-By Dr. Anshika Agarwal
The ecosphere of India’s startup has substantiated prodigious growth over the past decennary, metamorphosing India as an eminent hub for entrepreneurship on the world platform. A pivotal stimulus for this surge has been the rise of funding avenues for startups. One such vital and innovative source is crowdfunding, which allows the raising of funds in small amounts from a substantial population, mainly via online platforms. The plentiful ventures have been nurtured with this access to capital. As India’s startup ecology is still evolving, it is crucial to understand the dynamics of crowdfunding in India.
As per DPIIT, NASSCOM and DST, India stands at 3rd position globally, only after the United States and China. This is led by multiple factors like a youthful and passionate population, enhancement of digital and internet connectivity, and measures taken by the government. As per Forbes India report, there are 107 unicorn startups in India, collectively valued at $349.67 billion as of date.
The traditional sources of startup funding include venture capital, bank loans, bootstrapping, and angel capital. A game-changer source is crowdfunding. The major difference between traditional sources and crowdfunding is the number of individuals and institutions involved. In the former, there are limited, whereas, in the latter, everyone can contribute who has an interest in the business and project; it has a wide reach and accessibility. Crowdfunding provides not only access to capital but also endure startups with market validation, publicity, marketing, networking opportunities and audience building.
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Classification of crowdfunding is mainly of 4 types, namely, reward-based, equity-based, debt-based and donation-based. In reward-based, the investor usually gets non-monetary benefits in the form of products or services or both. In equity-based, the investor gets the equity of the startup and becomes the co-owner of the startup. In debt-based, the investor invests money in the form of a loan, which is to be paid back with interest by the startup. In donation-based, the investor invests for a cause or for charitable projects, here, commercial considerations are secondary.
Some of the most popular crowdfunding sources in India include Kickstarter, Ketto, Indiegogo, Catapooolt, Fueladream, and many others. As per the reports, the crowdfunding market is expected to reach about US$ 5.77m in 2024, with about US$3.80k for average funding per campaign. This considerable growth is led by digital inclusion, expanding investor base, platform sustainability, rise in income and so on. There are some trust and credibility issues, a lack of a properly defined regulatory framework, limited awareness, crowding-out effect, and payment gateway challenges. In spite of this, Crowdfunding helps enrich the investor base, collaborations, promotions, and partnerships.
The kinship of crowdfunding and startups provided an inclusive avenue for raising capital, fostering entrepreneurial culture, and commeasure investment spheres. As India thrives to solidify its global position as a hub for startups, the role of crowdfunding will become necessary and essential. Through a vigorous crowdfunding system, social and economic development can take place while achieving the visions of innumerable entrepreneurs in the country.
The author is Assistant Professor, Faculty of Management Studies, University of Delhi. She can be reached at: anshikaagarwal@fms.edu
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