Connect with us

Attracting Investors

Kickstart Your Business Through Crowdfunding

Funding your start-up or big idea just went global.

Nicholas Haralambous

Published

on

Nic-Haramlambous_Kickstart-through-crowdfunding

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.

Get funded

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.

1. Kickstarter

KickStarter_Attracting-Investors_Funding

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.

2. IndieGoGo

Indiegogo_Attracting-Investors_Funding

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.

3. Thundafund

Thundafund_Attracting-Investors_Funding

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.

Bootstrapping-a-Business-Funding

Nicholas Haralambous is the founder of the style company, Nicharry.com. He is an entrepreneur, speaker and writer who likes to tell the honest, brutal truth at every possible opportunity.

Advertisement
Comments

Attracting Investors

The Investor Sourcing Guide

How to attract and obtain investors to your established, high-growth business.

Greg Morris

Published

on

business-investor

As an established, high-growth company, you may find that you need to source capital, identify a mentor, or work closely with other affiliates to prosper. In this case, partnering with an investment holding company can be a valuable growth tool.

So, what should you do if you want to be acquired by a holding company?

Read this.

1. Research everything

If you’re considering a long-term investment partnership, make sure you conduct substantial prior research. There may be many potential investment partners out there, but each has specific venture and industry directives. Get to grips with these.

Related: Is Venture Capital Right For You?

2. Be candid with yourself

The amount of capital that you need will affect which holding company you choose. In particular, you’ll need to understand what your risk profile looks like relative to the returns you expect to provide. This will also help you to source, entice, and keep the attention of the most appropriate partner.

3. Identify your must-haves

Any investment partner you choose is likely to be able to provide you with funding, a broader network, and economies of scale. Beyond these, however, you’ll need to decide on your most important benefits (must-haves), so you can target the companies that can offer you the best fit.

4. Spell out your funding plan

You’ll need to be very clear on how you plan to spend the funding you get from your investor. This plan should stipulate, in particular, how you plan to grow.

Related: 5 Key Questions To Answer For Raising Funding

5. Scrutinise each investor

Make sure to analyse your potential investors’ investment history, so you can get a clear idea of where your interests are aligned. Look specifically at things like:

  1. Where investors’ get their funding
  2. What their investment track record looks like
  3. What their investment directives are
  4. Their appetite for risk
  5. The returns they usually aim for

The crux of the matter

Research is essential, no matter which holding company you hope to be acquired by. This will help you to find, attract and retain an investor who gives you the funding you need, and lends you the support to be innovative, productive, and profitable.

Continue Reading

Attracting Investors

6 Great Tips For A Successful Shark Tank Pitch

Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes.

Published

on

shark-tank-south-africa

Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes. Entrepreneurs will often need to promote their businesses to prospective customers, lenders, investors, employees and even suppliers.

All stakeholders would like to know with what and whom they are dealing. They will need to assess risk and will try and evaluate the business against others who are competing for those same funds.

1Know Your Product

You should be able to describe your business within 60 seconds, in a confident and positive manner. Let the stakeholder know what particular problem your business solves which makes it viable and attractive.

Your brand and how you intend to develop it is important in determining whether they will invest or lend you money. Share critical information with them such as large customers, patents and trademarks and details of forward orders.

If you are looking for funding or investment, make sure you have the relevant paperwork to back up what you are saying.

Related: 10 Tips From The Dragons Of Dragons’ Den SA

2The Numbers

You must have your numbers at your fingertips.  A true and successful entrepreneur will know his numbers instinctively and be able to recollect and present them convincingly. Stakeholders want to know your turnover (sales) over the last couple of years, your gross profit and net profit.

Investors want to know what they are investing in and whether there is strong potential for their money to grow. Lenders will want to assess their risk — how are you going to repay the money? Moreover, you as the business owner, need to be sure that you will be able to make the required repayments.

You must know what your margin is, as this will largely determine your viability as a business. Margin or gross profit is the difference between the selling price of the goods and their cost and is usually expressed as a percentage.

3Know What You’re Asking For

asking-for-business-funding

Be clear as to the size of the investment you want to give away and how that determines the ‘valuation’ of the business. Therefore, if you wish to raise R200 000 for 10% of the business, that means you value the business at R2m — be sure you can back that up or you will get taken apart.

4Have a Business Plan

The best way to fully understand your business is by way of having a detailed business plan, which has been prepared whilst working through every facet of your business, from the original idea to the finished product.

As the business owner, you need to live this business plan and be able to use it as your daily guide to success. Develop it, change it where circumstances require it, but most importantly know it and understand it.

In this way, you will be able to deal with most of their questions, be they about marketing, research, international expansion etc. It is also a good idea to know your competition and what they are up to.

Related: Dragon’s Den Polo Leteka Gives Her Top Tips To Attract Growth Capital

5Sell Yourself

In most interactions, you the entrepreneur, are selling yourself. Whether it is an investor, lender, customer or prospective employee, it is their impression of you and your capabilities which ultimately determine whether they want to work with you.

Be confident, defend your position where required, as you will need to parry some blows but do not behave arrogantly.

6Learn From Your Mistakes

Many entrepreneurs who have presented to the Shark’s Den and not been able to garner investment have turned their business into great successes. You need to be able to learn from the experience, and if rejected, bounce back even stronger.

Continue Reading

Attracting Investors

3 Things You Must Have In Place To Get That Start-up Bank Finance

If you’re planning to secure funding for your start-up, you need to put the right foundations in place.

Published

on

bank

The South African landscape for raising finance is tough for any business, with stringent lending regulations. Here are three areas to focus on as you set up your start-up to ensure you’ll qualify for a loan or equity funding.

1Securing a Market

Most SMEs I have mentored or advised start with expressing how big the total market size is for their product or service, but, while this is important to understand, the big question is: What percentage of that market will you attract and how?

Look at the ‘how’ first and work your numbers backwards. For example, if you secure a R10 million contract to supply an item that has a market size of R37 billion you are capturing only 0,03% of the market. However, if you’re able to cover your monthly expenses (including your loan repayment) and make a profit, that’s what counts. You should be able to show this contract or letter of intent to procure, which shows how and where you will find this market.

Related: The One Question You Must Be Prepared To Answer When Pitching Investors

2A Strong Team

When you’re starting out you’re likely to be the sum total of your team. If you’re going down the entrepreneurial journey alone, make sure you have identified who will mentor and guide you through the areas you don’t have competencies in and cost this into the business start-up and running costs.

Focus on who in the business is going to:

  1. Sell and market: Do they have the necessary skill, network, product and market knowledge?
  2. Control the money: Are they financially savvy and can they make sure that money is being used for the right things?
  3. Operate: Who has done this before? Can this individual manufacture the product or arrange the supply of goods or services, ensure quality control and sound human resource management?

3Compliance

Formalising your business is costly but necessary. If you don’t have a formal entity, shareholders agreements, loan agreements, financial statements, management accounts, tax compliance and so on, you will come short when looking to raise finance.

Understand these costs upfront and include them into your start-up budget — this will save you a lot of pain in the long run.

Related: 3 Ways For Social Entrepreneurs To Access Fundraising

The truth is that finance is available for women who have the right business ingredients just as much (if not more — in the South African context) as it’s available for men and just as with men. And, resources such as these help to unpack and guide the core fundamentals that are needed to make business bankable/fundable.

Then it’s all about implementation and staying on track to translate all that you’ve done and all that you wish to do in a bankable business plan, and approach the relevant funder for your needs. The right business mentor can certainly help you on that journey.

Continue Reading

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​