Correct Option
The correct option is Both 1 and 2.
[as per provisional answerkey]
Explanation
Crowdfunding is a method of capital formation that leverages the collective effort of a large number of individual investors, primarily through online platforms and social media, to fund a specific venture or project.
- Statement 1 is Correct: Crowdfunding involves the solicitation of small amounts of money from a large number of people. This process is typically facilitated by internet-based intermediaries or social networking sites that connect the fundraisers with potential contributors or investors for specific business ventures, social causes, or creative projects.
- Statement 2 is Correct: For Small and Medium Enterprises (SMEs) and startups, crowdfunding serves as an alternative to traditional financing (such as bank loans or venture capital). It allows these entities to raise capital at a relatively lower cost by bypassing traditional financial intermediaries. Furthermore, it reduces the burden of rigorous regulatory procedures and collateral requirements often associated with institutional lending, making it a flexible tool for early-stage financing.
Key Takeaway: Crowdfunding democratizes access to capital by using digital platforms to aggregate small investments from a wide pool of investors, providing SMEs with a low-cost, less bureaucratic alternative to traditional finance.