Introduction
Crowdfunding involves raising funds through the support of your network, including friends, family, customers and/or individual investors, through an online platform.
The money raised through crowdfunding can fund everything from a business venture, to a creative project or even a personal cause such as a medical emergency.
While growing in popularity, crowdfunding is still considered to be an alternative choice for funding a business. It is however starting to be seen as a more viable option to traditional lenders, such as banks or government funding, that are considered risk-averse and profit-focused, which means many great ideas never get a chance.
In addition to helping to raise funds, other benefits of crowdfunding are businesses can also find a captive audience for their product or service, as well as get feedback from investors and to test the viability of their offering
In South Africa there are a number of these investment platforms linking both investors and investees. Some well known local examples are Uprise Africa which is the first equity crowdfunding platform in South Africa and Thundafund which is one of the country’s oldest platforms. The People’s Fund which launched in 2017, is a purchase order crowdfunding platform for businesses that have orders with the government and corporates, and are looking to raise funds.
Find the full list of crowdfunding platforms in South Africa here
Access this Free Guide: Everything You Have Wanted to Know About Launching a Crowdfunding Campaign in South Africa in 2022
Main Features
Crowdfunding models
There are three types of crowdfunding models, each suited for specific campaigns. For business owners the most common are donation, rewards and equity.
Donation-based crowdfunding
Donation-based crowdfunding allows individuals to get small donations from a large number of people. It is suited for raising funds for charities or a personal cause such as covering medical expenses or other unexpected financial crises.
Reward-based crowdfunding
Rewards-based campaigns can help new startups or organisations offering a product or service to raise funds in exchange for a reward.
Equity crowdfunding
With equity crowdfunding donations are used to help launch or grow a business in exchange for a percentage ownership in the company.
Project goal
The first step to a successful crowdfunding campaign is to define the project goal. The two main reasons entrepreneurs raise money through a crowdfunding platform is to launch a brand new venture or to expand their existing business in some capacity. Funds can be used to secure equipment, increase production capacity, launch a new product or expand into a new market.
It’s important that entrepreneurs set a realistic, suitable and defined crowdfunding goal which includes what the funds will be used for and how much they want to raise. All platforms allow users to set their own funding goal which can range from anything from R5000 to R50 million. It’s also advisable to have a set time-limit suitable to your crowdfunding goal and campaign mission.
To increase a campaign’s chances of success, entrepreneurs should find ways to tie their goal to a social mission or find ways to get their community involved.
Campaign Pitch
While crowdfunding has less red tape than traditional funding options, it can still require a lot of work and investment.
Below are some of the important elements needed to run a campaign from start to finish:
Pitch – Each campaign will require a video or written proposal/pitch. Entrepreneurs should spend some time working out the ideal story for the crowd investor.
Marketing – A well-put marketing strategy with realistic goals and tactics is essential. Common digital marketing tactics that can be used are social media and email marketing campaigns and a professional website where potential investors can get more information if they are interested.
Rewards – Potential investors can be incentivised to donate to a campaign by offering attractive rewards. These are unique project-related rewards, of increasing value and costs, for backers that are in the form of retail, recognition and/or experience.
Examples of rewards are branded products like t-shirts and hoodies, discounts on products or services or private functions.
Pricing
Costs will vary depending per crowdfunding platform, however some costs to consider are:
- Capital raise fees or facilitation fees.
- Management company fees.
- Membership fees (if applicable).
- Third party fees and administration transaction fees.
- Marketing budget to cover extensive PR, digital and social media marketing, and even access to deals on paid-for out-of-home advertising.
- Investor rewards, including delivery costs if applicable.
Buyer's Guide
The Right Crowdfunding Platform
In recent years we have seen more crowdfunding platforms launch in the South African market. Each platform is designed to support specific types of campaigns and attracts a certain audience.
To find the right platform, consider the following:
- Your funding goal – The minimum and maximum amount differs per platform.
- Where to find your potential investors.
- The platform’s crowdfunding model – Is it donation, rewards or equity-based?
- Platform fees – These also vary depending on the platform.
Campaign requirements
Entrepreneurs will require, some or all, of the following to launch their crowdfunding campaign:
- Campaign pitch, including project description, video and images
- Fica documentation
- A South African bank account
- Unique rewards for backers (if applicable)
- Active social media presence
- Marketing and PR campaign plan
Business may also be vetted for business viability and whether their raise requirement is realistic.
Top benefits of using crowdfunding platforms
- Can be a great marketing tool that increases organic visits to the ventures’ website.
- Helps businesses attract media attention.
- Startups can receive valuable feedback from investors.
- Enables businesses to reach their target market.
- Startups can test the viability of their offering.
