Crowdfunding for Africa?

Crowdfunding has been around for quite a few years now, but has recently been getting much more attention in the media as new players proliferate and this fundraising medium goes mainstream. Here at Fourth Watch we have been following this trend with great interest, particularly as we watch for players emerging with specific focus on impact investing in Africa. This post takes a look at what we've been seeing and how this might impact on venture capitalists with a heart for Africa.

One category of crowdfunding that has been rapidly expanding is generic platforms that help assemble funding for all manner of ideas from art projects to business startups. A great example of this is RocketHub, which allows users to post their idea to their site where it can be found by potential funders surfing the site. Users also then promote their idea using social media and any other method they can think of, and once the idea is funded RocketHub takes a "platform fee" to pay for its services.

Greenfunder uses a similar model to RocketHub's, but specifically brands itself as being devoted to "green" projects. It has a nice clean interface and accessible graphics and explanations. The definition of "green" projects is very loose, but this relatively new platform seems to already have had pretty good success in getting some projects funded.

A pioneer in crowdfunding for entrepreneurs and a pioneer in the world of microfinance is the mighty Kiva. Kiva taps into socially conscious citizens from all over the world, and uses a huge network of Micro Finance Institutions to delivers loans to people with needs. Part of Kiva's success is undoubtedly derived from its beautiful and highly developed platform (nice summaries and visual, high accountability from local partner MFIs, ability to give credit as gifts to friends, etc.). A distinctive of Kiva as compared to the previously mentioned crowdfunding platforms is that it also has a repayment feature where funders expect to receive their contribution back again so that it can be leveraged into other investments or else withdrawn.

In addition to these more general crowdfunding platforms, there are also numerous specialized platforms. For example, MOSAIC focuses on solar energy investment and has clearly been highly successful in this effort since all of its invesments are now fully subscribed and they have had to put new funders on a waiting list.

So, where are all the African focused crowdfunding platforms?

In our recent search for such specialized providers, we found some very mixed results. A very interesting article and interview on Idea Bounty was a little unsettling and caused some reflection and speculation on how many of the funded ideas on the mainstream sites like RocketHub and others of its type are legitimate. Two quotes from the interview with the founder of a new platform intended to fund South African ventures would have sent me heading for the exit in a real hurry: "I have been very upfront that there will *not* be "transparency"." and: "I don't ever want to see a business plan." I don't know the founder that was interviewed here and make no comment whatsoever on her, but there are some interesting comments under the article. Apparently the site disappeared, and another which jumped into the gap with a hyphenated version of the same name didn't last long either (it now directs to Ching, an online payment site).

But surely there must be a few success stories?! Yes, we did find a couple of fairly well developed operations. The first is VC4Africa - a platform for networking and connections between investors and African businesses that need funding. It also includes a mentorship program, which should increase investor engagement and improve results. There's also a great infographic with some key stats on small business financing in Africa.


The most well developed example that we found was Invest Africa. They take a different angle than most others by openly stating that they do not fund startups. They connect investors with developed and successful businesses that need capital for expansion. They also differ from the Kiva model in that they ask businesses to repay the investments that they get with a percentage of profits rather than using interest rates. This is a refreshing change and a radical departure from the high interest rates they would otherwise be charged by traditional lenders. Invest Africa also provides mentorship support through an online coaching platform. There's a lot to love about Invest Africa. The only problem we noted was that it focuses on the micro investment sector like Kiva or slightly large amounts.

Is this proliferation of equity crowdfunding a threat to African-targeted large private investment funds, venture capitalists and angel investors? At this point we don't see it that way. We feel that the proliferation of crowdfunding will be a great benefit to Africa's small entrepreneurs at startup phase or micro businesses seeking to expand, but that there will still be plenty of under-served space at the top end of the funding spectrum for institutional investors, venture capitalists and angel investors with deeper pockets and the sophistication to do a proper investment analysis.

But what about the middle of the market? Fourth Watch is investigating this space, particularly for possibilities to connect investors in the space between $100,000 to $500,000 - too big for most of the crowdfunding platforms, but a bit on the small side for more sophisticated investors. If you're interested in exploring this space further as an investor, or if you've got an established business in Africa seeking funding in that range, we'd love to hear from you. Or, if you've noticed some crowdfunding platforms operating in this space and focusing on African investments, please point them out to us in our comment section on this post.