Unfortunately, there are very few accredited angel investors and
venture capitalists who one could approach with your business plan. The continent’s banks rarely
lend to early-stage entrepreneurs and small businesses. Most international
investors hesitate to provide capital to African startups. Anglo-Saxon, Chinese
and Arab investment funds focus only on mostly large corporate entities.
A new financial instrument, with very flexible rules, could
strengthen small business growth in South Africa and could wind up changing the
entrepreneurial landscape for the better. Initially developed in the United
States, Crowdfunding allows users to submit projects that have potentially had
difficulties receiving traditional funding (from banks, venture capitalists,
angel investors…) by raising small amounts of money from a large number of
ordinary individuals (Internet users, network of contacts, friends, and
small-scale investors).
Its purpose varies, from artists seeking support from fans, to small
businesses looking for funding, to technology, to political campaigns, to
citizen journalism or organizations dedicated to disaster relief.
Crowdfunding platforms give entrepreneurs new tools to describe
their investment opportunity and people to become investors in these
opportunities for very little money. There is no legal obligation to hire
lawyers or advisors to assist in the fundraising process.
The project initiators disseminate the information using their
social networks and encourage many other people sharing the same interests in
their networks to do the same.
In addition, crowdfunding is an excellent way for entrepreneurs to
test and improve their products/services through these online platforms and it
provides a forum of feedback from the internet community. If the projects do
not reach its funding goal after time expires, it would mean that the products
or services do not meet the public needs, requirements and expectations and some
changes need to be made. Finally, one of the advantages of crowdfunding is that
project supporters can raise money without giving away any equity in their
business like they would have to do with venture capitalists.
Kickstarter, one of the pioneers of crowdfunding, has implemented a
huge number of successful projects in the United States and has demonstrated
convincingly the viability of the concept. Given that the sector exhibits huge
growth potential, www.McKenson-Invest.com , an online platform connecting investors and entrepreneurs, is
currently undergoing major changes in order to become a true crowdfunding
platform for all kind of projects in South Africa. One of the Obama
Administration’s initiatives, which have been the subject of profound debate in
financial and economic circles in the United States, may be of interest to the
business landscape in South Africa. In November the House of Representatives
passed a bipartisan bill, the Entrepreneur Access to Capital Act, which would
allow anyone to raise startup capital for their business, up to $10,000.00 via
the Web (or up to 10% of one’s income, whichever is less) , with a cap for
companies at $1 million and provides a Crowdfunding exemption from SEC registration.
Donors will be considered as true early-stage investors because they will
participate in the company’s capital as partners or shareholders. Under current
U.S. law, the sale of equity in private companies is limited to “accredited
investors”. The bill that was passed in November provides a Crowdfunding
exemption from SEC registration.
The enormous potential remains largely untapped in South Africa,
with only a fledgling sector in Europe, which is also predicted to have one of
the brightest futures.
Crowdfunding platforms could help more early-stage entrepreneurs
launch and develop their business idea in South Africa. The representatives of
economic authorities should quickly implement a robust legal and regulatory
framework in order to promote and encourage crowdfunding on the continent.
The Regional Stock Exchange, which handles transactions for eight
States of West Africa (Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali,
Niger, Senegal and Togo), the Central African Stock Exchange (led jointly by
Gabon, the Central African Republic, Chad, Congo-Brazzaville and Equatorial
Guinea), the Douala Stock Exchange and the Rwanda Stock Exchange are also the
way for businesses to get funding by issuing stocks and bonds. Unfortunately,
these financial markets have a very small number of listed companies, have
failed to persuade all the identified businesses to go public and are unable to
draw the attention of the international investment community. The probable
merger between the Central African Stock Exchange and the Douala Stock Exchange
will not make things any better. Economic fabric is mainly made up of very
small enterprises (VSEs) and small and medium-sized enterprises (SMEs) in the
majority of French-speaking countries in sub-Saharan Africa. Many of these
ventures are not eligible for listing.
The above-mentioned stock exchanges remain essential structures and
should coexist with crowdfunding organizations. Its development will depends on
a dense network of innovative, successful and highly dynamic SMEs, the
improvement of bancarization level, an active campaign to educate business
owners about the introduction to the stock exchange, the establishment of a
stock market culture, a high savings rate of private households, the existence
of online brokerage firms and an administrative and financial autonomy, free of
political interference. There is still a very long way to go before they reach
the same size as the major international financial centers.
