Chet’s 17 years of career has seen a healthy mix of entrepreneurship, corporate development, and business development. He started as a teen entrepreneur at 19 and has continued multiple entrepreneurial stints since then. Chet has worked with leading global organizations such as Ness, ACS (Xerox), eBay, and Pearson Education in the US and in India. Prior to Crowdera, Chet was focused on building Fund Edu, his previous startup focussed on educational crowdfunding via microfinance. As a business leader in the services industry, he has run profit centers, engaged with customers across cultural and geographic boundaries to deliver strong business results helping organizations to stabilize/grow.
India is home to ~38k start-ups with an average of 750 new launches every year. We go hoarse celebrating the ~100 unicorns that form a mere ~0.2% of the total Indian start-ups. In such a scenario, it is worth delving deeper into the fate of the other 99.8% of the start-ups. An Institute for Business Value and Oxford Economics survey found that 90% of Indian start-ups fail in the first five years of their inception. The major challenge faced by small businesses is access to funds and capital, due to which they are unable to invest in product development, hiring the right talent, and incur marketing, consulting, and branding expenses.
For small businesses and start-ups, crowdfunding is an excellent alternative to bridge this gap of funds. It is a perfect channel for making early sales and creating awareness about the brand. Crowdfunding helps early-stage businesses connect and find their initial customers or patrons.
Crowdfunding platforms give small businesses a chance to spread their story to the people so that they can willingly fund them. How can small businesses make this work? Offer a fantastic concept that people will enjoy, and then put it out on one of the various crowdfunding platforms. Your idea will be supported, and your objective will be met if you can persuade many individuals to buy-in.
Organizations can even call for suggestions and feedback from the public on their business/products/offerings. The business can share with people how the larger society or a particular section of society can benefit from its business operations. While looking for support, it can let people know its challenges to date as a brand and how it has managed its survival. We call it blooming with little steps.
To build a connection with potential funders, the businesses, based on the nature of their offerings and business model, can try various crowdfunding methods, for instance, Incentive-based crowdfunding and Equity-based crowdfunding.
Incentive or reward-based Crowdfunding: This involves identifying the amount of funds to be raised, choosing the crowdfunding platform, determining the type of reward, and building a brand story that would appeal to early investors. It’s a great promotional strategy, too, since, in return, the investors themselves become spokespersons and advocate the products and services to their networks. The business owner can offer free subscriptions, early trial/ preview of the product or service being built, and also receive feedback from their initial users in lieu of the funds pledged. Sometimes business owners may also share tokens like certificates, memorabilia, credit points, and so on.
Lending (or debt) based Crowdfunding – Also known as peer-to-peer lending or debt-based crowdfunding, it allows business owners to raise funds as loans at a pre-determined interest rate and for a fixed period. This is an excellent arrangement for those founders who do not wish to give away their equity at an early stage.
Equity-based Crowdfunding: It is a newer type of Incentive-based crowdfunding where the funders receive equity or shares in exchange for their funds. Here, the people who fund the business become the shareholders and deserve a share of the profit gained by the business. This can be a great middle path for attracting investors without needing to pitch investors in person. Though the RBI and SEBI do not legally permit this, experts have ongoing discussions to explore the possibility of enabling it as it is a viable alternative for small businesses.
Donation-based funding: Donation-based crowdfunding is a way to source money for a charity project by asking donors to contribute money to it without a promise of return.
Earlier pitch decks and presentations were an integral part of making a pitch for potential investors. With crowdfunding, the fundraiser must not necessarily be a good public speaker to spread out the word to investors and does not even need to look for investors in different areas and make calls to VCs individually. To leverage crowdfunding, they must be aware of modern technologies to best reach out to domestic and global audiences and present their offering.
With crowdfunding, early-stage businesses not only get access to cheap capital but also manage to hedge the risks of raising capital. Also, it is an excellent opportunity for market validation. It provides a window of opportunity for founders to understand their target audiences and receive their feedback to build a better and robust offering. It is also a free/inexpensive, risk-free, and easy way to reach potential customers through various channels, as social media promotes crowdfunding campaigns. A successful crowdfunding campaign also serves as solid proof of the veracity of the concept for a start-up’s product or service. There are no hidden charges or penalties for crowdfunding, irrespective of the success or failure of the campaign.
Crowdfunding is a safe, risk-free alternative for businesses to raise capital, find potential customers and determine viability and also provides access to various channels for promotions and publicity to grow their venture – all of this, completely free.