WHEN the Labia Theatre in Cape Town needed to buy new cinema equipment to move from analogue to digital film screening, it partnered with ThundaFund to ask strangers to help them raise a portion of the money to buy the equipment.

The R550,000 they received helped cover some of the R2.5m needed to refurbish the historic building.

ThundaFund CEO Patrick Schofield says crowdfunding is not a new concept; few people know that Beethoven and Mozart had to raise funds from the public to perform their music.

Crowdfunding is asking people online to fund an interesting idea or a concept. Instead of equity, investors are given gifts as incentives for donating.

“Crowdfunding is almost a pretail experience — you’re not buying something that exists now, you buy something that will exist in five months time,” says Mr Schofield.

Many small start-ups battle to get funding from banks and good ideas die before they have an opportunity to be realised. Mr Schofield says crowdfunding is the solution for such problems, calling it a “democratising platform”.

Entrepreneurs have to be creative while raising the capital they need to start their businesses. Labia Theatre manager Ludi Craus says the idea has to be really good to convince people to buy into it.

“I would think that money can be raised this way if the business has an essential following or a really good idea,” he says.

When the two owners of Honest Chocolate, a small artisanal chocolate company, wanted to open a chocolate café, they also used crowdfunding.

Anthony Gird and partner Michael de Klerk needed money to secure the space that had just opened up next to their chocolate store. With a loan from a bank and R60,000 raised from crowdfunding, they were able to expand their business.

Mr Gird says the platform can also help create buzz around the project. “It’s part of the marketing drive as well; it is not only about the funds.”

With an estimated 1.3-billion people with regular internet access globally, the number of potential investors that can be reached is large. Thanks to decreasing data costs and an increase in internet penetration, South Africans are slowly warming up to the idea of doing things online.

“What has happened over the last five years is that the cost of bandwidth has come right down and people have become more and more at ease with purchasing things online,” says Mr Schofield.

Via Zukiswa Zimela for Business Day Live.