Crowdfunding as a source of alternative finance

Availability of and access to finance are among the key challenges in the world of business. This is much so for business start ups in general and for youth and women in particular.

Over time availability of finance has been less of an issue but access to available finance still remains among the major issues of concern in business.

Arguably, there is more than enough finance in the world for funding almost everything including businesses. What is lacking is access to the widely available finances. There are many orthodox ways of raising finance for various activities.

There are, however, new and emerging ways of raising finance. Among these include crowdfunding. This was discussed at length on 12th and 13th September 2018 during the third International Conference of Business and Management in Emerging Markets (ICBMEM) at Mzumbe University Dar Es Salaam Campus College where the author of this article is the principal.

About the conference

The International Conference of Business and Management in Emerging Markets is an annual event organized by Mzumbe University.

The 2018 event in Dar es Salaam is the third edition after the first and second ones held in 2016 and 2017 in Zanzibar and Arusha respectively. The 2018 conference was co-organized by Mzumbe Univesity and Agder University of Norway. Among the key issues of discussion include crowdfunding as partly captured in this piece.

Crowdfunding panel

A panel of experts on sources of finance in general and crowdfunding in particular was among the key points of the 2018 edition of the ICBMEM at Mzumbe University Dar es Salaam Campus College.

The panel drew experts from Tanzania, Norway, the United Kingdom and many other countries.

The panelists on the crowd-funding discussion were Prof Honest Ngowi from Mzumbe University, Prof Rotem Shneor from Agder University, Dr Rui Hao from Cambridge Univesity Center for Alternative Finance, Kevin Allen from the African Crowdfunding Association and Mwasapi Kihongosi from Dar Technohama Business Incubator. Videos on the panel discussion are available at Ngowi TV on request from the author of this article.

Unpacking Crowdfunding

Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people. It is a form of crowdsourcing and alternative finance. It involves raising many small amounts of money from a large number of people, typically done via the Internet.

It is normally done via the route of a platform where campaigns are launched and held. Campaigns may or may not get good traction. This will be among what will constitute success of crowdfunding.

Crowdfunding can be used to fund business ventures at various stages from idea to expansion of existing businesses. It can also be used to fund social, political and other events. This article focuses on funding businesses. Funders can raise finance based on principals of loans, equity, reward, donations or a combination of these.

Platforms

Crowdfunding requires a platform to house and host it. This is typically a website where funding campaigns will be launched and carried out. Platforms can be global, continental or country-specific. Among the arguably well know crowdfunding platforms in the world are Indiegogo and Kickstarter. One may need to pay fees for using crowdfunding platforms.

This is because there are transaction costs involved in establishing, hosting and administering a platform. These platforms bring together many stakeholders arguably both individuals and corporate. Each may contribute small amounts of funds needed for a specific purpose.

Campaigns

There are several events that constitute crowd-funding. They include but are not limited to campaigns. Before one raises fiancé via the crowdfunding route one has to design a campaign for the same. Then the campaign has to be launched. Launching will be followed by several campaigns until the targeted amount of finance has been attained. For each campaign one has to compute success rate. The campaign success rate will depend on a number of variables.

Success factors

There are many success factors for crowdfunding campaigns. Needless to say, the exhaustive list of success factors is not available as this way of raising funds is still new, virgin and its infancy stage of development.

However, it is known that success would depend on a combination of factors. These include the purpose of fund raising. In Tanzanian context for example, one may get more success in raising funds for social events such as weddings than for funding businesses. This is very unfortunate.

Success is also a function of the platform that is used. Platform typology has implications on the number of potential funders and their willingness and ability to fund among other things.

Success will also depend on nature of campaigns including their designs and lengths. Crowdfunding successes can also be determined by geographical proximity between the funders on one side and those to be funded on the other. Issues of culture and most importantly trust are very crucial as well.