The genius of crowdfunding

2014-12-08 06:00

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Crowdfunding is relatively new in South Africa, but it has taken the world by storm and could, within the next decade, become the leading source of funding for small businesses.

In essence, crowdfunding allows ­entrepreneurs to connect online with the public for cash to fund their business ideas.

US-based Kickstarter is the best known crowdfunding platform globally and has raised more than $1?billion (R11.2?billion) for entrepreneurs since its launch in 2008, especially in the tech space.

In 2012, Kickstarter helped Eric Migicovsky, a 26-year-old engineer, raise more than $10?million for Pebble, a watch that communicates wirelessly with iPhones and Android phones via Bluetooth, making it the largest crowdfunding project at the time.

There have been several attempts at crowdfunding initiatives locally, but the most successful and sustainable has been Thundafund, which has raised more than R3?million for 92 projects through 3?835 investors since its inception a year ago.

One of the first successful projects on Thundafund was YBIKE Evolve, a 3-in-1 combination tricycle and balance bike for kids.

The owners raised R49?000 through Thundafund – in fact, Evolve ran campaigns on both US-based Kickstarter and Thundafund, and raised more money through the local portal.

Through funds raised via Thundafund, Cape Town’s Labia Theatre, the oldest cinema in South Africa, was able to raise R550?000 to go digital and Cape Town’s first chocolate café, Honest Chocolate, opened its doors after raising R66?000 through Thundafund.

The platform caters for a wide range of fundraising projects – from helping Lloyd Maanyina raise R12?300 to start Amazing Grace, a plant nursery in Zambia aimed at combating deforestation, to the Madam and Eve musical. This week, the Madam and Eve musical campaign went live and aims to raise R2?million through the platform.

Thundafund has also been a successful platform for community-based initiatives such as the Gugulethu Food Garden, which raised R75?250 to build a 400m² food garden at Litha Primary School in Gugulethu. But in order to keep the platform purely for commercial fundraising, Thundafund is launching a separate

platform for community-based, nonprofit projects.


The idea behind crowdfunding is you market your business idea and invite people to support it.

While there are many different models for crowdfunding, including selling a stake in the business, Thundafund has focused on micro and small businesses that offer a “reward” to investors that is derived from the project itself. The genius behind this is that you are able to presell your product, ensuring a demand from the day you open. Not only have you tested your product, but you do not have to repay a loan with interest. All you have to do is deliver your product.

For example, for R300, an investor received an Evolve bicycle and Honest Chocolate investors could invest as little as R30 for a cup of coffee and a bonbon, or up to R160 for 10 coffees. The café had a customer base before it opened. Evolve was able to produce its bicycles for sales that had, in effect, already taken place, and the Madam and Eve musical will be filling its seats with investors rewarded with tickets. If nobody wants your bike, your coffee or tickets, you know your product won’t fly and you simply walk away.

Banks are also beginning to catch on to the power of crowdfunding to assess the risk of the project. Patrick Schofield, the co-founder of Thundafund, says in the case of Honest Chocolate, they initially approached the bank to raise R100?000. Banks are hesitant to fund new, ­untested projects, but by raising a large portion of the money through crowdfunding, the bank was very comfortable to lend the company the rest. Firstly, it was not at risk for the full amount and secondly, the idea had been tested and demand was proven.

“It also raises awareness for angel investors who might be looking for investment opportunities and want to see what concepts are going to work,” says Schofield.


Although Thundafund has received 900 project ­applications, only 15% of these have gone on to the platform. Schofield says this is not necessarily because they were turned down by Thundafund, but rather that the project owners decided not to go ahead as the application process made them realise that their business idea was simply not robust enough to be successful.

“People talk about what they want to do, but have never thought through the details of how they are going to make it happen. People often realise when going through the exercise that the project is not viable; that the costs of producing are too high to sell the product. A lot of people also don’t realise they have to offer the investor something in return.”

Even if the project owner still believes in the concept after putting together the campaign, it will be rigorously tested in the market.

“It opens the opportunity to take ideas to the world, but then it gets evaluated by the community and if it is not successful in raising funds, it prevents people from wasting capital”.

Thundafund has a very high success rate for crowdfunding – 68% of projects that go live receive sufficient capital to launch. Kickstarter has a success rate of 42%.

The success of your project relies entirely on you. This is not a matter of “put it up and they will invest”. Successful projects have all had one thing in common – the owners marketed the campaign aggressively.

“While Thundafund can help you get your project ready to raise capital, when it comes to marketing, 80% comes from the project owners themselves,” says Schofield, who adds that you have to be committed to spending two to four hours a day engaging and activating networks, online and offline.

“No matter how good a product is, if you can’t market it, you are dead.”

Schofield says it takes at least two to three touch points before an investor commits. In a world that has so much available information and so many distractions, you have to find ways to keep your project top of mind until the investor takes action and invests.

For every 10 people who support the project, only one will actually put in the money. You need to get more of those Facebook “likes” to turn into cash. “You have to tell people: ‘If you like what I am doing, back me with money and we’ll make it happen,’” says Schofield.

A strong campaign is also positive for other projects as it draws more investors to the platform.

Schofield says projects that tend to be successful are those that have an emotive side – like saving the Labia, or ones that offer a direct product that investors receive as a reward like Evolve or Honest Chocolate.

Other commercial projects so far include theatre and dance productions, movies, publishing books and producing albums (Kahn Morbee, the lead singer of the ­Parlotones, will be raising capital for his new ­album in January).



Part of the application process is in understanding how much money you need to raise (what your “tipping point” is) as well as your milestones.

For example, in the case of Honest Chocolate, the tipping point was R50?000 – if they did not raise this amount, the café would not open and the investors would all receive funds back.

For R50?000, they could open a basic chocolate café setup, which includes an espresso machine, coffee grinder, display fridge and point of sale system.

If they raised R80?000, they would spend money on turning the space into a cosy café with beautiful fixtures, fittings and furniture, and with R100?000, they would beautify the courtyard with benches and tables for outside seating.

The project goes live for 30 to 90 days, depending on how much money needs to be raised. Thundafund’s Schofield says the “sweet spot” tends to be 45 days because this is about how long the owners of the project can keep the attention of its community. It requires a great deal of effort and energy to keep the campaign alive and this is difficult to sustain for a long time.

If your project is successful, you will receive the capital raised, less the 7% fee paid to Thundafund for a commercial venture and 5% for a registered nonprofit project.


As an investor, you register on the website then select which project you wish to invest in. Payment is made via an EFT or credit card.

The money is held by Thundafund in a trust account until the capital raising has been successful. If the project does not reach its tipping point, you receive your funds back.

If the project is successful, you receive your reward as an investor.

Schofield says investors need to realise it can take three to six months for the project to get off the ground, so it will take time to receive your reward.

Although there are no guarantees that the project you invest in will become a successful venture or that the owners won’t just grab the money and run, the process of peer review and the amount of social media connections would make if far more difficult for the owners to simply disappear.

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