Presented ByRithvicca M – I MBA

Venkatesh D – I MBA

Guided byDr. N. Manicka Mahesh M.Com., M.B.A, M.Phil,

I.C.W.A.I Inter., Ph.D Asst. Professor

School of ManagementSKCET, Coimbatore.

CROWDFUNDING An Overview

IDEA

FUND

MEANING

Crowdfunding is the practice of funding a project by raising

monetary contributions from a large number of

people, today often performed

via internet-mediated registries

Concept

(Project

Initiator)

Bridging Organisation (Socia

l media/Internet)

Sponsor of

finance

Crowdfunding

PROVENANCE

• The term “crowd funding” is coined by entrepreneur Michael Sullivan. Sullivan uses the term to help explain the launch of his own project, a failed attempt to create an incubator for emerging video blogs and other projects.

EVOLUTION

• 1997 : Origin• 2009 : Kickstarter Launches• 2010 : Fundraise Introduces First Real

Estate Crowdfunding Model.• 2012 : The JOBS Act• 2014 : Crowdfunding the Potato Salad• 2015 : An Industry in crisis

TYPES

DONATION CROWDFUNDING

• Philanthropic venture

• Enables individuals to directly share their money with causes and projects.

• Sometimes they will receive a simple "thank you" or a special mention – or even a physical item such as a postcard – however, the pledge is essentially a donation.

Examples

REWARD CROWDFUNDING• It involves people

contributing to a campaign, and getting a tangible or intangible reward in return.

• Types KIA(keep it All) AON (All or Nothing)

PEER TO PEER CROWDFUNDING

• P2P is the practice of lending money to unrelated individuals, or "peers“.

Example

Example

EQUITY CROWDFUNDING

• It is the online offering of private company securities to a group of people for investment.

• The term equity crowdfunding is often used to describe crowd investing into both debt and equity based instruments.

Examples

Types Form of Contribution

Form of Return Motivation of Funder

Donation Crowdfunding

Donation Intangible Benefits Intrinsic and social motivation

Reward Crowdfunding

Donation Pre Purchase

Rewards but also intangible benefits

Combination of Intrinsic and social

motivation and desire for reward

Peer to Peer Crowdfunding

Loan Repayment of Loan with Interest

Primarily financially motivated

Equity CrowdfundingInvestment Return on investment

in time if the business does well

Combination of intrinsic, social and

Financial motivation

GLOBAL SCENARIO

• United states : JOBS act• Canada : Canadian Securities

Administrators (CSA)• New Zealand : Financial Markets Conduct

Act(FMCA)• United Kingdom : Financial Conduct

Authority (FCA)• India : Security Exchange Board of India (SEBI)

INDIAN SCENARIO

• Equity crowdfunding as of now, is not possible in India, since it runs afoul of Section 42 of the Companies Act, 2013.

• Equity crowdfunding as a mechanism for fundraising by companies is presently being scrutinised by SEBI.

• However, other forms of crowdfunding viz donation, rewards and peer-to-peer lending are possible.

INDIAN CROWDFUNDING PLATFORMS

• BitGiving• Millaap• Ketto.org• Start51• Funddreamsindia• Wishberry.in• Catapult

• Isitha Anand launched BitGiving in December 2013

• Milaap disburses loan of which 100% goes to the borrowers.

• Milaap is not a charity where you donate money, but actually loan them to people who need it.

• The idea of not making people dependent, but making them independent, making them productive is fantastic.

Ateet BajajFounder- Start51

BENEFITS

• It provides access to capital.• It hedges risk.• It serves as a marketing tool• It gives proof of concept.• It allows crowdsourcing of brainstorming.• Alternative source of financing• It introduces prospective loyal customers.• New mode of financing to SMEs• Facilitates Portfolio Diversification• It’s easier than traditional applications.• It provides the opportunity of pre-selling.

RISKS

• There are limited follow up mechanisms.• A lot of the creators posting their projects online have

good ideas and no business expertise.• Tax laws governing the ecommerce environment are not

clearly defined.• There is no collateral as in case of Corporate Bonds. • Venture Capital Funds (VCFs) and Private Equity (PE)

Investors.• Risk of Investor• Internet Security issues.

Risk –Continued

• The risk of failure is further increased by the fact that the funding is potentially by participants who do not have the skills and experience needed to assess the risk before investing/lending.

• There is possibility of genuine websites being used by fraudsters claiming to be promoters of projects

• SEBI regulatory framework• A quick review of the SEBI paper gives us

pointers to what the possible regulations could be. Under the proposed terms, three entities, namely, –the crowdfunding platform, –the investor, and –the issuing company, would be regulated.

Prevailing Scenario

• The issuing company is restricted in terms of its size, the amount of funds to be raised and its age.

• The investor is restricted in terms of its accreditation, minimum net worth and, in case of eligible retail investors, the maximum investment that may be made overall or in a single crowdfunding event.

• Crowdfunding platforms are also restricted in terms of who may set them up and the checks and balances to be put in place.

Effort Never Dies

Thank You