Lulu an enterprising hairstylist makes and sells her own home-made organic hair food. Customers like her product, demand goes up and she needs capital in order to retail her product in larger quantities. She knocking at the banks, pitches to investors and other financial institutions but her efforts are futile. Her friends being supportive contribute a paltry amount towards her product. At this point Lulu has an epiphany, “I could raise sufficient capital if I ask for small amounts of money from as many people as possible” She was right, three-quarters of the capital required was raised using this approach.
The above anecdote is the essence of crowdfunding: a method of raising capital through the collective efforts of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms-and leverages their network for greater reach and exposure.
How does crowdfunding work?
Through dedicated crowdfunding platforms, such as websites like kickstarter, indiegogo people with various financial needs can launch a crowdfunding campaign to solicit assistance from thousands people. In the case of Lulu a crowdfunding website would assist her in building a community around her product: promoters, who disseminate information about the product through social media, donors oriented towards offering small contributions, potential shareholders who can buy into the product and receive shares in exchange. The platform can trigger a valuable feedback process in which the community critics Lulu’s product thus spurring her into a iterative path that can lead to a more viable product.
How can Swazi entrepreneurs benefit from having crowdfunding websites?
Crowdfunding websites are sprawling all over Africa through which billions have been raised. In neighboring South Africa Thundafund has raised more than ZAR 5.7 million in crowd-funded money for the campaigns listed on the site. This global phenomenon however does not hold true for Swaziland-to date there are no crowdfunding websites or other platforms.
In an ideal world where we have crowdfunding websites what would be the benefits? Here are a few:
Access to capital: by having a crowdfunding platform Swazi businesses can have access to thousands upon thousands of potential investors, donors and promoters. This circumvents the challenge of relying on a few people and institutions such as banks to fund large amounts in order to finance a single project which they could deem as risky. But using the masses, each person can contribute a reasonable amount, incrementally these small amounts add up to something big that can make a difference.
Free publicity and marketing: a crowdfunding campaign entails sharing one’s story and connecting to people (i.e Lulu’s story) on social media, email, newspapers and so forth. The vast multi-media channels used bring about free publicity hence allowing people
Validation of your business concept: by having a crowdfunding platform Swazi businesses can have access to thousands upon thousands of potential investors, donors, and promoters. This circumvents the challenge of relying on a few people and institutions such as banks to fund large amounts in order to finance a single project which they could deem as risky. But using the masses, each person can contribute a reasonable amount, incrementally these small amounts add to something big that can make a difference.
Helps those who want to help others: some people have money to support charitable initiatives; helping someone start a business to them is a worthwhile course. Unfortunately, they have reservations pertaining to transparency (where is the money going to) and sustainability (is the project going to be in the long-run). Through visible crowdfunding platforms the ventures themselves are visible and thus the people who want o support them are guaranteed that their money is not going to waste.
This might sound cliche but indeed it is true many Swazi business-people face the challenge of getting capital. Like Lulu they have great products, companies or ideas. Crowdfunding might be the next big trend that lights a candle of hope for these business-people.