Know Everything About The Different Types Of Crowdfunding In India

Crowdfunding by the sound and frequency of usage will feel novel and modern. And, if right now, I tell you that it is indeed a modern concept you might just believe me! But the practice of crowdfunding dates back to the 13th century. Traditional crowdfunding or door to door donation drives were popular amongst the masses since the old days whereas modern-day online crowdfunding - which is fast and time-efficient - came into existence a little after 2008. There are different types of crowdfunding, all of which gradually evolved over time. 

In this article, we are going to find out the history and the different types of crowdfunding -

According to historians and archaic records, practices similar to crowdfunding could be found in the 13th century. For instance, a number of private citizens would collect funds to run perilous shipping voyages and ventures. Even authors and writers have raised funds, through subscription. For example, a book would be published only when there is enough interest from the public. Even war bonds for that matter were similar to crowdfunding. 

The above-mentioned instances are still far away from modern-day crowdfunding. A closer instance would be 18th-century fundraising by Jonathan Swift. He raised money from a large community of wealthy folks - these funds were then redirected towards low-income families in Dublin. The idea explained to the wealthy people was ‘collectively supporting the poor.’ Many believed in this ideology and gave funds up to their best potential. 

Crowdfunding art a.k.a our first type of crowdfunding - patronage!

During the medieval period, it was a practice for the nobility to cover the expenses of artists and creators. This was commonly known as patronage. This practice was followed by not only individuals but also by larger groups of common people. This was similar to crowdfunding. 

Two names that might ring a bell on the influence of patronage would be Alexander Pope who was a front runner in classicism work. 

Coming back to Alexander Pope, he followed a very peculiar format where he asked his readers to fund his books. He used the standard subscription model and got the payments in advance in exchange for a new book every year. He thanked or in a way rewarded his benefactors by publishing their names in the initial editions of the books. He followed this format of fundraising for approximately six years. 

Today, an artist can host their work on websites like Patron.org. Through such websites, the artist can earn by sharing their work on a consistent basis. 

Also Read: No Savings Or Insurance For Medical Emergencies? Crowdfunding To The Rescue!

This brings us to our next type that is reward-based crowdfunding

You might wonder why a classic artist like Wolfgang Amadeus Mozart would even be in this blog? But this is where it gets interesting. According to historians, as reported in Small Brooks, Mozart had planned a tour and struggled to finance the same. He then shared a message amidst his fans requesting funds for his concerts. His fundraising was successful thanks to the 176 backers. As a reward, he presented them with a manuscript with their names inscribed and also a personal thank you letter. 

To understand the modern-day version of reward-based crowdfunding, we can take a look at a jewellery start-up as an example. The owner wants to expand his business but cannot do so due to a lack of funds, so he proposes crowdfunding. In return, he will provide everyone with limited edition necklaces. This is one such instance where a backer is given a gift in return for their funds. 

In 1997,  British band Marillion were able to get their American Tour going through noticeably first digital donations. Their fundraiser managed to raise $60,000 through digital donations. This was another example of reward-based crowdfunding as the artists continued to appreciate the fans who backed them by having their names printed in special editions. 

A peep into modern-day crowdfunding also called tier-based subscription model

Did you know that The Statue Of Liberty in New York, USA, was a large-scale crowdfunding project?

In the year 1885, New York could not afford to assemble the monument due to its high cost. The public funds were not enough for this task. The original maker in France was waiting for anyone who could afford the assembling cost. However, Joseph Pulitzer interrupted this. The esteemed publisher started a crowdfunding campaign in his own publication. In the New York World ads, they offered smaller 12” and 6” models of the statue to those who gave funds to assemble the statue. The amount varied between  $1 and $5. The smaller one of a kind souvenirs were given to those who came forward with the specific amount. 

The result of running the ads was thousands of people coming together and pooling the amount of $101.091 which after adding to the public funds came down to the total amount of $250.000. This was enough to assemble the statue where it stands now. This is an example of a tier-based subscription model. The reward here depends on the amount someone has donated. 

Also Read: No Debt, No Death: Making Quality Healthcare Affordable For India's Patients

Loan based crowdfunding or debt crowdfunding 

A popular example of this would be investors giving money to new start-ups and demanding a return after several years. Recently, a show called Shark Tank would give money to potential businesses and ask for a return of investment in the form of debt, which would be returning the money with an interest rate. 

This further takes us to equity-based crowdfunding

In the year 2007, an Australian company known as the Australian Small Scale Offerings Board started the first-ever on record way of equity crowdfunding. In equity crowdfunding, several interested investors come together and own a part of a company run and founded by another person. The investors’ profits equate to the percentage of shares they own. The investors have a say in the way the company works. 

A popular example of this would be Swiggy, a food delivery company. Investors such as Baron Capital Group, Sumeru Venture, IIFL AMC Late Stake Tech Fund, Kotak, Axis Growth, Sixteenth Street Capital, Ghisallo, Smile Group, Segantii Capital, Prosus Ventures, Alpha Wave Global, Qatar Investment and more are the investors in the company. To summarise this - they are all part owners of the company. 

The birth of crowdfunding in India and our next type that is donation-based crowdfunding 

Crowdfunding in India began in local temples, mosques, churches and Gurudwaras. Where people donate a significant amount of funds to help institutions with social work, help the poor, feed thousands of devotees who visit the shrines.  In the entertainment sector, crowdfunding found significance as early as in the 20th century. Director Shyam Benegal’s Manthan was the first-ever film in the sub-continent that was entirely crowdfunded. 

500,000 Indian farmers came together and donated ₹2 each to make this film a reality. Starring Naseeruddin Shah and Smita Patil, this film followed the story of Bhola who was a poor milk producer and farmer. The film raised awareness about making milk cooperatives and banking milk to profit these farmers. Thousands of farmers across the country learned more about banking on milk and also felt represented. This film premiered in 1976 and was a success thanks to the storyline. 

Until the year 2008, the act of crowdfunding to fund an idea was a niche. However, post a global financial crisis in the following years, there was an increased trust in donation-based crowdfunding which had no payback and had instant results in some cases. 

Online crowdfunding platforms like ImpactGuru, which was established in the year 2014, are changing the lives of thousands of people, all thanks to digital transformation. Today, fast internet and technology have serviced online transactions making traditional crowdfunding less time consuming and possible to reach potential donors around the world.  Donation-based crowdfunding has its own advantages. But the world realised the true effects of crowdfunding when the pandemic hit. When the global economy took a dive, many small, as well as medium-sized businesses, struggled to survive. 

Crowdfunding came to the rescue of such businesses in trouble. Moreover, medical crowdfunding also saw a sudden rise in the past two years that is 2020 and 2021. More and more people are believing in the power of donation-based crowdfunding. 

If this further intrigues you, also read:

Pay Off Your Medical Bills Through Crowdfunding: A Detailed Guide