SA Crowdfunding Blog

Monday, 14 May 2012 14:14

Basics of Crowdfunding in South Africa Featured

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Ask and thou shall receive. Within this simple idea lies the essence of crowdfunding. We re use t ask family and sometimes friends for advice, favours and sometimes cash and crowd funding has taken this last idea much further. If you are starting a business or creative project and don’t mind giving something in return to those willing to help you get started then crowdfunding is for you.

So where do you start? Well you have actually already started by finding Startme, the South African crowdfunding portal everyone is talking about. Now all you have to do is get your idea and promotional material in order, post your opportunity or project and wait for the funds to start coming in.

The basics of crowdfunding are simple: get a lot of people to each give you a small amount of money, until like a mountain stream filling with melting snow it becomes a torrent of cash. The trick is melting the first bit of snow and starting the stream. In the mountains, spring comes naturally. In crowdfunding, nothing comes naturally and it is all work and persuasion.

You, as a project creator, have developed a great project that everyone you meet agrees is fantastic. The next big step is listing your project and starting to collect the funds.

 The problem is between everyone telling you what a great project you have and having the same people actually taking out their wallets is a huge chasm. 

Something to keep in mind is how crowds commonly behave. One of the main factors they look at is the amount of current pledges on the project. This is typical crowd mentality; the crowd likes to follow what the rest of the crowd is doing. Have you ever stopped by to check out a new restaurant and it was so busy that you either have to wait a long time or not even get in that night. Most people in that situation will add that restaurant to their list of places they want to come back and try. If you get there and it is empty many people will just leave and move on to another restaurant, assuming that if no one else wants to eat there it is not worth their time and money. So if your project has no current pledges, potential funders are going to look at your project and wonder what is wrong with it, if even the project creator’s friends and family won’t back it.

The best way to make sure that you don’t fall into this abyss is simply to suck up your pride a little bit and beg your friends and family to start melting the snow and make some pledges on your project. Get them to talk it up on their social networks. This will start the process moving. Crowdfunding requires different skills to really make a great pitch.

 How could crowdfunding benefit my business? 

The main benefit of crowdfunding is that it creates a strong network of support for your start-up. With the equity model in particular, your investors are likely to become ambassadors for your brand – promoting it among their networks, tracking your progress and becoming returning customers themselves. They may also offer to lend a hand, for example by providing free legal advice or accountancy services. 

If you promote your investment bid successfully, crowdfunding can also provide a powerful platform to raise awareness of your start-up. It gives you a newsworthy story to pitch to your local, and national, press (which may attract further new business). If you reach your target it also gives a clear message to potential clients, suppliers or future investors that you have the support of the public behind you.

Is crowdfunding right for my start-up?

Crowdfunding works best for start-ups that have a story to tell – whether a personal reason for starting the business, a passionate vision for what it could become, or a social mission. 

People have to feel inspired to invest so you need to write a charismatic pitch to get potential investors’ pulses racing, or else display evidence of outstanding innovation. 

If you have a mundane or complicated concept which the public will struggle to connect to, crowdfunding may not be right for your start-up. However, any business can succeed with the right pitch – the key to crowdfunding success is: keep it simple.

What if someone copies my idea?

There is always a risk of copyright infringement when you release your concept into a public domain, such as the internet, before you launch. However, the chance of someone copying your idea shouldn’t be any higher through crowdfunding than in the period between launching and your business becoming well-known.

How Popular is Crowdfunding?

To fund a business idea, there are basically two options: 1) getting a bank loan or 2) by way of investors. Since crowdfunding is relatively new to South Africa, there are currently very few angel investors to choose from, but that is expected to change. 

While a large number of venture capitalists reserve their investments for ideas already proven and generating revenue, crowdfunding success in other areas of the world makes it a potentially viable means of funding business startup as the idea catches on and there are more angel investing opportunities in South Africa.

What can I do to ensure I'm getting the investments I need? 

Make a great video.... easier said than done and pretty daunting! Well, just have a crack at it and so long as you get some decent lighting and can put in some hours editing it you will be surprised at how good you can make it even just using an iPhone!

Build up your community prior to launch and then go for it with a bang! This is a bit of a no-brainer, but if you can keep tweeting, adding people to your facebook page and newsletter when you launch your project you will be able to drive some interested people to your page and get them promoting for you.

Make sure that you get your immediate network to support your project with personalised e-mails in the first week or two. Build on the credibility that they give you to keep the campaign ticking along and then when it comes to the crunch last couple of weeks you are going to be building on a solid base.

Don't let your project drag on, set yourself a limited time-frame and really promote your project through that period. Think of competitions that you could play mid campaign to keep the excitement there and as you can see from the above campaigns try not to let there be a quiet patch! Keep updating your fans and backers through the site and via Facebook and twitter then allow the social media to do your work There is no hard and fast rule as to how much money you should raise from friends, but the more you can raise and the faster it can come into the project, the better the rest of the crowd’s opinion will be of the financial viability of you and your project.

Don’t forget, if your friends also share your project with their social and business networks the simple statement of “I helped fund this project” will go a long way toward pushing their networks into your growing pool of funders. So, you want to convert them into beggars for your project, as well. Lastly its important to remember that you need to take your Crowdfunding effort seriously. Work hard at your proposal and potential video as it will pay of.

Give serious thought to what you are giving in return. Communicate with your own network and ensure they are sending your idea to their various networks.

Ask and thou shall receive but make sure that you are doing what you can to ensure others see that you are committed.

Read 19236 times Last modified on Wednesday, 06 June 2012 04:08

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