Entrepreneurs who need financial support will typically apply for funding. This is done through traditional banks and alternative financiers. Entrepreneurs need to keep their options open with financial support for business growth and consider options such as crowdfunding.
While crowdfunding is not as popular in South Africa as it is in countries like the US and UK, it is still a viable channel for entrepreneurs, especially those with smaller businesses. The rise of crowdfunding platforms in South Africa was driven by the lockdown of the COVID-19 pandemic.
According to a report by Venture Burn, many local crowdfunding platforms reported that local business registrations soared during the lockdown. Other platforms reported an increase in activity on their platforms since the announcement of the nationwide lockdown.
In this article, we look at what crowdfunding is, the new platforms available in South Africa and how to leverage social media as a crowdfunding platform.
What is Crowdfunding?
Crowdfunding is a way to raise funds for a specific cause or project by asking a large number of people to donate money, usually in small amounts, and usually during a relatively short period, such as a few months. Crowdfunding is done online, often with social networks, which makes it easy for supporters to share a cause or project with their social networks.
Crowdfunding Models
There are two main models of crowdfunding.
- Donation-based funding: This is where donors contribute to a total amount for a new project. Often, the promised return is the product or service that will be developed with the revenue brought in by the crowdfunding campaign. For charitable projects whose ultimate beneficiary is not the donor, there may be some other perk or reward for funders.
- Investment crowdfunding: Where businesses looking for capital sell ownership stakes online in the form of equity or debt. In this model, individuals who fund become owners or shareholders and have a potential for financial return, unlike in the donation model.
Legal Implications of Crowdfunding in South Africa
South Africa does not have a single, dedicated crowdfunding act. Instead, the industry operates under a “regulatory vacuum” where campaigns and platforms must comply with existing general financial, corporate, and consumer protection laws depending on the type of crowdfunding they engage in.
Crowdfunding Platforms in South Africa
Here is a list of some of the best crowdfunding platforms available to South African entrepreneurs.
1. Uprise Africa
Uprise Africa is a leading equity-based crowdfunding platform. It allows private individuals and investors to invest capital into early-stage small to medium-sized enterprises (SMEs) and startups in exchange for equity.
How it works
- Minimum investment: Investors can typically start backing businesses with as little as R1 000 to R3 000, depending on the campaign.
- Investor profile: The platform is regulated by the Financial Sector Conduct Authority (FCSA) and targets investors who are willing to take on the risk of early-stage venture funding.
- Investment options: Investors can review multiple SME pitches, learn about the business model, and invest in various industries ranging from renewable energy to publishing.
2. SV Capital
SV Capital is a South African crowd-investing and alternative investment platform. It allows investors to diversify their portfolios through fractional ownership in tangible, asset-backed opportunities like cattle farming, residential solar installations, and delivery bike fleets.
SV Capital Investment products
- Cattle investment: Minimum investment of R500, 14,58% average return with a 12-month term.
- Short-term investment: Minimum investment of R1000, 13,64% average return with a 5-month term.
- Delivery bike investment: Minimum investment of R3100, 11,70% average return with an 18-month term.
- Solar investment: Minimum investment of R10 000, 6,41% average return per annum with a 5-year term.
- Solar investment 2: Minimum investment of R10 000, 15,53% average return per annum with a 6-year term.
- Solar investment 3: Minimum investment of R10 000, 21,40% average return per annum with a 7-year term.
3. Livestock Wealth
Livestock Wealth is a “crowdfarming’ platform that allows investors to buy and own tangible agricultural assets like free-range oxen, pregnant cows, and macadamia nut trees. Investors earn profits when the fully grown asset is sold back to the farmer or harvested.
Livestock Wealth investment options
A. Farmland ownership
- Term: 5 years minimum
- Price: R5 000
- Profit: 9% per annum
- % Profit: Annual rental profit earned by land owners will be based on the farm’s profitability per year. The platform targets a 9% profit per annum.
- Total return: If the value of the land increases such that it makes sense to sell, owners can earn a higher payout from the sale.
B. Pregnant cow
- Term: 12 months
- Price: R21 350
- Profit: R1 923
- % Profit: 9%
- Total return: R23 273
4. Crowdprop
Crowdprop is a South African property crowdfunding platform that allows individuals to pool their funds to collectively invest in real estate. The platform lowers the barrier to entry by removing the need for massive capital, allowing average investors to own shares in physical properties and earn passive rental income.
How it works
- Step 1: Create an account and verify that you are a property owner.
- Step 2: Complete the application form and submit your property details and funding needs to Crowdprop.
- Step 3: Pay the property onboarding fee. This covers the cost of the due diligence process.
- Step 4: Crowdprop will review your information and perform a due diligence process.
- Step 5: Once your property is successfully vetted and terms are mutually agreed upon, your property will be available on the platform for investors to see.
- Step 6: Crowdprop will market the property for you through its digital channels and handle all financial transactions between you and the investors.
5. Kiva
Kiva offers crowdfunded microloans to small businesses and projects in underserved communities where there are limited funding opportunities available.
Key features of Kiva
- Instrument type: Debt funding
- Types of loans provided: Concessional debt, bridging loans and microloans
- Loan terms: Up to 36-months
- Ticket size per transaction: 0-100,000 in Euros
Leveraging Social Media for Crowdfunding Success
Social media can play a crucial role in crowdfunding campaigns. It can amplify reach, engage potential backers and build momentum quickly. Integrating social media with crowdfunding campaigns offers key advantages like increased visibility, real-time feedback, and stronger community bonds, all of which drive higher funding success rates and cultivate lasting supporter loyalty.
Key actions
- Select platforms where your target audience is the most active and that support rich media and linking.
- Create storytelling-driven, visual content and post at optimal times to drive engagement and conversions.
- Build your community through prompt responses, user-generated content and regular investor updates.
- Utilise relevant influencers with clear agreements and track their impact on referrals.
- Measure your engagement and referral metrics, optimise content based on analytics and avoid over-promoting or ignoring feedback.
