Entrepreneur’s trend hunter
Nicholas Haralambous founded Motribe before the company was sold to Mxit. He then founded his online sock company, NicSocks, with R5 000 to ‘prove his entrepreneurial chops’.
Crowdfunding isn’t an entirely new method of raising capital for your big idea, movie, musical album or master plan. But the concept of tapping into the community for money has been given global reach with the addition of the Internet.
Now instead of walking around your town or city to the most financially stable individuals you know and believe are able to help you and not go bankrupt, you can simply list your idea on one of the many crowdfunding websites and ask anyone to provide anything they can afford to help fund your project.
This, in essence, is what crowdfunding is all about.
Family, friends, fools
There are many things needed to start a business or get your pet project off the ground. Firstly you need a good idea, then you need to figure out if there are any competitors. But one of the most important things you need is money.
Some investors will suggest that you begin your financing search with the three Fs (family, friends and fools). This is often the simplest way to raise a small amount of capital to kick off a business. But sometimes it’s just not enough and you don’t want to take money out of the pockets of the people who have supported you and risk losing it for them.
The website that is commonly regarded to be the grandfather of the online crowdfunding movement as we know it is a site called ArtistShare and was founded in 2001. A few years later the boom hit and sites like IndieGoGo, GiveForward and Kickstarter arrived on the scene.
How it works
If you have an idea of any kind (you’ll need to choose the right platform for the right project, but more on that further on) you need to sign up to your chosen crowdfunding platform and explain what the project is about. You then need to set certain pledge amounts that people can choose to spend their money on.
These can range from R1 through to R100 000 or more if you think people will pay. Each pledge has a product offering attached to it. For example, a company in Kenya recently secured funding to build a back-up generator for Internet connections called BRCK using Kickstarter. Their most expensive pledge was $10 000 and for that you received a safari trip with the BRCK team. Once all of that is done you then need to set your funding target amount and period to run the campaign.
Once you’ve got all of those things in place you can start your campaign and watch the money roll in. Sometimes. It’s not as simple as that. Things can go wrong, projects can run over budget, some of them are scams and often a lack of service delivery plagues these websites and their projects.
Often the most frustrating of the crowdfunding pitfalls sits with the crowd that is giving away its hard earned money for the products on offer. Sometimes the products never arrive, the projects never launch or the movie never gets made.
For every well run and well funded project on one of these websites there are many that remain unfunded, unfulfilled and undelivered. This is a real concern for those considering an investment in a crowdfunded project; will the product ever arrive? Sometimes the simple answer is “No, it won’t.” So make your peace with this inevitability before you commit your life-savings.
Want to tap the crowd?
Like all funding, there are no easy routes to success and crowdfunding is no different. If you plan to use one of these platforms to fund your project you’ll need to remember a few things:
- Keep your promise to your backers
- Market your project to as many people as possible in as many places as you can
- Keep your backers updated about your progress.
Crowdfunding will work in South Africa as consumers have good experiences with the medium. You never know how these early ‘pre-sumers’ will spread the word about their experiences with your brand either, so treat any crowdfunding project like the ultimate marketing tool as well.
Looking for funding? Try out these sites:
If you’re a musician or film maker trying to catch a break.
South Africans looking to fund their projects can start here.
An accredited South African funding platform trying to bring established investors together to fund local projects.
Local platform claiming to give “average South Africans a reason to dream again.”
Taking local projects in categories like agriculture, creative and entrepreneurial amongst others.
Kickstarter is probably the company that gave crowdfunding the world-wide fame that it needed to really take off. The project that provided the platform for fame is called Pebble: An e-paper watch for Android and iPhone. This project ran for just over a month and raised over $10 million. Their initial funding goal was $100 000. Pebble remains the second largest funded project in crowdfunding history. Fortunately Pebble stuck to their word and launched their watch in 2013.
Closer to home, a South African musician launched a funding project on IndieGoGo which is most often used for creative types to fund films, albums or similar projects. Jeremy Loops is a Cape Town based musician who needed funding to launch his debut album and go on a world tour. His project was looking for $35 000 but unfortunately didn’t raise the full amount. Unlike many others, Jeremy chose to fulfil his promise to the backers that had contributed. I’m happy to report that I personally backed Jeremy and received my first EP download link recently.
Unfortunately, many of the global funding platforms, like Kickstarter, aren’t available to South Africans to use. You’ll need to have a bank account and company in the US or UK to list your project but fear not, there are local alternatives that you can try out.
The most recent local platform to launch is Thundafund. The founders have set a goal to try and raise R155 million in three years for 3 000 projects which they believe will create the potential for 10 000 jobs in South Africa.
There are many significant barriers that may stifle the growth of crowdfunding on South African-specific platforms. Things like very low penetration of credit cards, a lack of desktop Internet penetration as well as general lack of spending online and concerns around the safety of making payments online will all come into play when trying to make a local project a success.