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. Select the answer using the code given below :

Correct Answer: C (Both 1 and 2)

Statement 1 is correct: Crowdfunding is an alternative method of raising capital. According to the Securities and Exchange Board of India (SEBI) June 2014 Consultation Paper on Crowdfunding, it is defined precisely as the "solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause." It typically involves pooling money from hundreds or thousands of investors contributing small sums to back an initiative online.

Statement 2 is correct: Traditional avenues of raising capital, such as Initial Public Offerings (IPOs) or bank loans, involve rigorous regulatory procedures, collateral requirements, and high intermediary fees. Crowdfunding circumvents these conventional hurdles. By utilizing online portals to connect directly with investors, Small and Medium Enterprises (SMEs) and early-stage startups are able to access a massive pool of potential backers. This democratized access significantly increases the flow of credit to SMEs and allows them to raise funds at a much lower cost of capital, without undergoing the stringent and protracted compliances associated with traditional institutional finance.

Why the other options are incorrect:

• Options A and B are incorrect because they each omit one of the factually correct statements.
• Option D is incorrect because it wrongly asserts that neither statement is true, contradicting established SEBI definitions and financial practices.

Concluding Takeaway: To summarize the concept, remember the 3 C's of Crowdfunding: Crowd (relying on multiple, small-scale investors), Cost-effective (cheaper capital bypassing rigorous banking procedures), and Cyber-based (utilizing web and social networking platforms).