In the last few years, there has been a growing interest in crowdfunding, as a source of small business funding, among young entrepreneurs from all over the world. Even in South Africa, several entrepreneurs are looking into crowd funding and wondering about its effectiveness. However, in order to understand the effectiveness and the growing fixation on crowdfunding, it is important to look at the basics.
What do you mean by crowd funding?
In the last few years, budding entrepreneurs may have heard of terms like crowdfunding, crowd financing, hyper funding, and equity crowdfunding. All these terms refer to the process of collecting money and other resources from a huge group of people who are willing to pool in their resources.
The process of gaining the attention, trust, cooperation, and resources of people is usually done on the internet, and is initiated by the entrepreneur or an organization. As you may imagine, crowd funding has traditionally been used for charity purposes like disaster relief, or by artists or politicians asking for the support of their fans and followers. However, this process has also been used successfully for getting enough money to fund a startup company, small business, or even a movie.
Government Role in the trend of crowd funding in South Africa
South Africa has not been able to boast of a strong culture of angel investing. However, the growing popularity of this method of investment and capital collection in other countries has helped in shedding some doubts about it. Today, the government is beginning to open up to the idea of crowd funding as a good way to collect money for business. Several international governments, including that of the United States, have started a trend that many entrepreneurs have been waiting for.
Current trends in South Africa
As mentioned before, angel investing and crowd funding has not been a popular concept in South Africa in the past. At its best, the concept has been met with indifference, and at its worst, it has been met with contempt. However, in the past few years, crowd funding has slowly become more acceptable in business circles. More importantly, the people, who are the very source of the funds and resources, have begun to understand the merits of crowd funding.
Young entrepreneurs in South Africa have also understood the effectiveness of crowd funding recently. They have begun to realize that this form of funding allows the growth of good ideas that would not have been funded otherwise by conventional financiers. This supports the development of radical and creative business ideas, which is good for the entrepreneur and for the South African business environment as well. The approach of crowd funding also gives entrepreneurs the chance to promote their startup or small business through word of mouth backed by their investors.
This trend of growing awareness and acceptance of crowd funding in South Africa is expected to continue for a longer period. To understand why, it is important to look at the sources of the trend itself.
Sources of crowd funding trend in South Africa
One source of this trend can be traced to the positive reaction of United States and other countries toward crowd funding. However, this source is fairly recent, and not the only important source of this positive trend in South Africa. The growing importance and acceptance crowd funding can be traced to the growth of the internet in the country.
More importantly, the growing popularity of social networking websites on the internet has contributed to crowd funding trends in South Africa. These websites allow entrepreneurs to connect with thousands of people and potential investors, and collect their money online in a simple process.
In fact, most successful instances of crowdfunding in South Africa have been done on the internet. The increasing accessibility and popularity of the internet will fuel the trend of crowd funding even further in the country, which is good news for the entrepreneur.