Which of the following statements about Crowdfunding is/are correct? 1. Crowdfunding is solicitation of funds (small amount) from…

Question

Which of the following statements about Crowdfunding is/are correct?

1. Crowdfunding is solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project.

2. Small and Medium Enterprises (SMEs) are able to raise funds at lower cost of capital without undergoing rigorous procedures.

1. A. 1 only
2. B. 2 only
3. C. Both 1 and 2 (Correct answer)
4. D. Neither 1 nor 2

Correct Answer

Option C — C

Detailed Solution & Explanation

The correct answer is Option C.

Key Points

• both statements 1 and 2 are correct.
• Statement 1 is correct: crowdfunding is the solicitation of small amounts of money from a large number of people, typically through a web-based platform or social-networking site, to finance a specific project or venture.
• Statement 2 is correct: it lets start-ups and SMEs raise capital at a lower cost and without the rigorous procedures, collateral and credit history that traditional bank or capital-market funding demands — widening access to early-stage finance.
• the main models are donation-based, reward-based, equity-based and debt (peer-to-peer lending) crowdfunding.
• In India, equity crowdfunding on unregulated platforms has been treated with caution by SEBI, while P2P lending is regulated by the RBI.

Exam Tip

• crowdfunding's twin advantages — many small contributors and low-cost, low-friction access for SMEs — are exactly the two statements affirmed here.