The service promises not just funding but also mentoring and advisory facilities to start-ups
Mumbai: Crowdfunding, a practice that takes advantage of the collective effort of individuals who pool money mostly through the Internet to support start-ups, appears to be gathering momentum in India with at least four such initiatives being introduced in the past one year.
Referred to as crowdfunding platforms in investment circles, they have created a new asset class with shared risks that promises start-ups not just funding but also mentoring and advisory services.
Take the case of India’s first crowdfunding portal, Pik A Venture, launched by an MBA student at Stanford Graduate School of Business, Ruchi Dana, in July. Besides funding, the portal also provides advice on legal and company registration issues and offers consulting and guidance on campaigns.
Pik A Venture targets creative minds, budding artists, technical brains, student entrepreneurs and innovators, according to Dana. “We are currently mentoring 12 business ideas and are putting their campaigns online. We don’t want start-ups to just come on our website and fail," she said.
Pik A Venture will not take any equity stake but charge a percentage of the funding. It will do a soft launch of the platform in the middle of May.
Globally, crowdfunding is a $6 billion industry, according to a report released by research firm crowdsourcing.org in May.
In India, these platforms seem to prefer the creative arts such as films and social causes for raising capital from the general public.
For instance, filmmaker Abhay Kumar raised around ₹ 5 lakh over the last 20 days for his documentary Placebo; Onir’s I Am raised around ₹ 1 crore over six-nine months, while Kannada film Lucia by filmmaker Pawan Kumar raised more than ₹ 50 lakh over 30 days.
Starting Blocks Media Ventures Pvt. Ltd is launching its crowdfunding platform, Catapooolt, to focus on creative projects such as films, music, performing arts and books in mid-April.
“In case of crowdfunding for films and music, the copyright of the project lies with the producer or the one who posts the project on the site," said Satish Kataria, managing director, Catapooolt, adding the site is the first ever official crowd-funding platform for the Hong Kong Film Festival 2013.
Experts say while crowdfunding takes time, as much as 8-10 months for a deal, it increases the pool of available capital.
Start-ups can use crowdfunding to make a pitch that can be accessesed by investors subscribing to the service. The investors range from professional ones to business people. The minimum investment could be as low as ₹ 1,000 with no upper limit.
The pitch includes details such as the background of the entrepreneurs, the business offering and plans, financials and funding requirements.
Once a pool of investors shows interest in backing the start-up, the funds raised are directed to the company through the platform. The platform could have a member of its team on the board of the venture. Investors will have complete access to the company’s financial plans and performance on a monthly basis. The platform typically takes a percentage of the fund raised through it.
Varun Sheth and film star Kunal Kapoor launched Ketto on 15 August to build an online network focusing on philanthropy in India. It connects non-profits and other companies aiming for social impact with the public.
There is a large opportunity in crowdfunding as it resolves the problem of lack of funding, according to Sheth, who added that at least half a dozen more crowdfunding platforms would start by the year end.
“Crowdfunding is a big disruption for financial services industry, it cuts the middlemen away. Social media and Internet growth has increased the awareness and viability of such platforms," said Sheth. Ketto is right now raising ₹ 1 crore for itself and expects to close the fund raising in about 45 days.
Sheth said facilitating donations is an interesting space for a crowdfunding platform as there is a lot of disposable income in India and increasingly more people are looking at giving back to society.
“The mandatory 2% CSR (corporate social responsibility) would also increase pools for crowdfunding platforms," he said, referring to the new companies Act that mandates such spending. The Act is yet to be passed by Parliament.
Crowdfunding, however, is not without its share of difficulties. In India, for example, people don’t offer money if there is no return, even in a social cause. This could be something as basic as a coupon from a retailer.
“In India, most people don’t give money only for passion. There needs to be a motivator. We are tying up with brands like Café Coffee Day, Domino’s Pizza, Shopper’s Stop and Lifestyle," said Catapooolt’s co-founder and associate director Yogesh Karikurve. Its other reward plans include curating some of the best Bollywood memorabilia.
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