Crowdfunding in the world’s biggest democracy
Dr. Dan Marom – March 23, 2015
India is the fastest growing startup ecosystem in the world, but lack of institutional funding could slow things down. Can alternative finance mechanisms like crowdfunding be a primer for economic growth in one of the biggest markets on the world?
Crowdfunding, at its most basic, is the pooling of resources by a group of people for a common goal. This practice has been going on since the dawn of civilization and many human undertakings throughout history have in fact been crowdfunded, in a sense. In India, this practice can be seen in the many monuments and religious constructs over the years that have been built using donations – a form of crowdfunding. Even more modern success stories can trace their beginnings to this form of finance. Dhirubhai Ambani used crowds to fund Reliance Industries by getting contributions from many communities in Gujarat, and film Director Pawan Kumar from Karnataka recently raised 5.1 million rupees using Facebook and other platforms.
With the rapid development of the internet many concepts got a new twist and a huge boost in their online incarnations. For crowdfunding it happened just a few years ago in the wake of the global financial crisis of 2009. Banks, investment firms and other financial institutions were unable or unwilling to meet the demand for funding by startups and SME’s. Out of necessity, they turned to alternative forms of finance and the global crowdfunding industry rocketed to a multi-billion dollar market that has seen an increase of more than 1000% over the last five years.
Though not as prevalent as in the US or Europe, crowdfunding is starting to become more and more popular in India with platforms such as: Catapooolt, Ketto, Wishberry, Ignite, Start51, TheHotStart leading the way. One of the best examples of Indian crowdfunding progress is CarIQ, recently becoming the first Indian startup to run a successful pre-sales crowdfunding campaign using an Indian platform, as opposed to US-based platforms such as Indiegogo and Kickstasrter.
Crowdfunding is an industry that relies on its mains asset, i.e. the crowd, in order to spur growth. The larger the crowd, the more powerful crowdfunding grows, exponentially. This is partly the reason why the World Bank believes that emerging markets such as Brazil and India and China have the greatest potential for growth in the crowdfunding industry. According to their report, they predict the China crowdfunding market will reach $50 million by 2025. What does this mean for India, the most populous democracy in the world with a “crowd” of 1.2 billion people?
The financial crisis, which affected the US and the rest of the world did not stop at India’s borders, affecting banks and institutional investors alike. In addition, the Indian IPO market in recent years has not seen much activity and entrepreneurial innovation has been thirsting for funding.
The ecommerce market in India is relatively dormant compared to western world. The trust in online trading systems is not at the same level as in countries like the US and UK. In addition, there is a great disparity in startup financing in India. For every success story like Snapdeal, Ola and Flipkart there are thousands of startups that cannot get any financing. This is due to a reliance on VCs who are in turn interested in mostly in business in specific fields that have a multi-billion dollar potential.
However, according to Nasscom, India is the fastest growing startup ecosystem in the world. With 800 new startups every year the Indian startup count is projected to reach more than 11,500 by 2020. India is also the second largest population (after China) and the third largest online population (after China and the US).
This means that one of the most booming innovation markets in the world is being held back by a stagnating finance market, much like the situation in the US at the beginning of this decade. The question is, can crowdfunding do for the Indian market what it is doing for the US and European markets?
Some, at least, think so. In 2014, SEBI (Securities and Exchange Board of India) published a consultation and call for suggestions paper with the purpose of creating regulations for investment crowdfunding in India. Following in the footsteps of countries such as the UK and Italy, these regulations would pave the way for a much larger pool of investors to enter the Indian finance market.
Though initially hailed as a disruptive force, crowdfunding has emerged as a gap-bridging mechanism between self-financing and institutional investors. This means crowdfunding has the potential to do for the Indian entrepreneurial scene the same thing it did for the US market after the financial crisis, but on a much larger scale – i.e. fuel what may be the largest economic growth in India’s history.
Dr. Dan Marom is working with a local partner, Two Corners – Catalysts of the Crowdfunding: Deep Impact conference in India to produce a report aimed at Crowdfunding in India. The Crowdfunding Deep Impact conferences are aimed to leverage & echo the conferences’ essence for promoting entrepreneurship & economic growth.
After a brief discussion with Ramesh Loganathan, President of HYSEA, Preeti Gaikwad, Founder of Two Corners said “Ideas related to frugal innovation are at a ‘discovery’ stage i.e. these ideas have been written and published as a repository in the public domain and there’s a need to commercialize these Frugal Innovative ideas. We aim to foster each viable frugal Innovation from this repository through Crowdfunding apart from the biennial Deep Impact conferences.”
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