Crowdfunding: A Game-Changer in Startup Financing

Pebble Time, India’s fastest-growing smartwatch brand, raised over $20 million via a Kickstarter crowdfunding campaign. The company raised funds to develop its smartwatch, the first watch compatible with iOS and Android devices. More than 78,000 people supported Pebble Time on Kickstarter, and the company offered an early bird discount to those who pledged to support them. Similarly, the Veronica Mars movie raised over $5 billion from over 91,000 backers on Kickstarter. Statista reveals that Kickstarter had hosted more than 592,000 projects as of May 2023. Crowdfunding is a great way to finance all types of startups, further fueling the company’s exponential growth. 

India is the world’s third-largest startup ecosystem, following the United States and China. The growing number of startups has given rise to a new economic model—crowdfunding is one such innovation. In the past few years, conventional funding sources like banks, angel investors, and grants, to name a few, have been hesitant to fund small firms or startups as businesses may not have fully established assets to serve as collateral. Luckily, the emergence of crowdfunding allows startups to raise capital without hiccups. Presently, more than 50% of crowdfunding campaigns achieve success, and with each passing year, the number is growing at a rapid rate. 

Crowdfunding has emerged as a powerful tool for startups, enabling them to access capital directly from diverse backers. Platforms like Kickstarter and Indiegogo have been catalysts for turning visionary ideas into reality. The crowdfunding platforms depict the effectiveness of project success, and the European Commission says that crowdfunding can greatly transform the financial system and become a paramount source of capital for SMEs in the long term. The principle of crowdfunding is that startups have to create an internet page on crowdfunding platforms showcasing their project ideas and set the amount of money required to launch the product. Presently, crowdfunding entails three areas: crowdlending and lending by individuals to other individuals or legal entities via special internet sites. 

As per Polaris Market Research on Crowdfunding, social media platforms like Facebook, Instagram, LinkedIn, and X (formerly Twitter) garner massive popularity from crowdfunding activities, which involve collecting donations from investors and growing government efforts to support the product. As an illustration, in November 2022, Britannia Marie Gold unveiled its crowdfunding campaign aimed at supporting women entrepreneurs on Women’s Entrepreneurship Day. Consequently, the company rolled out its new biscuit packs featuring the inspirational stories of five women entrepreneurs. It is a clear sign that the increased activities on social media platforms play a significant role in fueling the demand for upcoming crowdfunding projects. 

Undeniably, the rise of the Internet and social media platforms has enabled startups to easily reach a large audience of potential investors and backers who contribute a small amount towards a fund target. Not only does this approach make the investment process more accessible, but it also offers multiple distinct benefits to startups: 1) access to capital, 2) audience building, 3) market validation, 4) less risk, 5) publicity and marketing, 6) feedback and insights on products, and 7) partnership and networking opportunities. With growing startups, the crowdfunding market in India is expected to reach a total transaction value of $5.8 million by the end of 2024. One of the major reasons for the rising crowdfunding market in India is the surge in tech startups that leverage innovative platforms for raising funds. 

All in all, startups need to understand that crowdfunding is just one way to raise funds, so depending on it fully might not work as expected. In contrast to developed nations such as Europe, the US, the UK, and China, India exhibits a lesser degree of adoption and utilization of crowdfunding, particularly in terms of education, awareness, acceptance, and usage. Thus, the Indian market requires proper regulatory compliance laws and procedures for crowdfunding to reach its full potential, which will prove to be more successful for startups.

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