The idea behind crowd-funding, raising many small amounts of money from a large number of people via the internet to finance a project, might not be quite as old as the hills, but in Africa it certainly has very old and deep roots.
As Patrick Schofield, pictured left, the founder of Thundafund, Africa’s most successful crowd-funding platform, reminded the audience at a session at AfricaCom, most South Africans know about stokvels, the popular, often informal community savings funds based on the very same principles.
He told the session titled “Crowd-funding: Africa’s answer to economic growth: You choose” the practice, like a village pooling resources to send a child to school, was simply a case of a community that needed or wanted something deciding to make it happen as a group.
“In Africa this is not unusual,” he said.
He went on to say that Facebook was a great example of a “sharing economy” organisation – many people collectively making something worthwhile and adding value to it.
In its many forms, crowd-funding was often the easiest way for people to get access to finance to fund a new venture.
So why the excitement now, you might wonder.
Schofield said that until about five years ago the internet just wasn’t pervasive enough for crowd-funding to be that successful. He added that the biggest factor that predicted whether or not a crowd-funding project would work was penetration of Facebook.
Also, Schofield said, it was only in the last year or so that the financial and regulatory authorities had started to consider that crowd-funding could be a significant force for development in Africa.
He told the session at AfricaCom, the telecoms, tech and ICT conference and exhibition in Cape Town, that Thundafund was the most successful fund in South Africa, having raised R8 million. He was quick to add, however, that Kickstarter, the US-based global crowdfunding platform, probably raised that in a day.
Crowd-funding comes in what he described as three “flavours” – donations (seewww.backabuddy.co.za), rewards and investment.
Donations, largely made for the benefit of charities or causes, and investments, made in return for a pre-agreed return such as share of profits, are pretty self-explanatory. Rewards, the bit in the middle, is where it gets more interesting. Here, a funder will give some money in exchange for goods, such as one of the finished products the venture promises to create.
Schofield gave a few examples here, the sweetest one being a group of people who wanted to start a cafe dedicated to chocolate. They raised money via Thundafund by offering a tiered reward system ranging from an entry level investment that secured bars of chocolate to more generous investments that meant a group of friends got locked into the cafe for a few hours to feast on chocolate.
Modern systems, ancient desires, you see.
In Schofield’s words, successful crowd-funding projects could “range from the sublime to the ridiculous”. Whether or not the chocolate project strikes you as sublime or ridiculous depends on how dedicated you are to chocolate. For more information on the campaign and the business see www.thundafund.com/honestchocolate.
Other slightly more serious sides of crowd-funding are reducing waste and de-risking investments.
Schofield told the AfricaCom session that getting buy-in and investment from potential customers tested the market. Once it was known that a market existed, evidenced by financial commitment, it was far less likely that products would be made and never be sold. It is fairly obvious that this de-risks further investment too.
In an environment where traditional financing criteria, such as a banking track record and property ownership, are often irrelevant, crowd-funding allows the ideas of young, often unbankable innovators to get to market.
There is a social impact too, Schofield said, because this was redistributing opportunity. But, unlike the Robin Hood system of taking from the rich to give to the poor, crowd-funding made it possible for different people to get involved in the means of production. Now there’s an old idea worth reviving.
– African News Agency (ANA)