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Over the past few years, crowdfunding has gained popularity among start-up businesses, indie filmmakers, and non-profits to raise money. India crowdfunding has helped start-ups to kickstart their business ventures. There are mainly three types of crowdfunding platforms – reward-based crowdfunding, personal crowdfunding, and non-profit crowdfunding. Like any financing scheme, crowdfunding has both advantages and challenges. We will talk about these pros and cons with respect to the three types of crowdfunding.

Reward-based Crowdfunding:

This is one of the most common types of crowdfunding where entrepreneurs or indie developers launch a campaign and offer “rewards” or “perks” to individuals who contribute to their project. For instance, a backer contributing to a project might be offered an early-adopter version of the product or a company branded swag. Kickstarter and Indiegogo are two most popular reward-based crowdfunding platform. Usually, these campaigns are either “all-or-nothing” where the creator must hit their goal within deadline or “keep-what-you-raise” where they can keep whatever amount they have raised.

Pros:

  1. The best thing about this type of crowdfunding is that you don’t need to give away equity or intellectual property rights.
  2. You can reach out to a wider audience through the backers’ social media clout and spread the word about your product, which essentially means free digital marketing.
  3. You can collaborate and get early feedback from your investors throughout the process of development.
  4. The more people back your project the better market validation it is for your project. This data becomes very important when you are meeting an angel investor or a VC for further fundraising.

Cons:

  1. A lot of time and money needs to be invested to create an appealing campaign page. Interesting reward structure and a compelling video are also needed.
  2. This type of funding doesn’t leave room for much of a profit. This is because most of the money gets spent on the promised rewards.
  3. You need to spend time promoting your project, paying attention to your backers and reaching out to reporters to have a successful fundraising.
  4. Your product idea might get ripped off since it is on a public platform for anyone to see. Especially if it is easy to replicate.

Personal Crowdfunding:

This type of platform is used by people seeking funds for personal causes like medical bill, or funeral expenses or to raise money for someone who lost everything to a fire. Most of the times, a majority of people using these platforms will get most financial backing from their families or friends or local community. Sometimes, some stories might get press coverage, but it’s not that common. GoFundMe and FundRazr are two popular sites for personal fundraising.

Pros:

  1. You may receive a donation at the time of your need.
  2. Your chance of getting financial support increases since more people become aware of your story and need through the platform.
  3. In a crowdfunding campaign, you can present your story as texts, images, and even videos. This makes it easier for you to share it with friends and family.

Cons:

  1. You need to be able to step out of your comfort zone and let people know of your crisis. It is unlikely that strangers will stumble upon your page and donate. The campaign will need an active promotion that can be uneasy for some people.
  2. There is very little chance that people outside your social network will donate to your cause.

Non-Profit Crowdfunding:

Any established organization or a new can use this platform to build up a base of supporters for their cause. A few platforms like Razoo and DepositAGift can be chosen to start a new campaign.

Pros:

  1. Crowdfunding can be used to involve supporters. Supporters can be made to feel like partners using the comments section, videos, and updates.
  2. Most platforms have a funding meter which helps the organization understand how close they are to their goal and how much impact it might have.

Cons:

  1. Failing to reach the goal might both the creators and the backers.
  2. Comments sections carry both positive and negative comments regarding your project. You should be alert and reply to every comment and social media mention.

To conclude, we can say that fundraising in India through crowdfunding has created the opportunity for entrepreneurs to raise the capital they need. While crowdfunding sounds like a lucrative deal, the entrepreneurs should have a clear understanding of the pros and cons of this form of financing.

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