Remember when you had a collection drive at school for your surf walk, big walk, or charity collection? You would get a card and go around to your family members and friends asking for a donation so that you could fill your card. Well, that was essentially what is now modernly known as “crowdfunding”. Crowdfunding uses the internet and social media platforms to pool funds voluntarily from individuals. In a nutshell, you present your idea and ask those who support it to either give a donation towards your cause, or make an investment where they would get returns on what they put in, once that money has helped your business to become profitable. There are a number of crowdfunding platforms, both local and international, which you can use depending on your needs. Typically, a small portion goes toward the platform as a means of them making a profit. Below are different types of crowdfunding and some of the platforms you can use:
Donation based crowdfunding:
This is the most basic, obligation free type of crowdfunding. All you do is set up a page for your cause, and people can donate any amount they like if they support your cause. It can be used for non-profits, relief causes, funding for studies, and funding for business if you pitch it in the right way. The responsibility to use the funds toward the cause you intend is with you, and you typically won’t be held legally liable if you don’t. However, that would be considered unethical and in bad faith. These platforms are popular for this type of funding:
Specific to South Africa:
- https://www.backabuddy.co.za
- https://www.gofundme.com/
Rewards based crowdfunding
Individuals donate to your cause with the promise of a reward. This can be anything from merchandise, to vouchers, discounts, or shout-outs. There is no profit based return on donations, but you are meant to follow up and deliver on the incentives you have promised. This is a popular option for entrepreneurs and businesses who need to boost their capital, and can also be used as a marketing tool as well.
https://thundafund.com/ is a popular option in Africa and for African entrepreneurs. However, campaigns are an all-or-nothing affair, which means you only get access to your funds (and pay Kickstarter’s fees) if you meet your fundraising target. If you fall short, then all the money remains with your funders. This is a common requirement for many rewards and equity based (explained next) platforms.
Check out
- https://www.fundable.com
- https://www.kickstarter.com.
Equity based crowdfunding
Equity based crowdfunding is when contributors give you money through an investment principle – that they become part owners in your company based on the percentage they invest. This means that investors trade capital (money) for shares, and shares qualify you to receive a return from the profit of the business in the form of ‘’dividends’’ or distribution. To learn more about equity and shares, read into ‘’investing, shares and equities’’. For this to be successful, you usually need to gain investor confidence through a track record of some kind of growth, a good business plan, and great pitching. These platforms also generally expect a higher membership fee or commission fee from your earnings.
This is a very popular option with start-ups and is marketed to entrepreneurs to accumulate and boost capital. The platforms which facilitate this make the process of investing and returns quite easy. There are many, many platforms for this around the world. Lots of countries have local platforms to support, and there are international platforms. Depending on whether you want to expand your business locally or intentionally, will also influence which platform you use.
In South Africa, check out:
- https://uprise.africa/
- https://www.investmentnetwork.co.za/
Popular international platforms include:
- http://www.fundable.com/
Also check out this article for more information on international equity based platforms:
- https://www.moneycrashers.com/equity-crowdfunding-sites-investors-entrepreneurs/