Business Today

Herd Mentality

Crowdfunding platforms are proliferating. And very different models are being tried out by different players.
By Venkatesha Babu | Print Edition: June 5, 2016
(Photo: Raj Verma)

Betaout is an interesting Noida-based start-up that, among other issues, is trying to solve a key problem facing e-commerce companies. A customer after adding goods to a checkout cart on an e-commerce platform ends up most of the time not closing the transaction. It's called 'abandonment' in sectoral lexicon. Most e-commerce companies would give an arm and a leg to get data and, importantly, analysis on why this happens - this would help them improve their conversion ratio. There are several players trying to provide this kind of analytics and Betaout is one among them. It sells customer intelligence and marketing automation software to e-commerce companies.

Betaout counts the likes of Paytm, Mauj, Droom and Tokopedia (a leading Indonesian marketplace) amongst its 40-plus clients. The company has some marquee angel investors in the likes of Kunal Bahl of Snapdeal and Phanindra Sama, Co-founder of Redbus, who have invested half a million dollars in the company.

So when Ankit Maheshwari, the co-founder of Betaout, was looking to raise an additional sum of money to expand operations, Kunal Bahl asked him to check a crowdfunding platform called LetsVenture, another company he has invested in. "I was initially sceptical. Crowdfunding investments even internationally are relatively new. But I decided to check them out and it was probably one of the best decisions I took," says Maheshwari.

Maheshwari feared that he would have to approach, hat in hand, several thousand investors, but he was in for a surprise. "I was taken aback by how easy and seamless the entire process was. LetsVenture did a phenomenal job of handholding and making the entire process pain free. We went in looking for Rs 1 crore of additional investment and given the strong response from the investor community, ended up raising Rs 3 crore. The whole process was over in three-four weeks. This allowed us to focus on growing the company rather than having to devote time in raising funds."

For its pains, LetsVenture ended up getting a fee of 2 per cent of the funds raised, considerably lower than what Maheshwari would have had to spend if he were to go around on his own looking for investments.

Democratising Investments

Welcome to the brave new world of crowdfunding. As the name itself suggests, it is an alternative method of raising money compared to traditional mores. Here, a large number of people collectively contribute relatively smaller sums of money to support a creative project (like a book, film, a work of art, a product) or donate to a cause/ charity. Think of it as angel funding on steroids, but appealing to a larger audience for smaller sums of money for diverse causes.

Today, India has about a dozen active crowdfunding platforms catering to different sections of the market. Platforms like Ketto, LetsVenture, Wishberry, Fuel-A-Dream, BitGiving, Catapooolt, Tracxn, Pikaventure, The Hotstart, Start51, Milaap and Rang De are helping entrepreneurs of all hues, including social ones, to fund their dreams. There are platforms which deal separately in equity, debt and reward-based crowdfunding (where investors put in money in the hope that a product or project is successful and they are rewarded suitably). The biggest segment is charity crowdfunding. Some of the platforms also do a mix of different kinds of crowdfunding efforts.

Crowdfunding as a concept can be traced back to at least a century and a half. However, in the modern method of crowdfunding, there is an online platform that acts as a mediator between those seeking funds and those wanting to invest.

It gained mainstream visibility and greater acceptance, especially in the US, with the launch of platforms like Indiegogo (2008), Kickstarter (2009) and Microventures (2010). It would be accurate to say that modern crowdfunding platforms are less than a decade old globally and even younger in India. While there are competing claims to being the first crowdfunding platform in the country, none are older than five years.

Satish Kataria, MD of crowdfunding platform Catapooolt, who worked in a few venture capital firms prior to launching this venture, says that crowdfunding has democratised investment opportunities. "Earlier it was an old boys' club, where a small section of elite, privileged, wealthy people because of their networks would come to know of good investment opportunities. Crowdfunding platforms have demolished such cozy networks and made those opportunities available to anybody who has surplus funds and intent to invest." For those seeking investments, the platforms provide a wider audience to appeal for money, he points out.

However, like in any story, there are a few missing links. While crowdfunding for charity or creative projects is non-controversial, equity crowdfunding - quite popular in the US and UK - remains a grey area in India. Regulatory requirements bar offering equity in return for investments beyond a certain number of people, without undergoing due diligence.

The Companies Act 2013 specifically says that a private limited company should have an upper limit of 200 shareholders. To address these requirements, equity crowdfunding platforms have had to work around the market regulations. There are obviously multiple models of crowdfunding platforms, to suit different requirements.

Equity Crowdfunding

In 2012, when Shanti Mohan was looking to raise funds for her NGO, she found it difficult to access investors. She realised that while there were people interested in the areas she was focusing on, there was no way to easily reach out to them. Realising that the rising number of start-ups in the country must be facing similar challenges, she set up LetsVenture with Sanjay Jha, a senior technology industry professional.

Satish Kataria, MD, Catapooolt (FOUNDED: August 2013 MODEL: Equity FUNDS RAISED: Rs 1.2 crore)(Photo: Milind Shelte)

"There had to be a better, easier and more efficient way to reach investors. Personal networks could only do so much. We realised that this was a good opportunity to tap into," says Jha. They were also inspired by successful crowdfunding platforms such as Angel List in the US and Our Crowd in Israel.

Jha says he sees LetsVenture as the next logical evolution of angel investing in the country. "For both investors and investees, we made the whole exercise time, process and cost efficient. We brought in a balance of offline and online to the whole process. Also, we brought in a new set of non-traditional angel investors, expanding the market pool, and by pre-vetting deals, personalised the experience for investors." LetsVenture today has investors from more than 20 countries.

So instead of having to pitch to dozens of VCs or angels, Maheshwari of Betaout carried out closed-door sessions with investors across four cities before successfully raising three times the money he was asking for. But what about regulatory requirements?

Sanjay Jha and Shanti Mohan, Co-founders – LetsVenture (FOUNDED: April 2013 MODEL: Equity FUNDS RAISED: Rs 4 crore)(later also raised undisclosed sum for Series A funding)

Jha says while SEBI did float a consultation paper on equity crowdfunding model, it has not come out with legal guidelines till date. So, LetsVenture evaluates prospective investors before letting them join the platform. "While we have democratised investment opportunities, we also want to ensure that the platform is not abused. After scrutiny, we reject about 30 per cent of people who want to join as investors, so that those pitching for funds on the platform know the kind of audience and their ability to invest." Jha and his team try to ensure that an investor should have the ability to invest a minimum of Rs 5 lakh and address any possible regulatory compliance issues. There are not more than 30-40 investors in any single deal. Today, the platform has 1500 angel investors and 200 institutional investors, who are a part of the platform.

LetsVenture has helped 70 companies raise Rs 180 crore so far. The average deal size is about Rs 2.5 crore and the highest amount raised was Rs 9 crore by Travel Khana on its platform. Jha claims that about 600 companies register on the platform every month to raise funds, but a majority get filtered out. "What we bring to the investors is that in all deals, we do soft curation both for accounting and legal due diligence of companies, seeking to raise funds. We take 2 per cent of the total funds raised by a successful pitch."

LetsVenture, which has 30 employees itself, got Rs 4 crore from 20 Angels in its initial round from the likes of Accel Partners; Sharad Sharma, Co-founder of iSpirit; Manav Garg of Ekta Software and Naveen Tewari, Co-founder of InMobi. In a subsequent Series A round, it has raised an undisclosed sum of money. "This is a lucrative market for those who can add value, and we are the leaders in this segment," claims Jha.

However, LetsVenture is not the only game in town. There are a few other players in the equity crowdfunding space such as Equitycrest, Grex,, Catapooolt and Tracxn.

When CarIQ, a Pune based connected car system company was looking to get angel funded, it applied for it on Catpooltz's platform and raised Rs 2 lakhs which helped it get noticed by Microsoft Ventures, says Satish Kataria, the MD of Catpoooltz. "While today they have grown significantly, CarIQ got its first break on our platform." Satish says that a successful crowdfunding project is more than the money. "It is the validation of the idea. Unlike, say, Kickstarter where there is a large number of product companies seeking funds in India, there is no culture of hardware products or of an active makers community in India. Platforms like ours help people looking to build such companies raise funds," he says. The easy thing in India is to raise funds for social causes and charity, according to Kataria. "We have consciously stayed away from it, as it is a crowded market and we want to focus on a different segment," he adds.

Catapooolt, which has four employees, has received Rs 1.2 crore in funding from Kolkata Angels, Venture Nursery, Viva Group and Ah Ventures. Fundraisers on Catapooolt platform agree to issue quarterly updates to investors on progress made and their books are open to scrutiny by the platform, if need be, on behalf of investors. "While the numbers may look small, start-up entrepreneurship in India is here to stay. It is early days yet for the crowdfunding industry, but the opportunity is huge. After US and China, we expect India to have the largest crowdfunding market in the world," says Kataria.

Tracxn is another important player in the space. Abhishek Goyal, founder and an IIT -Kanpur alumnus, claims that Tracxn is strictly not a crowdfunding platform. Goyal has worked with Accel Partners, Yahoo and Amazon. "We are more like the online version of Mumbai Angels. Our focus right now is providing paid research services on start-ups to clients like institutional investors across the world. The curated matchmaking we do of companies seeking investments and bringing investors together is currently only an additional service we provide. Right now, we are not monetising this."

While Goyal might hesitate to label Tracxn's matchmaking as crowdfunding, his platform has helped 30 companies raise money. It has about 5,000 investors on its platform. "We do not disclose how much money we have helped raise. However, in future we might monetise this by charging investors a fee for providing access to curated investable companies." Tracxn's activities have attracted about $3.7 million of disclosed funding including from the likes of Nandan Nilekani and Ratan Tata.

Even as regulatory authorities work on issues like who can run crowdfunding platforms, who do they need to register with, any cap in terms of how much can be raised, who can invest and several other attendant issues, the industry growth is far outpacing regulators' ability to either monitor or regulate it. With India, today, having the third largest start-up ecosystem and the fastest growing one, opportunities for equity crowdfunding platforms are only likely to increase further.

Crowdfunding for Creative Ideas

India may be a country obsessed with movies and its stars. But it was well-nigh impossible for a Sanskrit animated film called Punyakoti to be made despite a modest fund requirement of an additional Rs 40 lakh out of its total cost running into several crores. Though most Indian languages trace their origin to Sanskrit, it is hardly spoken today. The movie had no stars, being animated. The sole star attraction was the music composed by legendary composer Ilaiyaraja. However, the makers of the movie were determined that the shortfall wouldn't deter them. So they pitched their idea on Wishberry, a crowdfunding platform, and managed to raise the money. The movie is scheduled to be released sometime this year.

Zaheer Adenwala, Actor Kunal Kapoor & Varun Sheth, Co-founders of Ketto (FOUNDED: Oct 2012 MODEL: Charity/ Rewards FUNDS RAISED: Rs 5.2 crore)(Photo: Milind Shelte)

Utilising the power of crowdfunding for creative ideas is not new in the country. For instance, in 1976, veteran film director Shyam Benegal collected Rs 2 each from five lakh farmers of Gujarat Milk Co-operative Society to make a movie called Manthan. The movie won several awards and helped the society transform itself into a powerful force called Amul, today.

So while crowdfunding for creative ideas is not new, what has changed is the ease, transparency, speed and cost-effective manner in which one can today raise funds across genres ranging from art, comics, dance, film, food, game, music, photo-graphy, theatre to even creating an app. The reward for the backers? Special invites to previews, passes for an event, mentions on the wall of funders online and unique custom-made gifts. A number of platforms has sprung up to support crowdfunding of such creative causes.

Meet Priyanka Agarwal, an articulate, Wharton and UPenn alumnus who worked with the likes of KPMG, McKinsey and Goldman Sachs, before "the soul of my Marwari family background" began to assert, and returned to India to start a business. In 2010, she set up Wishberry as a wedding gift registry platform before pivoting to become a platform for raising funds for creative ideas and charitable causes. In 2014, it pivoted again to exit the charitable causes segment of the market because of too many platforms in that segment and to "bring greater clarity."

Wishberry, says Agarwal, has helped around 200 projects and creative causes raise Rs 7.5 crore till date. The platform itself has been funded to the extent of Rs 4 crore by the likes of Rajan Anandan of Google India and Sharad Sharma, the co-founder of iSpirt. Agarwal says she expects to turn cash flow positive by end of the year. There are a few others in the same space including Impact Guru and international competitors like Gofundme and Indiegogo. Agarwal, whose platform charges 10 per cent of the funds raised, says 8-10 per cent of people are repeat backers for different projects.

While the platform provides a degree of handholding, she complains that most people after registering expect "us to do all the work. They need to spread the word around, even as we do our bit".

Charity Crowdfunding

India has 3.1 million NGOs, according to a government report. With the huge challenges the Indian society faces, a number of NGOs have been working in different areas like education and healthcare. They need funds on an ongoing basis for various projects. Similarly, individuals in distress have had to fall back on charity of their fellow human beings. Indians are also collectively big givers relative to their income size. Till now, majority of these transactions were limited by various factors like awareness and geographical limitations.

Charity crowdfunding has been the answer to several of these challenges and, unsurprisingly, this has been the biggest segment of the crowdfunding market. A number of players such as Ketto and BitGiving operate in this space. Varun Sheth, CEO of Ketto, says his site has helped raise Rs 10 crore last year and has done 7,000 campaigns on its platform till date. Ketto, which has 25 employees and has raised $800,000 in funding, says it is breaking even at present.

Priyanka Agarwal, CEO, Wishberry (FOUNDED: Oct 2010 MODEL: Rewards FUNDS RAISED: Rs 4 crore) (Photo: Rachit Goswami)

Ishita Anand, the CEO of Bitgiving, says her platform came to the rescue of the Indian Ice hockey team when it didn't have funds to travel abroad to play in tournaments. "We helped them raise more than Rs 5 lakh from 325 contributors." Bitgiving itself has raised an undisclosed sum of money from seven angel investors. "We don't see ourselves as a transactional platform, rather we are a technology-enabled platform to help people raise funds through crowdfunding."

Most of these platforms charge 6-10 per cent of the money a campaign raises on its platform. A few others like Milaap and Rangde operate in the debt crowdfunding space, where investors, through the platform, lend amounts to micro-enterprises and entrepreneurs.

Clearly, crowdfunding is becoming a mainstream alternative to conventional modes of funding, though some conundrums around regulations and sectoral bias towards charity and causes are apparent. But it's an idea whose time appears to have come.

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