Crowdfunding an alternative to banks?

Access to finance has always been a major challenge for all startups around the world. Crowdfunding is often considered as an interesting alternative to banks. Let’s take a closer look at crowdfunding.

I will analyse the crowdfunding market in order to help entrepreneurs who may be interested in this field.

Definition of Crowdfunding

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. The power of the community of investors helps to raise capital more easily.

These investors can be your friends and family, customers, private institutional investors or complete strangers.

As per the diagram below:

The startup company makes use of a crowdfunding platform to raise capital through the internet to accelerate its go-to-market strategy.

Crowdfunding as a component of the Collaborative Economy

3 main drivers: Societal, Economic and Technological. (Source: CrowdCompanies)

Societal Drivers:

Desire to Connect

Sustainable Mindset

Population Increase

Economic Drivers:

Financial Climate

Untapped Idle Resources

Startups Heavily Funded

Technology Enablers:

Internet of everything

Mobile Technologies

Social Networks

Key Insights on Successful Crowdfunding Campaigns

Source: Fundable 

• The average campaign for crowdfunding lasts for about 9 weeks.
• The average successful crowdfunding campaign is around $7,000.
• If a campaign can achieve 30% of its goal within the first week, then its chances of success are higher.
• People earning over $100,000 annually are more likely to invest in startups through crowdfunding.
• People of the ages of 24 – 35 years are more likely to participate in crowdfunding campaigns. 

Crowdfunding Global Market Growth since 2010

The global market was estimated at $880 million in 2010. Four years later the market reached $16 billion and in 2015 it had already reached $34 billion.

Crowdfunding Categories 

• Reward Based Crowdfunding: People can pledge money to a new creative art project, a novel technology product in development, or a music artist producing a new album. 
• Peer-to-Peer Lending: P2P Lending enables borrowers to get access to funds outside of traditional banking channels. 
• Donation-Based Crowdfunding 

Small loans given to entrepreneurs to help fund things like short-term inventory.  

Criteria for Selecting Crowdfunding Platforms

Funding Industries

• Some services focus on creative and artistic projects, some even more specifically music-related projects.

Funding Process 

• The process to receive funds, as some services are all-or-nothing, meaning you have to raise 100% of your goal if you want to collect any money...

Fees & Receiving Funds

• The industry standard is to charge a fee for providing the means of funding your campaign, which is typically around 5% of the money raised.

Mauritian Crowdfunding platforms

1. Small Steps Matters

Small Step Matters is a participatory financing platform to help organizations (NGOs / Foundations) and individuals carrying out social and environmental projects in Mauritius or for Mauritians. 

2. Kibizin

Launched in April 2016, Kibizin is a Mauritian crowdfunding platform that wants to match investors with business owners.

The Hans Nayna Project - LIVE Music for the Soul

One notable successful crowdfunding campaign organised by a Mauritian entrepreneur was done last year by Hans Nayna via KissBankBank, a French crowdfunding platform. 

Pros and Cons of Crowdfunding

Easy and cheap way to get funding

Create awareness on your product

Saves time and money

Customer base development

Cons:

Out of 100 projects, 1 or 2 projects get the funds. 

Going public with your idea leads to the creation of copy cats and more competitors.

Crowdfunding does not work for complex projects. 

Best Practices for Launching a Successful Crowdfunding Campaign

Having weighed the Pros and Cons, you decide that you want to launch a crowdfunding campaign. Okay. Let's go.

Based on the research and analysis carried out, I have identified that successful "crowdfunders" have used the following steps:

1. Set funding goals. Determine how much money you plan to raise with your fundraising campaign.
2. Devise a reward strategy. Giving the right reward and incentive to investors.
3. Post your campaign to the appropriate crowdfunding platform based on your needs.
4. Get social. Communicate. Be visible on social networks. Engage with potential investors.
5. Take in the money and get ready to deliver the rewards.

Courtesy: Stephane Augustin