Crowd Funding: A New and Tactical Method of Funding for Start-Ups

crowd funding 

What is Crowd Funding?

Crowd funding or crowd financing is a term which signifies collective effort of a community of financers or fund providers who network [usually via internet followed by occasional offline meets] and look for providing finance for a common purpose, via a transparent and trustworthy platform. The purpose of funding could vary from raising it for a disaster relief, marketing and promoting a work of art or [as in our context], providing initial seed and/or growth capital to many potential start-ups.

Crowd funding is not a new concept per se. It has been used many times in the past. The classic example of it is the recent crowd fund raised by the Bollywood director Onir. Onir found it difficult to raise funds from the traditional film financiers, so he went through the crowd funding way on Facebook and Twitter and was able to get around Rs. 1 crore within a year. He used it to part-fund his film.

Why is Crowd Funding Strategic for India Inc.?

It is true that India’s growth story has a lot of credence in it. For any industry to develop, it is important for the demand and supply graphs to ascend simultaneously. Presently, Entrepreneurship is flourishing as an industry in India. Some of the supply side factors which can seemingly well bolster the entrepreneurial ecosystem in India are the immense possibilities of introducing products and services in almost every sector, population demographics, penetration of mobile phones, improving broadband connectivity, repatriation of many NRIs, higher awareness of investment opportunities, better information availability, appetite [in the age group of 30s and above] for savings and high-growth investments in avenues other than stock market, etc. These all add up to creating a start-up ecosystem, which is witnessing better organized growth on all sides funding, ideation, incubation and mentorship. Though these four supply-side aspects are getting organized better there is still potential to innovate them further to cater to the initial and growth needs of start-ups.

On one side there is an obvious need felt by the start-ups to receive micro-funding and the initial seed capital or the growth capital. On the other side, there is an increasing base of Indian population far away from their retirement age, who has disposable funds and is willing to invest in avenues of higher risk. They are more aware and come with proper due diligence in order to take the high calculated risk. Such people know that the stock market investments are the ones which give least returns, that too if the investments were made at the right time. [And predicting the right time is always a debatable topic]. These people know that the initial chunk of return comes if the investment is made at the kick-start of the right idea and not after the VCs have come and exited that’s when a company goes public! Moreover, these people do not usually meet the profile criteria to reach the VC circles to find investment opportunities.

Crowd funding makes a good case to flourish in this gap of funding the start-ups. It makes a lot of strategic sense here to bring together the start-up community and the smaller investors together on a transparent and trustworthy platform so that a pool of funds can be structured in an organized way and the promising start-ups do not die just for the want of more funds.

The current scenario*

Looking at the recent success of crowd funding in other industries, some of the merchant bankers are also considering organizing crowd funding for start-ups. Grow VC of Kennis Group is one such platform which promises to unite the investors and start-ups looking for funds at certain level of their start-up stage. Investors looking for such opportunities become members at Grow VC on subscription basis. About 75% of subscription money is allocated for investment in a start-up of investor’s choice. When enough funds are collected for a project the start-up is funded and the Kennis Group gets a seat in the board of members. The investments in the start-ups are expected to generate profits after 3-5 years and 75% of the profit on investments of the members is promised to be returned.

There are many other crowd funding websites like and of New York which are already patronizing the ideas of entrepreneurs successfully.

Crowd funding is a very new concept and hence is not a regulated space in India yet. Though in case of disputes, the legal recourse of the court can be taken. Grow VC is only one of the few players in the area of crowd funding. If presented appropriately with proper terms and conditions, this makes a good entrepreneurial opportunity. But beware to make things as transparent as possible or else, it may seem like a scam!


Mridula VelagapudiAbout Mridula: Mridula is a freelance writer. She writes on Entrepreneurship and has worked for a start-up in the past. To know more check out her profile at LinkedIn/Mridula Velagapudi

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