Pros and Cons of Crowdfunding

Posted On: 2022-11-08 18:09:47

 

All of us must have come across the terms crowdfunding or fundraising or fundraiser or campaigner or fundraising goal or a crowdfunding platform at some point while using the internet. For those who have not known these terms... Crowdfunding is a practice used to gather a certain amount of funds from large groups of individuals and organizations for a particular. be it personal, organizational, or social. This process of raising funds is named fundraising and since the crowd willingly raises funds for a cause, it's called crowdfunding. 

 

Earlier there were traditional ways of crowdfunding like galas, events, marathons, and auctions. But in today's digitalized world, crowdfunding has picked momentum and has become 'online.' Online Crowdfunding is a practice of gathering funds from a large group of individuals and organizations but unlike traditional parties and events, it happens online, on crowdfunding platforms or websites. Ketto, ImpactGuru, Filaantro, and GoFundMe are some crowdfunding websites that raise funds online. A process is followed where the person wanting to raise funds known as Çampaigner'starts a fundraiser. 

 

A detailed story, pictures and videos, beneficiary details and payment gateways are uploaded on the website. This fundraiser is shared on the social media platforms that we use today. Apart from a minimal platform fee, nothing is supposed to be paid by the campaigner to the platform. 

 

Once it's shared on social media, it reaches the audience they donate as per their will. After the goal amount is raised, the amount is withdrawn from the platform and credited to the beneficiary's account. 

 

 

 

With this process completed, we can say, a successful fundraising campaign is completed. In today's times, crowdfunding has gained momentum because of digital advancement. You can donate to any cause from the comfort of your home. Millennials tend to opt for crowdfunding more than the previous generations' people and also consider it as a financial management instrument. Medical emergencies and paying hefty medical bills can be difficult to manage at times, but crowdfunding can assure in helping with such financial crises. In India, crowdfunding is majorly used for medical emergencies, collecting start-up capital or for education. 

 

 

 

Different studies of crowdfunding by experts have revealed that there are various pros and cons of crowdfunding. Let's see what those are.

 

PROS of Crowdfunding

1. Except for minimal platform charges, no money needs to be paid before, after, or even during the process. 

2. During medical emergencies, you can receive donations from across the world, which is helpful to gather the required funds quickly. 

3. Like bank loans, there is no need to follow long procedures of documentation, stand in lengthy queues, or wait for prolonged periods for approval of a loan, in crowdfunding. Of course, this goes without saying that like the repayment of loans, you don't have to repay any amount in crowdfunding to the donors. 

4. If you are fundraising for a product to be launched, crowdfunding is a fantastic approach to assess how the general public will respond to your idea or product; if they're eager to invest, that's a strong indication that it has potential.

5. Investors can track your development, which may allow you to utilize their networks to spread the word about your business.

6. Through the fundraising procedure, your investors may frequently turn out to be your most loyal clients.

7. Social Media plays as a game changer, your fundraiser reaches thousands and lakhs of people across the world making it viral so more people donate to your cause. 

8. A donor can avail of tax exemptions for the amount one has donated under section 80G of the Income Tax Act. 

 

CONS of Crowdfunding

1. It won't necessarily be a simpler procedure than using more traditional means of fundraising.

2. When things are online, authenticity is a question. Many campaigners run false campaigns under the name of medical emergencies with false stories, pictures, and documents uploaded. 

3. Lots of efforts are needed to promote the fundraiser on social media, if it doesn't reach a large number of people, the chances of the campaign being a success are too less. 

4. In the case of fundraising for the capital of a business, if you don't reach your target, any finance that has been promised will usually be returned to your investors and you will receive nothing. 

5. Someone could see your business idea on a crowdfunding website and steal it if you haven't secured it with a patent or copyright.

6. You might want to use fundraising, depending on your industry. Luxury brands, for instance, do worse with crowdfunding than brands with services that offer more useful value.

7.  Crowdfunding is a long process. It is probably not a good fit if your objective is to generate returns quickly. Your ability to gain any momentum could take months or even years, depending on the type of investment you make. 

 

You'll have a better sense of whether you want to raise money for your cause or not after considering these pros and cons of crowdfunding. Most of the time, with consistent efforts, crowdfunding has proved to be a better option to manage financial issues. With the digital era working at the speed of lightning, things can be done quickly. 

 

 

 

Filaantro is one such trustworthy online crowdfunding platform that raises funds and supports causes that one truly believes in. It has a user-friendly interface. The process of running the online fundraiser takes place with a few simple steps of registration and filling in details. 

Author: Anjali Patel