Africa discovers the financial muscle of the crowd

Africa discovers the power of crowdfunding

Picture of many hands holding money
Power of many: Crowdfunding could help provide vital funding for Africa’s SMEs and start-ups

Budding South African film producer Meg Rickards was struggling to raise the money for her new feature film, Whiplash, when she came across the idea of crowdfunding.

“We had about 70% of the budget and were battling to raise the rest,” she remembers.

Meg decided to try local South African crowdfunding site Thundafund, and launched a campaign to raise the rest of the cash for her feature film project. Three months later, she had raised 106,800 rand (£5460; $8665).

“The crowdfunding indeed gave us vital cash flow during the development phase, and also helped to build an engaged fan base,” she says.

The film Whiplash raised 106,800 rand on crowdfunding platform Thundafund

Crowdfunding innovation

Launched in 2013, Thundafund co-founder and chief executive Patrick Schofield says the platform was created with the intention of driving innovation and entrepreneurship in Africa, by encouraging the public to back individuals with great ideas.

“Crowdfunding has been a phenomenal driving force of creative development in the US and Europe, we believe that it can become an equally powerful force in Africa,” he says.

“Hence, Thundafund was launched to be lead and be part of that wave of positive development and change that crowdfunding will bring.”

In the 18 months since launching, Thundafund has seen 4.3 million rand (£227,480; $348,785) raised on the platform, successfully funding 116 of 150 projects listed on the site – a success rate of over 70%.

Mr Schofield believes South Africa is an ideal breeding ground for crowdfunding, as the country has a long history of group-based fundraising.

With the shift to using online channels to raise funds, Mr Schofield says crowdfunding allows project creators and entrepreneurs to reach thousands of people to talk about what they are looking to do.

Thundafund chief executive Patrick Schofield

Meg Rickards agrees that her crowdfunding campaign had huge benefits in terms of reaching out to a wider audience, and building excitement and encouragement for her project.

However, she says she does not think crowdfunding is viable as a sole source of money, and warns that the experience of crowdfunding is very hard work.

“I don’t think it’s the most effective way to raise a lot of money – or at least not a film budget,” she says.

“We raised about 2% of our final budget through crowdfunding. But it was very useful in building support for the process and the end product.”

“It’s a huge amount of work, and you have to be quite brazen, shameless, in a way – but it’s really heartening to see how much goodwill is out there and to engage with supporters.”

Invest in the crowd

Over in France, a new crowdfunding website raising funds for African projects is about to launch its pilot phase.

However, there is a twist. LelapaFund targets Africans living abroad, who want to invest in and support projects “back home”. The platform is essentially crowdinvesting – rather than receiving goods or gifts in return.

“The idea behind LelapaFund is simple: the best investors in Africa are Africans themselves. We wanted the African diaspora to be able to invest their capital and skills back home,” says Elizabeth Howard, co-founder of LelapaFund.

According to Ms Howard, there are an increasing number of investors interested in African opportunities, and crowdinvesting is viewed by these investors as a cost-efficient and less risky way of getting involved in African projects.

An entrepreneur at a Lelapa meetup in Nairobi

She says members of the African diaspora perceive fewer barriers to involving themselves with African projects than foreign investors, and as such they have a vital role to play in encouraging international investments in Africa.

“Investing in projects in another country does require a greater leap of faith than investing at home,” Ms Howard says.

“There is also the risk perception associated with African investments that plays out in the valuations of companies or the amount one is willing to invest,” she says.

“For African diaspora investors, these barriers are less significant, and I believe this group of investors has an important role to play in “normalising” risk perception vis-à-vis Africa.”

The team at LelapaFund believe crowdfunding can become a key method for startups and small businesses in Africa to raise money to launch their companies.

“Crowdfunding has already proven itself in the US and Europe as a viable fundraising mechanism for startups and small businesses, and will continue to benefit from better-adapted regulations and tax incentives,” says Ms Howard.

“LelapaFund is working hard on using crowdfunding to make a dent in the $140-$160 billion gap in access to finance for African SMEs. With the calibre of individual we’re seeing join our investor community, we’re confident we will make it happen.”

Elizabeth Howard, co-founder of LelapaFund (7th from the right, centre) says African start-ups can struggle to find investment

Crowdfunding for social impact

Tapping into Kenya’s famous love of mobile technology, entrepreneur Kyai Mullei has created a crowdfunding platform for mobiles called M-Changa.

M-Changa allows users to create a crowdfunding campaigns and collect donations via SMS or online, with the platform mostly dedicated to social impact and personal fundraising.

The majority of people who contribute to an M-Changa campaign know the recipients

According to Mr Mullei, crowdfunding is not a new phenomenon at all, and the culture of crowdfunding – or “harambee” – already exists in Kenya.

The difference, he says, is that in Kenya funds are raised within a personal network, not the general public.

“We are not creating new behaviour, there is an existing culture of giving and that is “harambee”, which runs into billions of dollars a year,” Mr Mullei says.

“Crowd-based fundraising has been practised for hundreds of years, but with one clear distinction, the crowd.

“The crowd in harambee is known to the fundraiser – it is mainly family, extended family and friends, not an anonymous crowd in the Western sense.”

Mr Mullei believes personal connections will remain key, with a very small minority of M-Changa pledges coming from external donors.

“Charity starts at home, fundraising should start with your personal networks. It is possible to tap the crowd, fundraisers have received donations on M-Changa from people outside of Kenya who they do not know, however these are a minority,” he says.

The M-Changa team

According to Dennis Mogere, who is successfully raising funds via M-Changa for his non-profit organisation Operation Hope Africa, crowdfunding is particularly relevant to Africa as it allows many donors to commit small amounts of money, and as such no one is overburdened.

“Most people are turning to crowdfunding since it’s the easiest way of reaching more people within the shortest period possible. Since contributors put their energy and funds together, they won’t feel overburdened by being asked to donate a lot,” Mr Mogere says.

Like others who have raised funds this way, Mr Mogere says the community spirit and support for a project is the most special aspect of the phenomenon.

“It’s an amazing experience to share your story out there and see how people are passionate about it and ready to be part of it.”

E4y.net Info@e4y.net

Leave a Reply

Your email address will not be published. Required fields are marked *

*