Deep Dive – What Is Crowdfunding?

The following series is a collaboration between TechJuice and Startup Early.

With connectivity increasing the number of 3G/4G subscribers in Pakistan day by day, there has been a four-fold rise in the number of subscribers over the last three years in the country. The demand for digital services is expanding in this home of about 200 million people and the country is being viewed as one to be among six to have the fastest growing economies in Asia by 2030.

This progress has created an environment which is quite exciting for aspiring startups in Pakistan. And although there is indeed room for improvement, especially in support from government and private investors to grow this entrepreneurial space to its full potential, crowdfunding is one such solution to bridge gaps by facilitating a host of activities startups find challenging to manage, including gaining access to investment. Although Pakistan is on the radar for global VCs and is attracting millions of dollars in VC a year, there is a dire need for investment avenues. Despite the fact that many startups have started to look towards Crowdfunding as a possible source of raising capital, with need for investment in the rise, it serves as a great platform that is under-utilized by local startups.

What is Crowdfunding

In simple terms, crowdfunding is pooling of money from a group of people who share interest in supporting an idea, cause or a product. Anyone with a creative idea, non-profit or a business entity, can seek crowdfunding through designated platforms and access investment without the need for a Bank or Venture Capital firm. Although accessing sponsorship or loans through VCs, Angel Investors or Banks is always available, crowdfunding is quicker, accessible to anyone and increases the likelihood of getting funded.

Startups looking for investment can choose from four types of crowdfunding models which include:

1. Donation: This model involves the donating party (i.e. the “crowd”) giving money or other resources to the startup simply because they want to support the idea or cause. This model does not expect to give anything in return to the contributing party.
2. Rewards: This model involves the donating party receiving varying levels of “rewards” that correspond to the amount of money they contribute.
3. Debt: This model involves the startup looking to gain investment, borrow money from multiple people. In return, the lending party receives the startup’s commitment to repay the amount at set time intervals and at a set interest rate.
4. Equity: This model involves the investment party receiving some ownership in the startup looking to raise funds as equity.

Looking to gain a more in-depth understanding about crowdfunding? Join Startup early for a 6-week virtual workshop and learn everything you need to put your product pitch out there for the world using a Reward-based crowdfunding model.

Author: Fatima Ansar