Crowdfunding – How it can kickstart SA business

Let me get this straight. If I put R25 000 of absolutely critical start-up capital into your chocolate-making business via a website and take an enormous risk having never met you, you will reward me by giving me a year’s supply of your product?

It doesn’t sound like a great deal for me, the investor, but every single day projects like these are being loaded up on to crowdfunding websites, both locally and internationally, and investors are prepared to take a leap of faith backing entrepreneurs who throw their projects out to the universe.

In essence, it is the “stokvel” gone high-tech and in an investment climate where traditional lenders are out of the question, crowdfunding could be the answer to SA’s small business and social enterprise woes.

For millions of aspiring entrepreneurs and ambitious creatives, a few thousand rand can bring a promising idea or project to life. A street corner barista, for example, would only need a basic coffee machine and some supplies to do business. Yet we all know that the generosity of family and friends (for those lucky enough to have them) will only go so far – and most venture capitalists and investors are not interested in smaller initiatives or prototypes that aren’t scalable. So the creator’s money usually runs out, and promising ideas and projects die a quick death.

This is where crowdfunding can provide a lifeline. Instead of approaching one investor for a large amount (and ceding some control as part of the deal), crowdfunding for entrepreneurial exploits relies on smaller “pledges” from a large pool of financial contributors, many or all of them ordinary citizens. The concept of crowdfunding is not new – it has been around for many years and has been successfully used to raise funds for everything from disaster relief efforts, philanthropic ventures, political campaigns, and more recently, for start-ups and creative projects. One American rapper has even used it to raise funds for a kidney transplant.

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