Friday, 09 May 2014 00:00

Crowdfunding South Africa - SA Turns To Crowdfunding - fundedflow

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Crowdfunding South Africa, South Africans are turning to crowdfunding as the bariers to entry and entrepreneurship are so low

With the only equipment necessary in some cases being a smartphone, along with some imagination and innovation together with know how. The new era of business and entrepreneurship is ideal for South Africa with its huge unemployment and under resourced communities. We share some insights about the growing trend in crowdfunding South Africa is growing.

Crowdfunding.co.za - Founded by Eve Dmochowska, Interview

So you have an idea for a business and need some funding to get going. There are a couple of options open to you; One you borrow money from the bank or, two you find yourself an investor. Unfortunately in South Africa there is a very limited supply of these so called 'Angel Investors'. Most venture capitalists are only interested in investing large sums of money in ideas that have proven to generate revenue. So unless you have a load of money yourself it is very difficult to get your start up off the ground... Until the launch of Crowdfunding.co.za

www.crowdfunding.co.za

Founded by local South African Eve Dmochowska, Crowdfunding.co.za aims to apply the principals of crowdsourcing to raising money with the intention of investing in viable local start ups - helping them get off the ground. Here's how it works:

• 1000 people get together and invest R1,000+ each by pooling the money into the Crowdfund.

• The Crowdfund board approves to use the fund to finance between 10 – 20 teams with excellent ideas, and
helps convert the ideas into workable prototypes, in exchange for equity.
• Economies of scale play a huge role in getting maximum bang for each Rand
.
• Once a workable prototype is developed, the formal Venture Capital network is approached for further
funding, and the Crowdfund most probably cashes out.

There are some pretty big names one the Crowdfunding board including Vinny Lingham CEO of San Francisco based startup Yola.com and Justin Spratt one of the founders and managers of ISLabs. Personally its awesome to see crowdsourcing being applied to something like getting start ups off the ground, and I cant wait to see how it pans out. In order to dig a bit deeper I managed to grab a short interview with founder Eve Dmochowska.

1. To kick off tell us a bit about crowdfunding.co.za and the story behind how it came to be.

I was working with various government organisations to help online startups get off the ground, and could see that the big problem was that if there was no money on the table, it was almost always a deal killer. And it was obvious that the government was far too risk averse to take a bet on these start ups, so they were pretty much left out in the cold. There is no strong culture of angel investing in South Africa.

2. Your model revolves around the funding of certain business ideas from a pool of money that is pledged by 'investors' - but unlike other crowdfunding platforms like growvc.com a board will decide where and who the money goes to and not 'the crowd' as it were. Why did you choose to take this route?

It was never an option to go any other route. I don't want to fund "the coolest" startups - I would rather fund those with the best business model, and the best chance of success. Since there is so little past experience to draw on, I would be scared that the crowd would not understand the difference. Also, the board is made up of some very, very smart people. The developers will benefit from their insight and advice.

3. One of the very important elements in social projects like this, and this goes for crowdsourcing too, is the need for the whole process to be as transparent as possible in order to keep by in and faith with your community. What steps are you going to take to achieve this?

I am not sure I agree. The transparency here is that I have been very upfront that there will *not* be "transparency". The fund is a financial vehicle, and it will observe the rules of NDAs and those set out by various regulations. There will be a blog for the crowdfund, and I intend to post to it often. But I cannot be transparent about boardroom discussions, if they would jeopardize negotiations. My stance is this: As a potential investor, you should investigate the concept of the crowdfund, and investigate the credibility of the board. If you trust us to do a good job with your R1,000, then please invest. Otherwise, please don't. We can't have 1000 people all expecting to have a voice that will be heard and reacted to. On the other hand, there will be *a lot* of opportunity for teh investors to get involved in the mentor network etc, so nobody should feel left out.

4. Transparency also brings up other problems - for instance one of the initial criticism of crowdfunding projects is that there is a requirement for the idea for which funding is being sought is in a public space at an early stage. This exposes the idea to the risk of being copied or developed by better financed competitors. Do you see this as a problem that you might have to deal with in your model?

No, since I have no intention of discussing the ideas beyond the boundaries of the boardroom table. I have been very clear that this is a crowdsourced *fund*. Once the money is collected, the crowdsourcing input stops (except with, like I mentioned before, mentorship etc).

5. Tell us a bit more about the board of crowdfunding.co.za - who they are and how they got involved.

There are 8 board members, including myself, and we each bring a very honed set of unique skills to the table. I have worked with each board member before, and have come to admire their work ethics, and their insight into the online industry. I was very fortunate in that nobody declined my request to join the board, which means I have my dream team with me!

6. How did you come up with the minimum outlines for what you are attempting to raise on your first round? Why 1000 people investing R1,000 + each?

I like round numbers, and it seemed to make sense at the time. I didn't want too much money, since that can be a problem too. I think a lot can be done with a million, and part of the fun of the challenge is to apply the bootstrap mentality all the way. I didn't want people investing more than R10,000 because I don't want to set the expectation that someone will be paying for their kid's college from the dividends. As it turns out, the average investment so far is about R3,300.

7. One of the things I found very interesting about your model is that its not only money that you are providing but a network to help grow the idea too. Can you tell us a bit more about what a team with an idea will get apart from R50,000 to start with?

Quite a bit. They will have a funky co-working space, that will put the correct ecosystem in place. They will get advice, mentorship from *key* people in their sector. They will get open doors. Credibility. Hosting, bandwidth. Access to next round financing, both local and overseas. A network of developers with skills the founders of the idea might be lacking. Benefits of economies of scale, reduced fees for designers, lawyers etc

8. On your site you state that ideas will get R50,000 to begin with that they must be able to complete stage 1 of development with. Will there be a opportunity to secure more funding from the pool after stage 1 or is the idea to widen the net and secure funding from elsewhere?

The latter, I think, unless we see wisdom in a different strategy. I think the initial investment will probably be in the R50 - 100K range.

9. One of the striking things about the ideas which you are going to support is that they have to be online or digital ideas - is there any particular reason for this focus?

That's my specialty, and the online space is the space I know very, very well. I am confident I myself can add a lot of value, and the board is equally well honed in it.

10. From the way I understand it those people looking for funding are going to have to submit or apply for it - one of the things they need to supply is a fully developed business plan/model. Are you going to provide any guidance in this application process and will these applications be public?

Actually, I don't ever want to see a business plan. I have seen hundreds in the past 18 months or so, and not one was an even close model of what the business should be. I think people get too caught up in "the right way" to write a business plan, and it all becomes hogwash. I want a one page outline, and a lot of passion. Guidelines will be posted on the site shortly.

11. One of the toughest things about open social platforms that engage in crowdsourcing or crowdfunding are the legal niggles that come with playing in the space. How have you dealt with this so far and will there be ongoing legal support on crowdfunding.co.za for those who do secure funding.

I dealt with it the best way possible..I hired a kickass legal team. It is important to get it right, from the start. And yes, there will be ongoing legal support.

12. Personally I think it is amazing to see that in 25 days there has been over R1,000,000 pledge from 309 people - firstly congratulations on this, was this achieved purely through word of mouth?

Yep. It is pretty amazing. No press release, or any conventional marketing. Just twitter, actually. And a lot of accepted request for interviews.

13. I know its early days and we have to wait and see how the first bunch of beneficiaries will fair but do you have a 5 year vision for crowdfunding.co.za?

Not really. I think of it as a 12 month project, although this can of course change. There are no fast rules here...I am willing to adapt with the mood. But I certainly have a 5 year vision for how this will impact the South African online development sector...that's the whole point of why I did this in the first place.


 

 

Other sources of available local crowdfunding South Africa has access to

StartMe.co.za is crowdfunding platform for South African Entrepreneurs and Investors. Founded in 2011, StartMe is the next generation of business investment. It is a new way to fund entrepreneurs, artists, schools and community projects in South Africa by crowdfunding for equity or other incentives, giving those looking for funding a platform to connect with ordinary people and raise start-up finance. By attracting lots of investors who invest smaller amounts of money into a person, company, product or idea you can bypass the traditional ways of raising venture finance. Founded by a group of South African Entrepreneurs frustrated with the lack of availability of such services in the country, StartMe has gone from strength to strength.

Created by the same group of South African Entrepreneurs behind the South African Investors Network www.investorsnetwork.co.za and with the understanding of the frustration experienced by many SA entrepreneurs experiencing a lack of availability of funding. The task of securing investment is a notoriously challenging and sometimes slow process that can be a struggle at the best of times. In today's economic climate this has become even more challenging.

Source : www.startme.co.za


 

By allowing a large number of people to pledge small amounts of money to a project, crowdfunding is considered a new way to raise capital and make ideas a reality.

 

It is also a good way to create a base of supporters for a project or test if people want a product, without incurring debt.

 

Patrick Schofield, a social-entrepreneur from Zimbabwe, launched the first African crowdfunding platform, Thundafund, in CapeTown four months ago.

 

What inspired you to create Thundafund?

 

From my experience of working in social-entrepreneurship for over 20 years and recognising that there are these two critical areas, finding capital and skills, to make the idea happen. I saw crowdfunding as a means to do that.

 

Today, if I have a project and I want to launch a crowdfunding campaign, how exactly does it work?

 

Crowdfunding works on a rewards basis. If you have a project, you will submit it on the Thundafund platform. We will populate it and ask you what type of rewards you would be offering people who back your project, when you expect it to be completed by, and what your project is all about.

 

For example, if you had a project to create a new range of T-shirts, you would say: for R50 supporting my project, I will send you a thank you letter; for R100, you will get invited to the launch of my new T-shirt range; for R200, you will get one of these T-shirts and this is what they are going to look like; for R400 you get two T-shirts in different colours; for R500, we will create a T-shirt that is unique and made just for you.

 

So, you will have a target set. You say “if we reach the target of R10 000, the minimum we need to do the first print run of the T-shirts, then our project will happen and it’s a go!”

 

Four months after launching your platform, what are the results?

 

We have had 45 projects launched on Thundafund. It means that R500 000 has been raised for new projects. So, it has been very successful!

 

During the next three years, we are looking to expand massively to launch 3 300 projects on Thundafund, which will represent R170 million in total.

 

What has been the biggest difficulty since launching?

 

Educating people on how crowdfunding works. It is a new concept of funding which sits in between philanthropy and investment.

 

Before Thundafund, you launched three other social enterprises, what advice could you give to young South Africans who want to embark on an entrepreneurial adventure to help society?

 

Stay focused and don’t give up. If you have a fantastic idea and you are passionate, don’t let other people tell you that it is not worthwhile. 

 

Website: www.thundafund.com

 


Caitlin Clerk, 24, is a singer and stage show performer.

last year, she was one of a sea of struggling entertainers in South Africa. A psychology and English graduate from the University of the Witwaters­rand, she decided two years ago to pursue her passion ­– a career on the stage.

With Phantom of the Opera and Annie under her belt, Clerk was looking for meaningful things to add to her CV when she came across an advert for an audition for the New York Film Academy. Six South Africans would be chosen to participate in a four-week course at the world-renowned artistic training hub.

“When I found out I had been accepted, I didn’t know how to react,” she said. “I never thought for a moment that would happen. Once I knew I was in, I couldn’t not go,” she said. But she needed R70 000 to do it.

She petitioned “hundreds” of organisations for sponsorship, with no success. Eventually, a family friend suggested crowdfunding, something Clerk had never heard of. After Googling the concept, she came across startme.co.za, a local crowdfunding website with a similar business model to its American-based counterpart, Kickstarter.

Last year alone, Kickstarter helped 18 000 businesses to raise US$320m.

The concept is simple. The website gives entrepreneurs, artists and other project owners a platform to present their ideas and convince possible contributors of the worthiness of their cause.

Donors can give amounts as small as R50. And project creators offer rewards for those who buy in, which grow in size as the contribution amount increases. In some cases, contributors make donations in exchange for the first versions of a new prototype or product.

A plan to produce glow-in-the-dark plants advertised on Kickstarter proved wildly successful in the US, with 8 433 donors donating almost $500 000 in just 44 days, Time magazine reported.

Contributors, it turns out, were rather excited about the glow-in-the-dark seeds being offered as tokens of thanks.

Locally, the Ybike Evolve, a combination tricycle and balance bike aimed at helping children to develop their gross motor skills, raised R47 000 instead of its hoped-for R30 000 on a new local crowdfunding site, thundafund.com.

Almost all of its contributors bought the final product at a discount as their reward.

According to Ben Botes, one of the founders of StartMe, it’s a virtuous circle. Contributors create a market for the product or an audience for the artist.

But, for the most part, contributors are “usually friends or family” of the person doing the project, Botes said.

Clerk has found the same thing, although some of her largest contributions have come through second-tier connections.

And, in many cases, the “rewards” offered to contributors are a token rather than a real incentive to donate.

A R250 donation to Clerk’s cause will earn you a mention in her travel blog. R500 will get you a beaded ornament with your name left “somewhere special” in New York.

In order for your project to be featured on StartMe, it must go through a simple vetting process.

“We make sure the ideas being posted are real, that they are ethical and that they comply with legal requirements in the country,” Botes said.

The project owner sets a time limit by which their funding goals must be met, usually 60, 90 or 120 days.

Contributors are only required to pay if the funding goal is reached. If the goal is not met, the project owner gets nothing.

“The idea is that, if that amount is not raised, then it is questionable whether the project will succeed,” Botes said. StartMe takes a 5% fee from those projects that reach their target. “It’s really a pay-on-success-based model,” he said.

Since the company started in 2011, it has featured 125 projects. Of them, 15 have been successful. StartMe hopes to double its success rate next year and eventually see about a 30% rate.

There are other crowdfunding models, such as the American Indiegogo, which allows project managers to keep whatever funds are raised, even if they miss their target.

And then there’s the South African CrowdInvest, a site that offers investments in start-ups and, in some cases, shareholding.

The website has more than 300 registered investors, who receive a 5% return after a month. Start-ups have 60 days in which to reach their goal. Investors only pay up if the target is achieved.

Although these options spell hope for many, crowdfunding is not the solve-all some might believe it is. New York-based start-up specialist Ari Zoldan said, in fact, it is a “bad idea for a lot of start-ups”.

“It lets you kid yourself,” he wrote on the business site inc.com. “Convincing real investors that you’ve got what it takes is your company’s first reality check. Crowdfunding can let you postpone reality but not indefinitely.”

Besides that, it stops you from interacting with seasoned veterans who could give useful tips for your business, he said. “I would never recommend investing in a crowdfunded model. What does that tell you?”

Both Clerk and Botes agree that those who see crowdfunding as a passive way to earn money will inevitably fail.

“I think a lot of people make the mistake of thinking that crowdfunding is the easy way out. It’s not. It’s really, really difficult,” Clerk said. “Instead of convincing one big company to donate, you have to convince hundreds of people to believe in you.”

Most of her time in the past three weeks has been spent phoning and e-mailing people she knows asking for help, blogging, tweeting and facebooking about her project.

“I’ll ask people to share the message more than I ask them to donate,” she said. The result is that her project has moved towards its goal quicker than most others on the site.


 

 

List of useful crowdfunding platforms for south Africa

Thundafund.com
South Africans looking to fund their projects can start here.

Crowdinvest.co.za
An accredited South African funding platform trying to bring established investors together to fund local projects.

FundFind.co.za
Local platform claiming to give “average South Africans a reason to dream again.”

Startme.co.za
Taking local projects in categories like agriculture, creative and entrepreneurial amongst others.

fundedflow.com
Donation and investmnet model

 

Read 2422 times Last modified on Friday, 09 May 2014 16:24
Kerry Slater

Kerry is a Senoir writer at fundedflow