Johannesburg - Funding, or lack thereof, is a key obstacle to getting business ideas and projects off the ground. Instead of chasing banks, venture capitalists and angel investors, more and more businesses are going the crowdfunding route.
Earlier this year, Modjaji Books in Cape Town decided to publish a book celebrating South Africa’s most inspiring women.
There was a problem: the small-scale publisher needed money to put the idea into practice.
Instead of approaching conventional lenders, the company set up a crowdfunding campaign.
“We needed R100 000 for the project,” says Modjaji founder Colleen Higgs.
“A to Z of Amazing South African Women was expensive to design, write and print. Crowdfunding was our only option.”
After starting the campaign, it took the publisher six weeks to reach its target.
“We had 150 individual supporters backing us,” Higgs says.
“Most amounts we got were relatively small, but there were several larger contributions, too. There was always a steady flow of money coming in.”
What made crowdfunding and Modjaji’s Amazing Women’s book a match made in heaven was the reward system.
Depending on their contributions, supporters made themselves eligible for rewards, varying from sets of postcards and a single signed copy for themselves, to a set of signed copies for themselves and underprivileged women and girls.
“Our rewards were very concrete. This made the book very attractive to crowdfund,” Higgs says.
Modjaji’s journey is just one of the countless crowdfunding campaigns that have been conceptualised in South Africa in recent years.
Data from global statistics company Statista show that over R590 million has been raised through crowdfunding in South Africa since 2012.
Patrick Schofield, founder of the Thundafund crowdfunding platform, says funding business ideas and projects via friends, fans and the general public is incredibly powerful.
“Besides raising capital, the concept creates a supportive ecosystem of customers and potential shareholders.”
Since its launch five years ago, Thundafund – which earns money by deducting a small percentage of the funds raised – has helped mobilise R17.5 million from over 1 500 backers.
One of its first success stories is the Honest Chocolate campaign.
Three years ago, the manufacturer of organic and ethically sourced chocolate wanted to open South Africa’s first chocolate café.
“They didn’t want to go to the bank because paying back tens of thousands of rands plus interest would have required them to sell R1 million worth of stock.
"Instead, they decided to ask their customers, who were already buying their chocolate, to get involved,” says Schofield.
The campaign’s rewards varied from chocolate bars to chocolate making courses.
“Within six weeks, Honest Chocolate had raised what they needed.”
More success stories have followed since. Of these, Sugarbird Gin tops the list. Earlier this year, the company managed to mobilise R1.1 million via Thundafund to set up a craft gin business.
It is the largest amount raised through crowdfunding in South Africa, ever.
Co-founder Nzeka Biyela says it took seven weeks. The preparation phase took two to three months.
“We spent that time looking at all aspects of the campaign to ensure we’d get the traction we needed.
“For instance, we created a video so that backers could get a connection with us and we developed a social media strategy around the campaign.
“We had PR agencies helping us and we got social media influencers on board, too. We had to get these elements in line before going live.”
The best part of the crowdfunding concept is that it enables entrepreneurs to raise funds without incurring debt, while engaging with current and future customers and enticing them to give their new idea a try.
“It is a win-win situation,” Biyela says, pointing out that crowdfunding isn’t as new to South Africa as one may think.
“Essentially, it is a stokvel, which has been around for ages. My mum was part of a stokvel. She and a group of friends would get others, often strangers, to buy into an idea. This market is worth around R44 billion.”
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