February is Funding & Enterprise Supplier Development Month in SME South Africa. Follow along here for all our coverage.
“Crowdfunding is just a stokvel that went to private school,” says Luyanda Jafta of the crowdfunding platform, The People’s Fund
Jafta is also the founder of Paybook, a digital marketing company that together with Brownsense, a network of black business owners and The Hookup Dinner, a platform for early-stage entrepreneurs, is behind The People’s Fund.
The Fund provides a springboard for young and innovative businesses and allows individuals, stokvels and corporates to invest assets into budding black-owned companies.
The same ethos that drives stokvels is what’s behind their crowdfunding model, says Jafta. “We want to demonstrate that between us we can build the economy we want to see, and we can all directly benefit from it.”
‘The beauty of our platform is that it turns investors into buyers and buyers into investors’
Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. There are various types of models, the most widely used being equity, donation and rewards-based.
The People’s Fund uses a royalty-based model which allows business owners to retain equity.
“We get everyday people to buy assets for entrepreneurs. The entrepreneurs then pay the crowd a royalty for each product that gets sold or delivered through the asset.
“They [investors] then earn a return from a growing business which means greater than unit trust or bank returns,” Jafta says.
They recently hit two milestones. The first is successfully raising their first R1 million on the platform since launching and their first fully funded campaign, Diabeto, a low sugar content cordial concentrate juice.
Current and past campaigns include Just Laundry, a next day laundry delivery service; MySurfer, an affordable internet service provider for students and Stimela Brewing Co, a Gauteng-based brewery.
Selebogo Molefe of the Hookup Dinner announced on LinkedIn that their next milestone is to raise R100 million in 2018.
“You do the math on how that will impact job creation,” he wrote.
Jafta speaks to SME South Africa about turning crowdfunding on its head and the ideal business that stands to benefit the most from their platform.
Q: The platform is focused on majority black-owned businesses – why is this important?
For multiple reasons. We believe that in entrepreneurship, social capital is everything. Now white entrepreneurs can almost always name one or two people in their circle who can fund their business or refer them to someone who can fund their business. In the black community that is almost none-existent.
Secondly, when you look at the ownership, unemployment and poverty rates, as released by Stats SA, you find that black people are marginalised from the economy. We want to build black industrialists and farmers who can absorb the majority of the unskilled labour.
Finally, we work very closely with various corporates to do training and improve each business’s chances of survival and 51% black ownership is an imperative for this objective.
We make enterprise supplier development profitable instead of the grudge purchase it has been under the B-BBEE codes
Q: What has the response been from ordinary South Africans; are you seeing a trend in terms of who is investing?
We are finding that a large number of asset buyers are white middle income people. We are also finding that people are buying assets, not necessarily on what the returns are, but how strongly they feel about having that service or product in the market.
We also wanted to make the platform as inclusive as possible, so we started The Brownsense Stokvel, where every [Brownsense] member contributes R100 a month to buy assets on The People’s Fund. It has become the single largest contributor to the platform in the short two months it has existed, it’s contributing over R140 000.
Q: What are the advantages for investors?
Higher than normal return. Secondly, the investors own the asset, not the business. So if things go belly up, we can always sell the assets to recoup the investors’ money. More importantly for us, investors, unlike making trading houses richer, their money is actually growing the economy.
Q: You are encouraging, not only individuals to invest, but also stokvels and corporates – why is this a good option for them too?
We make enterprise supplier development profitable, instead of the grudge purchase it has been under the B-BBEE codes.
The stokvel market is over R49 billion in South Africa and large majority of this buys groceries from Shoprite in December. We want to use the stokvel money to show that we can build the economy we want to see.
I mean nobody ever talks about the fact the Public Investment Corporation (PIC) is the largest single investor in the JSE; and when you break it to its bare minimum; PIC is the retirement scheme of government employees. It is insurance for retirement. It is a private school stokvel for when you no longer want to work. We want to bring the same thinking to growing black businesses and the economy.
The ideal business is one that has a demand greater than it can supply
Q: How does a startup qualify to run a campaign on the site?
A startup qualifies by filling out a form to apply. They have to be 51% or more black owned; need to have made over R50 000 in revenue; need to be at least three months operational with revenue (the preference is 1 year) and have a clear product or service. We also prefer consumer facing businesses (with an end user) and they must have at least 40% gross margin.
Q: What are some of the benefits of capital injection for the startups?
The beauty of our platform is that it turns investors into buyers and buyers into investors. A great case study, is that of Native Nosi; whose revenue from the time of joining The People’s Fund has multiplied by 10X month on month as well as now manning 360 Beehives (which were bought by the crowd for R1200 each) and that will give the crowd R36 per kilo of honey produced by them.
Q: How are the startups vetted?
The startups start at Pitch Night with The Hook Up Dinner, and if they win they are then sent to fill in an application form.
After this they sit with us and we look at their bank statements for historical trends in sales and we then sit and understand what is stifling their growth. What do they need next to grow the business.
The ideal business is one that has a demand greater than it can supply due to a capital good limitation such as equipment, vehicles, or any means of production.
We then project how much they will expect to make for the life span of the asset they require (modelled on their historic data).
We then look at their operational costs along with margins to ascertain what can be offered to the crowd to make it lucrative for the crowd [for them] to want to help the startup to grow.
Our target is always 30% year-on-year returns, and we currently average across campaigns a projected 20%. So we are able to give the everyday person private equity returns for as little as R1000.
Q: What happens if a startup does not reach their target in the allotted time?
Each campaign is different and it works on a case-by-case basis. If the full amount is required to buy an asset and they do not reach target then we refund the investors or offer them the opportunity to invest in another project.
What we are working on is getting campaign guarantees from corporates, who will then guarantee that whatever is missing from the campaign they will cover it.
They would of course be doing this under the enterprise and supplier development and it would be classed as an unsecured loan. The beauty [of this] is that this would yield a return for the corporate and thus making transformation profitable.
For other crowdfunding platform campaigns where the asset is divisible like say the beehives, or wireless access points for MySurfer, we go ahead with whatever is raised.
Q: What is the goal for 2018 and beyond. How many campaigns are you hoping to run this year?
We have a very simple and achievable goal this year – we want to raise R100 million for startups! We are hoping to run at least 250 campaigns.