WHAT IS CROWD FUNDING?
Crowdfunding is a way of raising finance by asking a large number of people each for a small
amount of money. Traditionally, financing a business, project or venture involved asking a few
people for large sums of money. Crowdfunding switches this idea around, using the internet to
talk to thousands – if not millions – of potential funders. Typically, those seeking funds will set
up a profile of their project on a website such as those run by our members. They can then use
social media, alongside traditional networks of friends, family and work acquaintances, to raise
money. Below is a brief description of each of the different type of crowdfunding.
To view a list of platforms, please see the Members List.
Types of Crowd Funding
Donation / Reward Crowdfunding
People invest simply because they believe in the cause. Rewards can be offered (often called
reward crowdfunding), such as acknowledgements on an album cover, tickets to an event,
regular news updates, free gifts and so on. Returns are considered intangible. Donors have a
social or personal motivation for putting their money in and expect nothing back, except perhaps
to feel good about helping the project.
Debt Crowdfunding
Investors receive their money back with interest. Also called Peer-to-Peer (p2p) lending, it allows
for the lending of money while bypassing traditional banks. Returns are financial, but investors
also have the benefit of having contributed to the success of an idea they believe in. In the case
of microfinance, where very small sums of money are leant to the very poor, most often in
developing countries, no interest is paid on the loan and the lender is rewarded by doing social
good.
Equity Crowdfunding
People invest in an opportunity in exchange for equity. Money is exchanged for a shares, or a
small stake in the business, project or venture. As with other types of shares, apart from
community shares, if it is successful the value goes up. If not, the value goes down.
A Little Bit Of History
The first online crowdfunded project is thought to have occurred in 1997. Rock band Marillion
were unable to afford to tour after the release of their seventh album so American fans used the
then fledgling internet to raise $60,000 so they could play in the US. Although the band wasn’t
involved in the first round of fundraising, they have since used the same techniques to
successfully fund the production of their following three albums. Since then, this marketplace
has grown substantially.
Definition of Crowdfunding
Crowdfunding is a combination of crowdsourcing and microfinancing, wherein budding
companies or entrepreneurs raise money in relatively small amounts to finance a project or
business venture, from masses, by way of the internet to connect with the potential investors.
In crowdfunding, the small businessmen or entrepreneurs showcase their idea by posting video
links, information and other details, to communicate the innovativeness and profitability to the
large group of people, through an online platform, i.e. crowdfunding websites or social media.
In better words, there are three actors behind crowdfunding, i.e. the project initiator, who
conceives the idea of the project or business ventures for funding, the investor which can be an
individual/organization/group that contributes to the idea and the intermediary, i.e. the online
website that helps the project initiator to find the investors for the project. Crowdfunding is
divided into various categories, such as:
Donation-Based Crowdfunding: Any crowdfunding campaign wherein no financial
return is provided to the contributors, is regarded as donation-based crowdfunding.
Reward-Based Crowdfunding: When the individuals contribute money in the idea or
project in exchange for a ‘reward’, i.e. the product or service provided by the company. It
is often considered as a subtype of donation-based crowdfunding, as no financial or
equity stake is provided to the contributors in the company.
Equity-Based Crowdfunding: In equity-based crowdfunding, the contributors get the
opportunity to become part owners in the company, as they invest their funds for an
equity stake in the business venture.
Definition of Traditional Fundraising
Traditional Fundraising is when an individual or company uses conventional sources to raise
funds for executing the idea or furthering the business operations.
In a traditional fundraising, the person with an idea or project in mind, seeks volitional monetary
contribution for which the individual and his/her team contacts to High Net worth individuals,
government agencies, banks, businesses, charitable foundations etc. to invest in the venture or
provide funds for commencing operations in that direction. The sources of traditional fundraising
are:
Loan: It is the most common form of fund raising, wherein the budding companies and
small enterprise extend a loan to the banks and financial institutions, for a definite period,
along with interest.
Venture Capital: The form of financing provided by the high net-worth individuals,
investment banks and financial institutions to the startups and small businesses, having
profit potential in the long term is called venture capital.
Angel Investors: High net worth individuals who give financial support to entrepreneurs
and small businesses are called angel investors.
BASIS FOR TRADITIONAL
CROWDFUNDING
COMPARISON FUNDRAISING
Meaning Crowdfunding is a method of Traditional fundraising
arranging funds for a project or is when promoters use
business, in many small amounts typical sources to fund
from a large group of people their business ideas.
using an online platform.
Amount Large amounts from one or two Many small amounts
sources. from hundreds of
individuals.
Investors Easy to find investors. Difficult to find
investors.
Validation It gives a validation that the idea No such validation is
is quite exciting and innovative. available.
Idea Disclosed to the crowd, to get Remains confidential
funding. with the funding
individuals and
organizations.
BASIS FOR TRADITIONAL
CROWDFUNDING
COMPARISON FUNDRAISING
Control and Remains in the hands of the Shared with the
Management promoters. investors, due to their
stake in the business.
Network It facilitates to connect with a The promoters will
large number of people. contact with a few High
net worth individuals or
banks only.
Investor's focus Innovative and thought- Idea that has profit
provoking ideas, with work- potential.
ability.
Key Differences Between Crowdfunding and Traditional Fundraising
The difference between crowdfunding and traditional fundraising can be drawn clearly on the
following grounds:
1. Crowdfunding perfectly blends the features of crowdsourcing and microfinancing, by
using various online platforms, to raise funds from the masses, in small amounts. On the
flip side, traditional fundraising is the technique of arranging funds for executing the
business idea using conventional sources such as taking loans from banks, angel investors
and venture capital.
2. In crowdfunding, it is quite easy to find investors for the project or idea, as compared to
traditional fundraising wherein a lot of time, efforts and resources are needed to persuade
the investors to invest in your business.
3. In crowdfunding, the idea does not remain confidential, as it is visible to all through the
crowdfunding website or social media, whereas secrecy of the idea is maintained in case
of traditional fundraising.
4. In crowdfunding, the idea is open to the public, and so there is a risk of theft of an idea.
On the contrary, in traditional fundraising, the idea remains safe with the funding
individuals and organisation.
5. Crowdfunding allows you to reach a large number of people in just one click, without any
boundaries. As opposed, in traditional fundraising only a few high net-worth individuals,
banks or financial institutions are contacted to showcase the idea.
6. In crowdfunding, when you introduce the idea over the internet, it will reach many people
at one go, which will help you in getting relevant information regarding the market
through their positive and negative feedback. As against, in traditional fundraising, no
such information is provided, as the idea is not disclosed to the general public, and the
investors see the profit potential in the idea.
7. In crowdfunding, the business control and management remain in the hands of the
promoters, as the contributors contribute in small sums, so they have no direct say in the
business. Conversely, in traditional fundraising, the investors own stake in the company,
and so they get the right to control the business decisions and appointments.
8. In crowdfunding the contributors mainly focus on the innovative, interesting and thought-
provoking idea, to pledge cash. In contrast, in traditional fundraising, the investors
primarily focus on the idea which has the capacity to generate revenue.
How Crowdfunding Works?
Cro
wdfunding is an emerging mode of raising finance from anyone having money, wherein
entrepreneurs get an opportunity to arrange millions, from a pool of investors who are ready to
invest in their business venture or project, through a crowdfunding website such
as Kickstarter, Indiegogo, Peerbackers, etc.
In crowdfunding, a forum is provided to those entrepreneurs and small businessman who has an
idea but seek funds to make it real. The fund seekers can make a profile and post the details of
their idea, project or venture, on the website and pitch it before the potential investors, rather
than raising loan from the bank.
The investors invest in those projects whose idea is one in a million and has the potential to turn
out as a big hit. The amount spent by the investors in crowdfunding is usually small, but there are
thousands of investors, who select from a range of projects to pledge their cash in exchange for
return or without it.
Moreover, the fund seekers can also parallelly use social media, to raise funds out of their social
circle of friends, relatives, colleagues and acquaintances.
Now you must be wondering how these crowdfunding websites generate revenue? Well, these
websites make money out of the percentage of funds so raised.
Conclusion
To sum up, Traditional fundraising is one in which where the small businessmen or entrepreneurs
present their idea before several wealthy investors and banks, intending to obtain funding for the
project. On the other hand, crowdfunding refers to a practice of funding wherein thousands of
people voluntarily contribute in the idea or project in which they believe, to help it grow, through
a website or social media platform.
IS CROWD FUNDING IS LEGAL?
SECP Notice.
Press Release March 27, 2017 For immediate release SECP warns public about crowd funding
ISLAMABAD, March 27: It has come to the notice of the Securities and Exchange Commission
of Pakistan (SECP) that a page with the title of “Innovative Crowd Funding Project Pvt-Ltd
Pakistan” is appearing on Facebook, explaining the concept, history and other details of crowd
funding. As per the website (innovativecrowdfunding.com), it seems that the company is
involved in raising funds through crowd funding. In this regard, the SECP would like to clarify
that no company with the name of “Innovative Crowd Funding Project Pvt-Ltd Pakistan” is
registered with it. It is further clarified that crowd funding is not allowed in Pakistan and no
company can raise funds through this scheme. In view of the above, the public is hereby warned
not to be misled by fraudulent activities, investments/deposit schemes launched by certain non-
corporate entities or individuals through advertising in the electronic and print media, websites,
emails, mobile text messages etc.
How we can legally raise funds for our Business ?
Add In the Leading News Paper.
Step 1 Financially Strong Distributor/Supplier Required
Presentation on their Financial Benefits for
working with us.
Step 2
Supplier Contract for Big Bird Foods.
Step 3 Supplier Contract for Big Feed
Financial Benefits of of Businessess
Yearly
Average
Live Live Profit Rotation Net
Rate Weigh Per Paymen Per YEAR Profit/ Net Profit/ Per
Investment Financial
/KG Benefits
in KG Kg of of Businessess
t Terms 365/45days Per Turn Year
Investment Yearly Live Profit Paymen Rotation Net Net Profit/ Per
Average 384,61
Weigh Per t Terms Per YEAR Profit/ Year
50,000,000 130 5in KG
Live 40 Kg6 45days 8.1 2,307,692
365/45days Per Turn 18,692,307.69
Rate
/KG
384,61
50,000,000 1300 5 40 45days 8.1 2,307,692 18,692,307.69
