Crowdfunding: The Social Way to Raise Funds

Though crowdfunding as a term is new, the concept is old. In colonial India, when Tata found big British banks unwilling to fund his investment, he turned to Indian nationalists, and they gave a call to ordinary Indians to fund Tata so that an Indian Iron and Steel plant could be set up. This incident shows some of the strengths of crowdfunding, along with the differences between then and now.

Tata could not turn directly to masses of middle-class people and expect that they would fund him. At that point, the Tata name was not magical. There was no guarantee that people would put up money for shares. And the appeal to nationalism could not work if it came directly from him. That is where the nationalist political leaders played a role. They acted somewhat like how a crowdfunding platform acts, and partly as the initiating group of crowdfunding.

Fundraising in India today is much more widespread, and it does not have to rely on tall national leaders, though such endorsement helps. Crowdfunding is the practice of funding a project or a venture by raising a small amount of money from a relatively larger number of donors or investors, depending on whether we are looking at crowdfunding for business, or for not-for-profit goals. There are several crowdfunding sites in India that help with the cause.

Social agenda and social programs that do not promise any significant material returns to the donors have limited ways of raising funds. When they are in tune with government projects they can get government funding.

In the period since the 1980s, they have had a second source – international donor agencies, like Oxfam, USAID, etc. But these have had mixed responses. As foreign agencies they have often been subjected to tight control, and sometimes accused of acting on behalf of externally created agenda. The other option is to seek help from corporate bodies and individuals within the nation.

The Indian experience with corporate funding has been relatively poor. By contrast, it is the contribution from the small donor that has been vital. At present they are possibly bearing as much as 50% of the total social funding.

The inputs of individuals in the crowd trigger the crowdfunding process, where every individual matter. In social projects, the motivation can be a feeling of satisfaction of having contributed in a concrete way to a specific type of work that one approves of, rather than merely being an anonymous taxpayer, whose money is being used by the state. Individuals who take part in crowdfunding projects tend to identify with the content, cause or project selected for funding.

They do not expect any significant monetary reward. Sometimes, having a tax benefit is useful, since some people could put in more money than they would otherwise, or might put in money that they would not put in if there was no tax break. Fundraising techniques in crowdfunding also call for use of platforms dedicated to crowdfunding.

Worthwhile projects and generous funders can be brought together through the platforms. While running a platform costs some money and therefore platforms charge money, they can bring people together who would otherwise not have known each other.

However, crowdfunding is not an absolutely anonymous process. It goes out in concentric circles in many social causes. The initiators and their friends are at the extreme core. They all have their own social networks and reach out through those. This leads to a second wave. If it is a slightly longer-term project or needs more funding it can be run further.  In certain cases, where the nature of the cause is widely known and supported, greater anonymity is possible, and high fundraising may happen despite that. One such case is the use of the project iCancer to raise funds and make it possible to support a Phase 1 trial of the anti-cancer drug AdVince.