The title of the article: “Exploring Crowdfunding: A New Horizon for Capital Generation”
Begin the article with this introduction paragraph:
In recent news, an 11-year-old girl from Hyderabad has demonstrated the power of crowdfunding in an inspiring way. Leveraging this method of finance, she managed to amass ₹6.2 lakh, which was subsequently used to provide food for those less fortunate during the lockdown period.
Understanding Crowdfunding
Crowdfunding is a practical and effective strategy employed to generate capital for various causes and ventures. It achieves this by striving to convince a large number of people to each invest a relatively small sum. The primary platform for these transactions is online and includes amplification through social media and specialized crowdfunding sites, thereby leveraging the vast reach of the internet for maximum exposure.
Breaking Down Crowdfunding into Types
Crowdfunding can be mainly divided into three categories: donation-based, rewards-based, and equity-based.
Donation-Based crowdfunding calls upon numerous contributors to donate small amounts to a particular project. In return, contributors may receive tokens of appreciation, which become more prestigious as the donation amount increases. Conversely, for very small contributions, donators might not receive a reward at all.
Rewards-Based crowdfunding, on the other hand, offers correspondents a ‘reward’, which is typically a product or service the company provides in exchange for their contribution. Despite offering a reward, it is still primarily regarded as a derivative of donation-based crowdfunding since there isn’t a financial or equity return.
Lastly, Equity-Based crowdfunding is distinct from the two aforementioned types as the contributor gets the opportunity to become a part-owner of the company. This is accomplished by exchanging their investment for equity shares, enabling them to receive a financial return and a portion of the profits as dividends or distributions.
Evaluating the Benefits of Crowdfunding
Crowdfunding presents an array of benefits over traditional modes of fundraising and feeds into a broader pool of investors. These advantages include:
Reach – Fundraisers can readily access thousands of potential investors registered with the crowdfunding platform who can interact with and share the campaign.
Presentation – A crowdfunding campaign necessitates a holistic view of the venture, such as its history, offerings, traction, addressable market, and value proposition.
PR & Marketing – The entire duration of the campaign can be shared and promoted through various online marketing strategies like email newsletters and social media posts.
Validation of Concept – Presenting your idea or venture on a public platform can serve as an excellent chance to refine and validate your offerings based on the feedback of the masses.
Efficiency – Crowdfunding is widely celebrated for its ability to make fundraising efforts centralized and streamlined due to online management.
