Crowd funding in South Africa might be a relatively new concept, but this new financial avenue is changing people’s lives. Use it to start you own business or launch a product without fear of going into debt.
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If you want to start your own business or need funding for that million-rand idea, then crowdfunding can provide you the opportunity. All you need is internet access and a product worth investing in.
Cadine Pillay, writer for SME South Africa, said “Crowdfunding is becoming an increasingly popular alternative for small to medium enterprises (SMEs) to raise capital...Now entrepreneurs no longer have to rely on banks or public funding institutions, they can now bank on the kindness of business savvy strangers.”
Related: The secrets of crowd-funding your business
In this article you’ll learn how you can use crowd funding to start your own business or launch a product. We’ve also included 10 tips for building your own successful campaign.
What is Crowd Funding?
Crowd funding is the method used to collect many small financial contributions by tapping into the power of the crowd. It’s a form of social networking; using the internet and online communities to spread word about your project, leading to instant exposure.
Before crowd funding Dr. Mohamad Yanus developed micro-financing, which provides financial help to low-income families and individuals. The goal was to leverage the undeveloped skills of the poor by providing money to entrepreneurs to create businesses. Building on Dr. Yanus’s vision, Matt Flannery and Jessica Jackley started work on Kiva. Kiva encourages crowds to step in and pool their resources together, creating the way forward for crowd funding.
According to Freedman and Nutting crowdfunding gained popularity in the United States when Brian Camelio, a Boston musician and computer programmer, launched ArtistShare in 2003. It started as a website where musicians could seek donations from their fans to help launch their albums, and has evolved into a fundraising platform for film/video and photography projects as well as music. In 2000 ArtistShare became the first dedicated crowd funding platform.
The first business crowd funding platform, Fundable, was launched in 2012 to help entrepreneurs fund and grow their business through rewards and equity crowd funding.
According to Massolution’s 2015CF - Crowdfunding Industry Report, global crowdfunding in 2014 has expanded by 167%, reaching $16.2 billion in contributions.
According to the book “The Crowdfunding Revolution”products and projects which have already been successfully crowd funded include:
- Movies, like Sintel, which raised $550,000 via crowd funding, Star Wreck and Iron Sky.
- People have used Kickstarter to raise funding for the creation ofcamel cheese, micro-brew beer, and even organic dog biscuits.
- Fashion designers have raised funds for theirfashion linesthrough platforms like Catwalk Genius
- Bands havefinanced their album launchesthrough Kickstarter and RocketHub
- Journalistsflock to Spot.Us for their crowdfunding needs
- New Startupshave been crowdfunded by web sites like WealthForge and ProFounder in the U.S., WiSeed in France, CrowdAboutNow in the Netherlands, and Cofundit in Switzerland.
Now, crowd funding has come to South Africa. But before we delve into building your own campaign, there are some important crowd funding aspects you need to be clear on.
The difference between Crowd Funding and Crowd Sourcing
The terminology is confusing, but there is one very distinct difference. While both use mass collaboration to accomplish a goal, crowd funding only collects funds for a project, while crowd sourcing requires the crowd to give opinions, lend their skills and help solve complex problems or make unprecedented breakthroughs in research and development.
Different types of Crowd Funding
- Donation-based efforts: Large groups of people pool donations together for a good cause.Popular sites include Crowdrise and Causes
- Reward crowd funding: A tangible reward is given to the investors in return of for? the money invested. This is the most popular form of crowd funding and usually operates on a tiered system, where the more you donate the better the reward you receive. Popular platforms include Kickstarter and Indiegogo in the US and Peoplefund.it in the UK
- Equity crowd funding: Investors receive a stake in your company. The most popular sites offering this type of crowd funding are CrowdCube in the UK and Symbid in the Netherlands
- Lending based crowd funding: You have to return the money to the investors with or without interest. This type of funding was pioneered by firms such as Lendingclub and Zopa.
Pros and cons of Crowd Funding
Crowd funding offers you a lot benefits, including:
- Easier access to capital than having to secure funds from the more traditional avenues, such as banks, venture capitalists, and foundations
- You control everything, including costs, timing, delivery, creative visions and execution
- Built-in marketing. You receive instant brand awareness from the start, leading to free or low-cost publicity and opportunities for advanced sales
- Introduction to potentially loyal customers.
- You can make more money than you intended, sometimes exceeding your monetary goals by 200%
- Should you fail to meet your goal, you lose nothing and can try again
- Your backers become your very own marketing team and brand evangelists, helping you promote your project to their friends and contacts.
Unfortunately, crowd funding also has some drawbacks:
- It’s stressful and you will experience many ups and downs
- You might require some knowledge about consumer marketing, social networks and social marketing techniques or employ somebody who does
- Large investment of personal time and energy is required if you want a successful campaign
- It’s not an exact science and doesn’t always work. Prepare yourself for the possibility of failure
- Your project needs to be interesting to a number of people and that might require some product adjustment or redirecting your original vision.
Crowd Funding in South Africa
Crowd funding is a relatively new concept in South Africa, so it's normal to feel nervous about trying out this fundraising trend. However, with our continent’s huge unemployment rates and under resourced communities, this trend might be the answer to empower entrepreneurs in making their business dreams come true.
Three years ago, Mweb already wrote that: “Young entrepreneurs are tapping into the effectiveness of this form of funding as they discover that it can facilitate the growth and funding for ideas, which might not have been possible via the conventional investment route”.
Today, the South African crowd funding platform, Thundafund, has already funded over 140 projects worth a total of R5 million.The crowd funding model has finally moved toward being a significant avenue for start-ups and investors in South Africa.
Related: What exactly is Crowdfunding?
The African Crowdfunding Association (AFCA) was launched in November 2015 to increase public awareness and create more cohesive infrastructures in Africa, as well as helping create crowd funding legislation on the African continent. A sure sign that crowd funding is no longer just a trend, but a smart way to raise capital and start your business.
List of SA Crowd Funding sites
Massolutions Crowdfunding report predicted that the greatest growth globally in crowdfunding would be from the emerging economies. South Africa is one such economy.We have quite a few crowd funding sites:
- Fundfind: A local site encouraging South Africans to dream again. Steve Larter founded the platform with the intention of focusing on creative projects. But the site can now be used for anything, from charities to stating a small business or creating a new product.
- StartMe: Funds projects from South Africa’s most talented trendsetters. As long as you have a valid bank account, you can create your online project and start explaining the details of your proposal.
- Thundafund: Is a crowd funding platform that specifically focuses on helping start-ups raise capital. “South Africa’s leading online Crowd funding Cafe and marketplace for creatives and innovators.
- Angel Investment Network: Focuses on raising funds for new start-ups, as well as established businesses. “Any entrepreneur looking to raise start-up capital can advertise their venture to the AIN crowd”.
- Change Lives Now: Uses their online platform to crowd source money for various charities. You create your charity’s page, share that page and then collect donations for your charity.
- Different.org: An online crowd funding philanthropy platform enabling South African’s to maximise their impact in on? our continent. Projects are run by credible NGO’s.
- Jumpstarter: A crowd funding portal for South Africans. Linking people with good business ideas to the people who want to see those ideas succeed.
- Backabuddy: An online fundraising platform that helps individuals raise funds for causes they are passionate about.
- Crowdinvest: An accredited South African funding platform trying to connect established investors to fund local projects.
List of top 5 international Crowd Funding sites
- RocketHub focuses on project success through crowd funding. They see themselves as your partner, helping entrepreneurs, artists, scientists and social leaders achieve their goals.
- Kickstarter was launched in 2009. They aim to help artists, musicians, filmmakers, designers and other creators find funding to make their ideas a reality.
- IndieGoGo? started in 2008 and is the largest, most popular crowd funding platform to date. Upon signing up you create a page to generate pre-campaign buzz, then you start raising funds and grow your community.
- EquityNet has operated as one of the largest business crowdfunding platforms since 2005. The platform connects entrepreneurs with potential investors and incubators to help raise funds.
- GiveForward places a spin on crowd funding; empowering individuals to pay outstanding bills, medical expenses and tuition fees by raising money for individuals in need.
Examples of the most successful crowd funding campaigns:
Forbes.com wrote an article on the Top 10 Businesses Crowdfunding Campaigns Of All Time; we’ve selected our 5 favourites:
- The Pebble watch. A smartwatch that’s compatible with both Android and iOS. This fancy wrist gadget is famous for being Kickstarter’s breakout success, raising USD 10,266,845 in only 37 days.
- Bitvoreallows for the continuous monitoring and analysing of big data. They launched their campaign on Fundable and closed a USD4,500,000 round to further develop their product.
- Oculus Rift, the long awaited virtual reality, head-mounted display gained an incredible USD2,437,429 in just 30 days of campaigning.
- 3Doodler. Youtube has been flooded by the art of the 3D printing pen. Another one of Kickstarter’s success stories, making USD2,344,134 in 34 days.
- Scanadu Scouttracks your vital signs and temperature, your respiratory rate, EKG, and emotional stress, then sends it all via a data report to your smartphone. This gadget made USD1,664,574 in under 60 days.
10 Tips on how to build your own successful campaign
Before you start your crowd funding campaign, you need to create a profile on your chosen platform, then explain your monetary goals, how you plan to use the funds, and your timeline for reaching your goals.
Related: Grants, funding and incentives for agriculture in South Africa
Here are our 10 tips to help you build a successful crowd funding campaign:
1. Prepare for your campaign
If you were looking for funding through a bank or other financial institution, your first step would be to prepare a business plan. Similarly, with crowd funding you also need to prepare. Study successful crowd funding projects. Are there things they did that you could implement in your campaign?
2. Determine your goals and objectives
- What are your overall business goals in terms of crowd funding?
- How much money do you need to raise?
- Where are you hoping to find the first 25% to 30% backing?
- Define your success metrics and evaluation criteria.
After deciding on your goals, you need to link them with your campaign tactics, i.e. level of engagement, perks etc.
3. Duration of campaign
Indiegogo suggest 40 day campaigns to be the most successful. How long will your campaign be?
4. Use social media to build your community
Social media is a great, low cost way to reach your audience. Build your following by using creative content, tailored to each specific platform. Here are some examples:
- Facebook: You could hold competitions to attract awareness and ask followers to post their own insights, tips and tricks, photo’s etc. Facebook is a lot more personal. You’ll need your personality to shine through on this platform.
- Twitter: Make sure your hashtags will connect with potential followers. 140 character limit. Add links, but shorten it by using bitly. Don’t rely on photos too heavily. Create amazing headlines.
- Linkedin: If you haven’t done so yet, you need to build your company page, so users can learn more about your business as well as view your recent social media content and any articles or blogs you may have published.
Your investors want to be kept up to date with their investment. Keep them in the loop with regular social media messages.
5. Write your pitch
Make it personal. Try and relate to your audience’s wants and needs when you introduce your project.
- Clearly communicate what your project does - it’s purpose.
- Make your pitch compelling.
- Make it scannable - the reader should know what your project is about by merely skimming the pitch.
- Remember to include your call-to-action.
6. Producing a great video
Videos create a higher level of engagement. It’s important to create an interesting video, no longer than 5 minutes. Capture your audience's attention with a great video.
7. Create perks
Choose rewards that make sense - logically based on your project. Make sure there are different types of rewards for the different payment tiers.
8. Test your story and perks before launching
Ask friends and family to read your pitch and watch your video before going live. They might have some valuable feedback you haven’t considered yet.
Related: Small business funding in South Africa
9. Use what you’ve got
Utilise your website, software platform and existing network connections to provide unique campaigns built around your special offers, incentives and community efforts that convince backers to help fund your project.
10. Make it personal
Build special connections with your funders. Meet via Skype. Write a personalised “thank you” email. Offer access and participation in your project by inviting them to your factory or taking them out to dinner.
Entrepreneurs looking to raise capital for their small business should consider crowd funding as a viable funding option.Yes, it requires a lot of time and dedication, but you can launch a successful start-up without having incurred any debt.
Look at the different South African crowd funding platforms and decide which one best suits your needs. Remember, the types of companies and individuals that will donate are those relevant to your project, so offer information and perks that are appropriate to them.