‘Crowd funding', a new capital raising concept

A film-maker who is documenting how slavery and murder in the Republic of Congo lie behind the extraction of minerals such as tungsten for use in modern electronic devices is hardly going to find it easy to fetch funds for his venture.

But US-based Mike Ramsdell has made a small start. He has raised nearly $7,000 (of the $30,000 that he is seeking) through “crowd funding” on an international money-raising platform called > Indiegogo.com . People who want to support him can contribute as little as $15 towards his project.

Small drops

Global funding platforms such as Indiegogo and > Kickstarter.com have helped raise funds for small films, artistic ventures, controversial campaigns or “projects of passion” for thousands of people, using a new capital raising concept called “crowd funding.”

Here hundreds of people contribute small amounts towards a venture that they would like to support, usually through the Internet. Anyone who can sell his idea can raise money through these sites.

The US House of Representatives recently passed a measure allowing entities to raise up to $2 million every year without any permissions. And the US stock market regulator, SEC, is apparently studying the phenomenon of crowd funding to see whether it might need regulation.

Seeing that this will more or less set the regulatory precedent in other countries too, some pioneers are trying out or bringing the crowd funding concept to India.

Closer home, film-maker Anirban Dhar independently raised Rs 1 crore for his Rs 3-crore film I Am , through crowd funding using Facebook and other networking sites. “Hundreds of people from several countries contributed as little as Rs 1,000 and as much as Rs 15 lakh,” he says.

Now Dhar is associated with a business experiment for creation of a film-funding platform in India. Saurabh Agarwal, who has founded a financial services firm Kennis group, says a special purpose vehicle of one of his joint venture group companies called Springboard Media Ventures will launch a film-funding platform next month, using Dhar as ‘ambassador'.

Business model

This platform will go beyond the ‘contribution theme' of some of the funding platforms and actually have a business model. People can donate as little as Rs 100 or Rs 500 and as much as they want. People contributing small amounts could get small autographed memorabilia or a free DVD etc from film-makers. Larger contributors are not promised a share of the profits but might stand a chance to get a share if the film makes money.

In the context of the Securities Appellate Tribunal ruling in the Sahara case, which emphasised that any issue that raises money from more than 50 persons becomes a public issue, Agarwal says: “Crowd funding would not constitute a public issue because there is no commitment to give returns or even to return the amount given.”

Arun Natarajan, Managing Director of Venture Intelligence that tracks PE and venture investments, says the best known usage of crowd funding was by > kiva.org started by an Indian techie in Silicon Valley to fund the ultra-poor for small ventures in Bangladesh and the like.

But the credit card fees don't make such a thing viable for contribution of small amounts, he said.

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