Crowdfund & Startup Funding in SA

One of the biggest problems startup founders in Africa face is that of finding suitable funding for their startups. This is especially so in the very early stages of the startup. This is true of (perhaps) all regions in the up and coming tech/innovation hubs in Africa. It’s definitely true of Kenya (from experience). Erik Hersman (Whiteafrican) wrote about Finding and Funding African Startups and explored this issue to some detail.

Crowdfund, a new initiative in South Africa is taking matters into the hands of individual small time investors by applying crowd-sourcing to solve this problem. Basically, if you have R1,000 you can now invest in a startup in South Africa. Interestingly, the Crowdflower website quotes, “It’s time to take matters into our own hands” (don’t you just love the internet!)

From the Crowdfund site:

The problem:

• South Africa has a very limited “Angel Funding” network to help online start ups develop prototypes of their products.
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• Venture capitalists are mostly interested in investing large amounts of money, for proven ideas that generate revenue.
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• But there are very few “proven ideas” to choose from, because none, or very few, are being funded by angel investors.
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• South Africa cannot compete in the global online sector if it isn’t funding start-ups at the beginning stage.

How does the Crowdfund work?

• 1000 people get together and invest R1,000+ each by pooling the money into the Crowdfund.
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• The Crowdfund board approves to use the fund to finance between 10 – 20 teams with excellent ideas, and helps convert the ideas into workable prototypes, in exchange for equity
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• Economies of scale play a huge role in getting maximum bang for each Rand
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• Once a workable prototype is developed, the formal Venture Capital network is approached for further funding, and the Crowdfund most probably cashes out