Use the fi­nan­cial power of the masses to pay for your cre­ative idea, help some­one in need or launch your busi­ness, writes Maya Fisher-French

CityPress - - Business - Thunda­

Since the in­cep­tion of Thunda­fund, so­cial en­tre­pre­neur Pa­trick Schofield’s first crowd­fund­ing plat­form, nearly five years ago, he has been in­volved in the cre­ation of the char­ity site Back­aBuddy, which has raised R44 mil­lion for in­di­vid­u­als in need. Last week, Uprise.Africa was launched as a plat­form for en­trepreneurs to raise ven­ture cap­i­tal via the crowd.

Crowd­fund­ing is ef­fec­tively a way for an or­di­nary in­di­vid­ual to raise money for their busi­ness, cre­ative project or even emer­gen­cies, with­out hav­ing to bor­row money from a bank. In­di­vid­u­als can use crowd­fund­ing to tap into the power of the masses, who, in turn, in­vest in or spon­sor other peo­ple or busi­nesses. In its broad­est sense, it can be seen as a re­place­ment for loans, ex­cept that the money in­vested is not nec­es­sar­ily re­paid in the nor­mal sense of the word. The “re­pay­ment” can be in the form of a prod­uct, a share in the busi­ness or, in the case of a char­i­ta­ble cause, a feel-good fac­tor.

Glob­ally, the con­cept of crowd­fund­ing is still rel­a­tively new – just seven years ago, it was still in its in­fancy and raised about $880 mil­lion (R12 bil­lion ac­cord­ing to today’s ex­change rate) in 2010, ac­cord­ing to Forbes magazine. Yet re­ports show that, by 2015, $34 bil­lion was raised through crowd­fund­ing. One of the largest US-based crowd­fund­ing plat­forms, Kick­starter, has raised $3.2 bil­lion for more than 129 000 projects since its launch in 2009.

When Thunda­fund was launched nearly five years ago, most peo­ple in South Africa were un­fa­mil­iar with the con­cept of crowd­fund­ing, yet Schofield says this has changed sig­nif­i­cantly over the past two years.

“At the mo­ment, we have 75 live projects com­pared with 32 last year. Crowd­fund­ing is def­i­nitely com­ing into the main­stream – most peo­ple have heard about it, es­pe­cially in the en­tre­pre­neur space,” he says.

The Thunda­fund model fo­cuses on mi­cro and small busi­nesses that of­fer a “re­ward” to in­vestors, which is used to pro­duce the project it­self. An ex­am­ple would be the R1 mil­lion raised by South African band Fokof­polisiekar to launch its first al­bum. The band reached its tip­ping point of R500 000 in just nine days and will be re­leas­ing its al­bum in October. Their pledge was to play a free show in Cape Town and Gaut­eng if they reached cer­tain fundrais­ing mile­stones.

This model was also used to launch Cape Town’s first choco­late cafe, Hon­est Choco­late, which opened its doors af­ter rais­ing R66 000 through Thunda­fund. Hon­est Choco­late in­vestors could in­vest as lit­tle as R30 for a cup of cof­fee and a bon­bon, or up to R160 for 10 cof­fees. Hon­est Choco­late is start­ing an­other cam­paign to launch a store in Johannesburg. The ge­nius idea be­hind this model is that you are able to pre­sell your prod­uct, or at least find out if there is a de­mand for it, be­fore com­mit­ting your time, en­ergy and money.

How­ever, Schofield says the Thunda­fund model works best in the cre­ative space – such as rais­ing funds to pub­lish a book or pro­duce a play, an al­bum or con­cert.

“It is a re­flec­tion of what is most ac­ces­si­ble in the start-up con­sumer space. You need a prod­uct you can cre­ate to sell, and the eas­i­est way to start from scratch is some­thing cre­ative,” he says.

So far, Thunda­fund has raised R14.6 mil­lion for 244 projects – prov­ing that the crowd­fund­ing con­cept works. How­ever, it has left a gap for en­tre­pre­neur­ial busi­nesses that need sub­stan­tially more cap­i­tal and longer devel­op­ment times.

For this rea­son, Uprise.Africa is be­ing launched as a crowd-based ven­ture cap­i­tal rais­ing plat­form. This is for longer-term in­vestors who want to put their money into a busi­ness that has al­ready gone through the con­cept devel­op­ment phase. This is dif­fer­ent to Thunda­fund be­cause it is, in essence, still test­ing prod­uct de­mand.

As an eq­uity crowd­fund­ing plat­form, Uprise.Africa re­quires a min­i­mum ap­pli­ca­tion of R500 000 and the max­i­mum is set at R50 mil­lion. Rather than goods or ser­vices, in­vestors re­ceive an eq­uity stake in the busi­ness. This plat­form al­lows en­trepreneurs to con­nect on­line with the public to raise cash to fund their busi­ness con­cept.

Within a week of the land­ing-page plat­form go­ing live, Uprise.Africa re­ceived 67 ap­pli­ca­tions from en­trepreneurs. How­ever Schofield says that, at best, two will ac­tu­ally make it into live cam­paigns. En­trepreneurs have to un­dergo a thor­ough screen­ing process, which re­quires them to have a proper busi­ness plan, con­cept and re­al­is­tic out­comes.

“We are fa­cil­i­ta­tors, not gate­keep­ers, but cer­tain cri­te­ria must be met. We ex­pect that only about 5% of ap­pli­ca­tions will be­come ac­tual cam­paigns.”

Uprise.Africa has also en­sured that there is a high level of un­der­stand­ing that the risks of in­vest­ing in an unknown en­tity are high. Ev­ery page re­quires you to con­firm that you un­der­stand the level of risk you are tak­ing. In­vest­ing in start-up busi­nesses is a risky ven­ture – but one that can pay off if the busi­ness is suc­cess­ful.

One of the op­por­tu­ni­ties for en­trepreneurs in us­ing Uprise.Africa is that it pro­vides a trusted third party dur­ing cap­i­tal rais­ing for in­vestors and en­trepreneurs. For ex­am­ple, you may have a friend who has an amaz­ing busi­ness idea; she needs to raise R500 000 and you are happy to con­trib­ute R20 000, but you want to know that there are other in­vestors who will en­sure that she raises suf­fi­cient cap­i­tal to ac­tu­ally start the busi­ness.

If she uses the Uprise.Africa plat­form, your funds are com­mit­ted into a trust ac­count until she has reached her tar­get. If she doesn’t reach the tar­get and the busi­ness does not move for­ward, you get your money back. For the en­tre­pre­neur who is re­ly­ing on friends who are promis­ing to back him, the funds have to be com­mit­ted in the trust ac­count be­fore he launches his busi­ness – so he knows that he is not go­ing to be let down at the last minute by his friends when he has al­ready com­mit­ted his time and money.

Crowd au­then­ti­ca­tion is also a pow­er­ful mo­ti­va­tor for en­trepreneurs.

“When money has been raised through 100 peo­ple, there are a lot more peo­ple ask­ing ques­tions rather than just one large fun­der,” says Schofield.

The en­tre­pre­neur will feel the pres­sure of so many peo­ple re­ly­ing on his suc­cess. Schofield says a large num­ber of in­vestors also opens up more net­works for the en­tre­pre­neur. For ex­am­ple, if you have in­vested in a plumb­ing busi­ness, you are more likely to rec­om­mend it to your net­work as you have a vested in­ter­est.

Uprise.Africa also pro­vides a founder’s agree­ment and man­age­ment over­sight through part­ner­ships with ven­ture cap­i­tal firms. Most large ven­ture cap­i­tal funds will only look at ven­tures that are try­ing to raise

R10 mil­lion or more, how­ever, they have the skills and ex­per­tise to over­see a start-up busi­ness. For a 5% stake in the busi­ness, a ven­ture cap­i­tal firm will pro­vide an over­sight func­tion to en­sure that the busi­ness is con­ducted prop­erly and that ac­cu­rate ac­counts are be­ing held. This gives the in­vestor peace of mind that the busi­ness they have in­vested in is be­ing run prop­erly.

Al­though Uprise.Africa is open to busi­ness ap­pli­ca­tions, the first cap­i­tal rais­ing cam­paigns will only go live in October as the Fi­nan­cial Ser­vices Board still needs to en­sure that the ven­ture fits within the reg­u­la­tory en­vi­ron­ment. The plat­form will not re­ceive money until the ap­proval is in place.

“It is im­por­tant to have the cor­rect reg­u­la­tory frame­work in place to pro­tect in­vestors,” says Schofield.

Eigh­teen months ago, the char­ity crowd­fund­ing site Back­aBuddy was launched and has been the most suc­cess­ful crowd­fund­ing plat­form to date – rais­ing R44 mil­lion for var­i­ous causes. This is a pow­er­ful tes­ta­ment to the gen­eros­ity of South Africans when it comes to their fel­low cit­i­zens.

Cam­paigns range from in­di­vid­ual needs to gen­eral If you have a cre­ative idea and need to raise R5 000 to R500 000

If you need se­ri­ous cap­i­tal and are pre­pared to give away eq­uity

If you want to start a cam­paign to help some­one in need

Uprise.Africa: Back­

fundrais­ing ac­tiv­i­ties. For ex­am­ple, Back­aBuddy raised R500 000 for vic­tims of the Hout Bay fires and

R2 mil­lion for those af­fected by the Knysna fires. They are cur­rently run­ning a cam­paign for the med­i­cal bills for Emma Mur­phy, who was sav­aged by a pit bull, and raised R196 000 in just a few weeks.

Of­ten, th­ese cam­paigns are started by peo­ple who want to help some­one in need rather than them­selves. For ex­am­ple, Jenny Evans started a cam­paign when her do­mes­tic worker Theodora lost her home and ev­ery­thing she owned in a dev­as­tat­ing fire in Masi­phumelele town­ship in Cape Town in 2015. Through a cam­paign on Back­aBuddy, the R15 000 needed to buy a plot and re­build her shack was raised.

A cur­rent cam­paign is for Dono­van, who needs to raise money for his med­i­cal bills af­ter be­ing di­ag­nosed with can­cer. His cam­paign has raised R369 000 so far.

Astrid War­ren, who over­sees the ap­pli­ca­tion process, says the most ef­fec­tive cam­paigns are those started by other peo­ple.

“It is dif­fi­cult to ask for help for our­selves, but it is a lot eas­ier to cham­pion the needs of oth­ers,” she says.

Back­aBuddy has a strong vet­ting process to en­sure that the cam­paigns are based on a real need. For ex­am­ple, doc­tors’ let­ters and hos­pi­tal bills are re­quired to con­firm the au­then­tic­ity of the re­quest for funding, and the money is paid di­rectly to the med­i­cal ser­vice provider.

“We have had sit­u­a­tions where peo­ple get up­set be­cause we ask all th­ese ques­tions, but those are usu­ally the ones who just dis­ap­pear when you ask for proof of the need,” says War­ren.

In a sit­u­a­tion where funds are re­quired over an ex­tended pe­riod, the fund pays out on an as-and-when ba­sis. To date, there have not been any fraud­u­lent cam­paigns paid out. This cred­i­bil­ity is ex­tremely im­por­tant to the sus­tain­abil­ity of char­ity crowd­fund­ing as peo­ple want to know that the money they are do­nat­ing is ac­tu­ally go­ing to a good cause.

“South Africa is such a dys­func­tional so­ci­ety in many re­gards, but it comes to­gether in a time of need. This is not about one big fun­der, but hun­dreds of peo­ple com­ing to­gether who re­late to the need and want to make a dif­fer­ence. This makes them part of the com­mu­nity; it is a na­tion-builder. Phi­lan­thropy is not just about a hand­ful of rich fam­i­lies – we have 52 mil­lion phi­lan­thropists in South Africa,” says Schofield.


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