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Meaning of Crowdfunding and its Definition
- Crowdfunding is the use of a small sum of money from a large number of people to fund a new business initiative.
- Crowdfunding connects investors and entrepreneurs by making the easy accessibility of vast networks of people via social media and crowdfunding websites.
- Crowdfunding has quickly become the fastest way of fundraising for many humanitarian causes and business support in India.
- A fundraiser usually involves three parties: the beneficiary, the crowdfunding platform, and the donors.
- In a country like India, three types of crowdfunding are prevalent - donation based, reward-based, and lending from peers.
- The most obvious benefit of crowdfunding for a start-up company or individual is the ability to gain access to a larger and more diverse pool of investors/supporters.
- Equity-based crowdfunding is gaining traction in India as it allows startups to raise funds without giving up control to venture capitalists.
- Crowdfunding is also useful in securing funds for poor people who cannot afford the costs of serious illnesses such as cancer and kidney transplants.
- Donations to certain non-profit organizations in India are tax deductible and individuals may be eligible for a tax deduction of up to 100%.
- However, investors must carefully assess the cause they are contributing to due to the occurrence of cybercrime and cases of fraud, especially when it comes to crowdsourcing donations for cancer treatments.
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