Crowdfunding: The Next Normal in Project Funding?
A Ghanaian crowdfunding start-up was one of the winners of this year’s Apps4Africa competition, sponsored by the World Bank and the U.S. government: http://www.bbc.co.uk/news/technology-21513287.
The company – called SliceBiz – is developing a service to deliver 30-second sales pitches recorded by entrepreneurs to potential backers over the phone.
Investors are invited to provide between $250 and $100,000. Smaller sums can be sent via mobile phone, while larger ones will still rely on traditional money transfer. In return, investors will become shareholders. SliceBiz will also get a slice of the business.
So just what is crowdfunding? It’s the latest and glitziest internet response to the collapse of the traditional financial system. Crowdfunding uses the internet to bring together thousands of people to fund a venture, which could anything from a music album, a film, an election campaign or even a disaster relief. Mass public donations have been around for centuries, but today the internet is taking it global.
In 2012, President Obama signed the JOBS (Jumpstart Our Business Startups) Act that lifted the ban on public solicitation for funds for private companies. In short, he legalized crowdfunding.
What is wrong with the old stock market system? Many investors quit the stock market after losing their savings or pensions in the financial crisis, and don’t plan on returning in this lifetime. In the meantime, many stock markets have been taken over by zombie nano-second computer traders.
Private equity groups benefited greatly from the fallout and picked up millions of loose change looking for a home. Last year, 161 emerging market private funds raised a total of $40.3 billon. Funds investing in Sub-Saharan Africa raised $1.4 billion last year and completed 61 investments in the region worth $1.16 billion, according to data from the Emerging Markets Private Equity Association. But this was still low compared to pre-crisis 2007, when private equity funds invested $3.4 billion in Africa.
Crowdfunding is still planets away from this kind of money. It’s been successful in financing film-makers and musicians but is only just beginning to start funds for start-up companies. Nevertheless, crowdfunding could become mainstream within five years.
The world economy has slowed down to a standstill in many countries. In the United States and Europe, debt levels are rising and tax revenues falling.
And for project funding? Try anything… you might just get lucky.