Raising funds in any market is crucial to business survival. In developed markets, crowdfunding sites like Indiegogo and Kickstarter have seen projects funded by the public. This has been the envy of the African continent.
In Africa, entrepreneurs who fail to raise funds for their project through bank loans and investments have traditionally tended to find a listening ear from friends and mostly family. This is because online options to raise funds were previously quite limited.
Now Thundafund, a South Africa crowdfunding site, has had quite a success in helping businesses raise funds since its introduction in June 2013. And the need was real.
“The concept of crowdfunding is fast gaining international traction and is offering an effective opportunity to raise capital to fast-track small business development in South Africa,” Andrea Morgan, Co-Founder and Chief Operating Officer of Thundafund told IDG Connect.
“Plus, it is also an alternative for creatives, innovators and entrepreneurs as they find it difficult to approach financial institutions and to receive finance for their business and/or ideas,” she added.
Morgan, sees the crowdfunding option as a way to also test and develop ideas.
“Statistics dictate that only three out of ten new ventures are successful. Crowdfunding has been shown to increase this to a success rate of near on seven out of ten businesses becoming successful (as per World Bank Report). Why? Because crowdfunding gives the company time to test the business model and develop a marketing strategy. As a startup this is crucial and provides valuable information to show whether the company has the ability, and support, needed to succeed,” Morgan said.
Thundafund seeks to assist businesses that fall within Art & Photography, Community, Craft, Design, Events, Fashion, Film & Video, Food & Beverages, Technology & Games among other sectors.
The site has had 147 projects posted and 105 of these businesses have been successfully funded. The site has raised R3,986,290 (US$347,758) with the successfully funded projects, from 4,461 backers. All this represents a success rate of 71%.
Project creators who want to start a campaign can sign up and state the amount of money they would like to raise. They have a time limit of 30 to 90 days to raise the total amount of funds they requested. If they do not reach the ‘tipping point’ the funds are sent back to the backers. The reward (pre-purchased) based, all-or-nothing model, ensures that ideas are thoroughly marketed to raise the desired funds.
What separates Thundafund from all other fundraising platforms is the guidance it gives to businesses. “Various sites were essentially ‘hosting’ project campaigns online, but we factored in ‘mentorship’ into our model, as support systems within the entrepreneurial ecosystem also presented a visible need,” Morgan said.
JumpStart Africa is another newly created site that enables individuals to raise funds for their different projects. The Chief Executive Officer, Ahmed Zrikem told IDG Connect that they already are helping 200 businesses to build their campaigns on the platform.
Zrikem admits that it is taking longer to launch campaigns on the platform as crowdfunding in a new concept in the African market.
The difference with JumpStart Africa is that they market African projects to foreign countries to attract funding. Zrikem said that they have invested a lot of money to market the site to those countries.
Morgan said that “Crowdfunding in South Africa and Africa is still a relatively new opportunity and in its discovery stage or phase. It can be broken down to those who have heard about it, who have engaged and ‘backed’ a crowdfunding project, and those who are completely unaware.”
She added that, “Online shopping in South Africa is still evolving, as is the understanding of security processes of the online environment. Backers are still slightly anxious when purchasing online, and sometimes, also need to be advised on the crowdfunding process before committing to purchasing project rewards.”
For Zrikem, international payment issues have been a hindrance to the growth of crowdfunding in Africa. The continent has embraced mobile money but not adopted many payment avenues that deal with credit and debit cards online.
“Payment is an issue. Figuring out a way to accept payment anywhere in the world and at the end of the campaign being able to send it to any of the 56 countries in Africa. [But] we have figured that out,” Zrikem said.
Morgan also mentioned that education is an ongoing process with every successfully funded project enlightening those who are still considering jumping into crowdfunding. It is also important for the company to educate users that the money raised on Thundafund is not for personal use.
Despite the challenges, the company hopes that it will be a leader in the local crowdfunding scene and also offer other forms of crowdfunding options. It hopes to also break the boundaries and reach out to other countries in Africa.
“Incubation of Ripple, a new ‘Donation-Based’ crowdfunding platform has begun and will be launching shortly to assist individuals, organizations and NPO’S and their causes and activism campaigns,” Morgan concluded.
Ideally as economies in Africa stabilize, and more education is rolled out, individuals will put in money to support home grown innovation and business ideas across the continent.
The World Bank Report, Crowdfunding’s Potential for the Developing World 2013, suggests that: “For crowdfunding to succeed it will require the active participation of an entire ecosystem of supporters. These supporters extend to marketing partners in addition to entrepreneurs and investors.”
“Consider ways to engage traditional funders like local banks, credit card companies, private equity, angels, and investment banks.”
The report also encourages government and the private sector in developing countries to support crowdfunding initiatives to build confidence in this model of fundraising. All this should help make indigenous innovations possible.