneurship (40 percent), social

professional photography and between US$1,000-US$5,000 in professional video-

Motivations of Companies for Crowdfunding

In their interviews with crowdfunding-experienced entrepreneurs Belleﬂamme et al.

These customers can be identiﬁed through crowdfunding, which allows companies

Motivations of Capital Providers

Importance of Social Networks

Signals in Crowdfunding Transactions

Schwienbacher & Larralde, 2012 ). Distortions in venture capitalﬁnancing created by

2.Crowdfunding has the potential to revolutionize the financing of small business,

Advantages Of Crowd Funding

Disadvantages Of Crowd Funding

movement of the 19th and 20th centuries is a broader precursor. It generated

In the film industry, independent writer/director Mark Tapio Kines designed a website

1.2 Statement of Problem

1.3.A. Major Objectives Of Crowdfunding

1. Key factors that have facilitated crowd funding in developed countries.

In addition to encompassing a wide range of potential projects, and founding goals,

of a project. Alternately, reward-based crowdfunding treats funders as early

Crowdfunding is a new technology-enabled innovative process that is changing the

reliance that entrepreneurs will likely have on crowdfunding, we need to better

2.1. Crowdsourcing And Crowdfunding

Crowdfunding draws inspiration from concepts like micro-finance (Morduch, 1999)

2.2. The Crowdfunding Operations

2.3. Major Models Of Crowdfunding

crowdfunding ecosystem is to envision a product or project and then present their

Equally important to the crowdfunding ecosystem are the backers of crowdfunded

2.7. Crowdfunding Ecosystem

Each arrow represents:

a. A founder posts their idea/project on a crowdfunding website.

3.1. Types of Crowdfunding

Crowd-funding: An Infant Industry Growing Fast, Crowd-funding can be divided into

II. Debt-Based Crowdfunding,

III. Equity-Based Crowdfunding.

Rewards-based crowdfunding is where contributions are exchanged for current or

Charity-Based crowdfunding takes place when an individual, company or

Appropriate for: Non-profits and causes.

II. Debt-Based Crowdfunding

Debt-based crowdfunding is another form of crowdfunding that is gaining attraction.

III. Equity-Based Crowdfunding

Where rewards-based crowdfunding fails, equity crowdfunding picks up some of the

3.2. A Note On The Full Implementation Of Crowdfunding

An individual who takes part in crowdfunding initiatives tends to reveal several