Crowdfunding Vs Fundraising – Here’s the difference every investor must know!
In our childhood, most of us have experienced crowdfunding or fundraising in the simplest forms. Remember the days when our schools assigned us projects for raising funds for a good cause. Our group of friends would scatter around our building complex and make people aware of the cause through fun skits and role-plays. The people believing in the cause would generously give their share for raising funds. With smaller contributions from loads of people, eventually, the happiness of raising a humongous fund instilled a sense of contentment.
Following a similar concept and not limiting it to just charity, Crowdfunding and Fundraising campaigns captured the attention of people believing in the underlying business or cause. Since great things are not built by one person, it takes a ton of people’s contributions to building success. That success could be in terms of building a startup or developing a high-end real estate project. Wondering what the investors get in return? Well, keep reading to know a great deal! In this article, we aim to explore the differentiating aspects between Crowdfunding and Fundraising, and how people can approach their investments!
What is a Crowdfunding Investment?
To raise finance for a startup or a real estate project in its initial stage, Crowdfunding is a well-known method used. In Real Estate Crowdfunding, the developer seeks an online Crowdfunding platform. With background checks and due diligence of the developer and the project, the crowdfunding platform lists the project on its website. Investors around the world choose to invest if they agree with the investment idea and the returns. The raised funds from tons of investors are invested as either a debt-finance or equity stake in the project.
Currently, Indian regulations do not allow equity-based crowdfunding options. Thus, in a debt-financing crowdfunding model, the investors enjoy a fixed percentage of interest on their investment throughout their tenure as well as principal repayment as per the repayment model mentioned. Getting high-yielding real estate exposure without the hassles of owning and maintaining a property is the best deal through Crowdfunding investment.
What is a Fundraising?
The idea behind a fundraising model is similar to that of crowdfunding. Fundraising has been a traditional way of raising funds for a good cause like help for the needy, a public-service event, or any other charitable cause. The volunteers of the fundraising organization make great efforts to spread public awareness through physical campaigns, awareness drives, and nowadays even through social media. The people believing in the cause donate by will. The motive behind fundraising is to not earn anything in return. Instead, it’s a generous donation for a good cause. In earlier times, fundraisers would personally meet people to collect donations by cash or cheques. In today’s digital times, fundraisers collect donations through online payments.
Now that we understand what Crowdfunding and Fundraising entail, let’s take a look at key differences setting them unique.
Key Differences between Crowdfunding and Fundraising Models
Type of Fund
In a crowdfunding setup, the fund is raised to invest in a startup or a real estate project.
In a fundraising setup, the fund is raised to donate to a cause or event.
A crowdfunding investment provides two types of returns:
Through fundraising, the providers do not get any monetary benefit in return. Instead, people donate for humanity and gratitude.
Crowdfunding investments generally have a long tenure to stay invested.
In fundraising, the money is given for a cause and hence is utilized immediately.
Amount of investment
Crowdfunding investments range from smaller to higher amounts as per investor’s preferences.
People usually donate smaller amounts to a fundraising campaign as compared to Crowdfunding investment.
The motive for a crowdfunding investment is to earn returns on idle money.
The motive for a fundraising donation is to help society.
Mode of investment
Crowdfunding is an online investment through a recognized and trustworthy platform.
A fundraising campaign can be either online or offline.
With the above-detailed overview and differences between crowdfunding and fundraising, it’s clear that Crowdfunding is an investment opportunity and fundraising is purely for charity.
How Should Investors Approach Crowdfunding?
To begin one’s investment in the world of crowdfunding a real estate property or a startup, the investor needs to conduct his/her own due diligence and research about the growth prospects, demand analysis, and the payout of returns. Apart from proper research, the investor needs to check the background and reliability of the crowdfunding platform. One must choose a trusted crowdfunding platform recognized by legal authorities and having experience in conducting crowdfunding investments.
To conclude, you would now be comfortable in understanding crowdfunding investments and how different they are from traditional fundraising campaigns. Along with the online mode, the monetary benefit is the striking differentiator between the two. The hype of crowdfunding is pretty recent and well-deserved for being a new addition to the list of truly passive investment options. In India, the crowdfunding concept has kicked in from the past couple of years and is definitely here to stay as millennials are vouching for passive real estate and startup investment options during packed work from home schedules.
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Crowdfunding Vs Fundraising FAQ's:
Crowdfunding is an investment opportunity whereas fundraising is purely for charity.
Yes, Real estate crowdfunding is a very popular medium to raise funds for institutional grade properties.
In Real Estate Crowdfunding, the developer of the project seeks an online Crowdfunding platform to raise funds from investors around the world and give a certain percentage of interest in return to investors.
In Real Estate Crowdfunding, the developer seeks an online Crowdfunding platform. With background checks and due diligence of the developer and the project, the crowdfunding platform lists the project on its website. Investors around the world choose to invest if they agree with the investment idea and the returns. The raised funds from tons of investors are invested as either a debt-finance or equity stake in the project.
Yes, Crowdfunding a real estate is one of the best ways to earn passive income with an average return potential of 10 to 12% per annum.