Crowdfunding in Emerging Markets
Crowdfunding in Emerging Markets
Crowdfunding in Emerging Markets
in Emerging Markets:
Crowdfunding
in Emerging Markets:
Acknowledgements
This report was commissioned by the World Bank Group/ infoDevs
Climate Technology Program, in collaboration with the World Bank
Groups Innovation and Entrepreneurship Practice. The paper was
authored by Sam Raymond of infoDev. Interviews with firms were
carried out by Sherwood Neiss of Crowdfund Capital Advisors. Unique
data collection and synthesis was generously provided by Allied Crowds.
The paper benefited from discussions with and guidance from
numerous World Bank colleagues, in particular Aun Rahman,
Michael Ehst, Varun Bhandari, and Nicola Vesco.
This report was sponsored by the World Bank Groups Innovation and
Entrepreneurship Practice under the leadership of Ganesh Rasagam.
The report was made possible through the support of the UKs
Department for International Development (DFID), Australias
Department of Foreign Aairs and Trade (Australian Aid), Denmarks
Ministry of Foreign Aairs (DANIDA), Norways Ministry of Foreign
Aairs, and the Netherlands Ministry of Foreign Aairs.
II
Crowdfunding
in Emerging Markets:
Table of Contents
Introduction
Box 2. Nikweli
5
5
Box 4. Fishmate
12
12
Box 6. Develatech
13
14
Conclusion
15
Introduction
In the past 10 years crowdfunding raising monetary
contributions from a large number of people, typically online,
to fund a project or venture has evolved into a $16 billion
market. It is growing around 300 percent per year1 and is
concentrated in North America and Europe.2
The total crowdfunding market is composed of various subtypes, including lending (debt), equity, and royalty-based
models, as well as non-securitized types, such as charitable
donations and rewards crowdfunding. Over the past few
years, lending crowdfunding has been the fastest growing
type (see Figure 1).
FIGURE 1. POPULARITY OF
CROWDFUNDING SUB-TYPES
(2012-2014)
4.3%
37.0%
2012*
44
22.2%
14.5%
*Please note
Royalty- and
Hybrid-based
crowdfunding
were not
identified by
Massolution in
2012 as distinct
models.
1.0
2%
6.5%
22%
2013
56.5%
1.7%
12%
3.0%
12.0%
6.9%
8.2%
2014
68.3%
Equity
Hybrid
Reward
Royalty
Donation
Lending
Crowdfunding
in Emerging Markets:
These statistics
suggest that crowdfunding
for African entrepreneurs
in these sectors is still in a
nascent stage.
1. CROWDFUNDING IS MUCH
MORE DIFFICULT THAN MOST
ENTREPRENEURS ANTICIPATE
Crowdfunding is an exciting concept for entrepreneurs
who see it as an opportunity to overcome traditional access
to finance challenges. However, crowdfunding is very
challenging and requires a significant commitment of time
and resources, especially in regions where crowdfunding is a
new phenomenon, like East Africa (EAF).
A typical crowdfunding campaign can takes months to
prepare. Hours are spent conducting online and offline
communications and considerable money is spent on
shooting a crowdfunding video. Our examination of EAF
crowdfunding campaigns found that the greatest cost
of running a crowdfunding campaign was the staff time
required to prepare, execute, and follow-up on a campaign.
The campaign is a major time commitment and can detract
from ongoing business operations. An example of the
scope of this time commitment is the Shake Your Power
crowdfunding campaign (see Box 1).
Kheterpal spent an average of 20 hours a day on the monthlong campaign, which required extensive outreach. As
soon as someone would donate, she or someone on the
team would thank them directly. During the course of the
campaign, she responded to a multitude of questions in real
time, gave over 50 media interviews, and produced three
update films. When asked if she knew beforehand how much
time the campaign would take, Kheterpal said, I had no idea
what I was getting into.
Kheterpal was not the only one. A number of EAF
entrepreneurs surveyed underestimated the time it would
take to effectively run a crowdfunding campaign. One
entrepreneur, who wished to remain anonymous, said, The
time commitment is greater than one can expect, and it
comes on unexpectedly. If we had more time I would have
done much better. Just to prepare I would have wanted three
to four months.
This was a common refrain among EAF entrepreneurs who
said that crowdfunding detracted from the amount of time
they spent engaging with customers on the ground and from
the overall health of their businesses.
One anonymous entrepreneur said, You eventually feel like
you lose out on normal business operations, management
and engagement with the company. Sales go down and
you generally lose income as you put more time into the
crowdfunding process.
It is important for entrepreneurs to budget time and
resources so that their businesses do not suffer. In order
to better anticipate the time commitment, entrepreneurs
engaged with individuals who had run similar crowdfunding
campaigns. These crowdfunders were contacted via their
profiles on crowdfunding platforms and were often willing
to reflect on their experience. Once entrepreneurs had
a rough sense of the required time commitment, some
arranged for interns to assist with communications duties.
Extra human resources allowed entrepreneurs to cope with
Crowdfunding
in Emerging Markets:
BOX 2. NIKWELI
Nikweli (Tanzania) is a human resources matching engine for
service industry businesses in Tanzania. The company is run by
Tiffany Tong, who faced challenges raising funds to register her
company, refine her website, perform outreach, and advertise.
Nikweli used Kickstarter to raise CAD$6,366 (about $5,000)
from 40 backers, which surpassed her goal of CAD$5,000
(about $4,000). Tong chose donations crowdfunding over
grant financing because grant application processes were too
protracted, and she needed money relatively quickly. Although
the company currently has two private investors, the company
was too early stage at the time for venture capital or a bank loan.
There was a lot to follow up on. We had to send out personalized
emails to friends and family, Tiffany said. The outreach, while
time consuming, was fun, but was also time we could have
spent doing things for the company.
Crowdfunding
in Emerging Markets:
EGYPT
UGANDA
KENYA
GHANA
NIGERIA
PAN AFRICAN
https://www.rainfin.com/
UGANDA
Photo Dominic
Chavez/World Bank
Crowdfunding
in Emerging Markets:
modernising-traditional-fundraising-in-kenya/49464/
4. NETWORK QUALITY
AND QUANTITY DICTATES
FUNDING POTENTIAL
A common narrative is that crowdfunding is a transformative
technology that can overcome traditional impediments to
capital. While crowdfunding does present an opportunity to
overcome traditional barriers to capital, it is merely a new,
technology-enabled way to do a very old and difficult thing:
raising money from a network. For entrepreneurs in emerging
markets, the lessons from EAF highlight two key takeaways
about how the quantity and quality of networks can impact
funding potential.
Regarding network quantity, entrepreneurs should spend a
significant amount of time building a contact base that they
can reasonably expect will contribute capital and promote
the campaign.
An example of base building is the work done by Kheterpal
of Shake Your Power. As previously mentioned, Shake Your
10
Crowdfunding
in Emerging Markets:
BOX 4. FISHMATE
Fishmate (Kenya) is the brainchild of 24-year
old Mukeli Matai of Nairobi, Kenya. The idea
was born from the World Bank Groups open
data bootcamp in 2012, where she accessed
information about endangered fisheries and
decided to build a company to address fishing
sustainability. Matai took advantage of the 1%
Club partnership with the Cheetah Fund12 to
conduct two separate crowdfunding campaigns.
Her first campaign in Kenya raised 2,678 from
about 20 members of her family which then
triggered a matching contribution of about
6,000 from the Cheetah Fund. Fishmate then
was selected by Dutch university students for
a second campaign run in the Netherlands that
raised an additional 7,912.
11
Credits Photo:
Jonathan Ernst
/ World Bank
12
Crowdfunding
in Emerging Markets:
5. ENTREPRENEURS SHOULD
TAP RESOURCES TO HELP
THEM CROWDFUND
Whenever possible entrepreneurs should seek assistance to
increase their crowdfunding capacity and their likelihood
of success. In the developed world, there is widely available
literature that chronicles best practices to increase chances
of success across all types of crowdfunding. In emerging
markets like EAF, entrepreneurs face a dearth of qualitative
and quantitative data, to help guide their actions.
To mitigate this information gap, the entrepreneurs we
interviewed engaged with multiple resources, including
matching funds, business incubators and online
knowledge-networks, to increase their fundraising
prospects.
MATCHING FUNDS
Around the world, a number of crowdfunding matching
schemes have been implemented to incentivize the giving
or lending of money to certain campaigns. To date, this
type of mechanism has been implemented once in Africa
and was accessed by two of the successful crowdfunding
entrepreneurs with whom we spoke.
BUSINESS INCUBATORS
As African crowdfunding experiences accrue, business
support organizations such as the Kenya Climate Innovation
Center, VC4Africa, iHub, and others can serve as repositories
for locally relevant information and crowdfunding
experiences, as well as connection points with local service
providers (e.g. videographers, marketing professionals,
mentors, etc.) who have prior crowdfunding experience and
can support campaigns. When laying the foundation for a
crowdfunding campaign, incubators can encourage and help
13
ONLINE RESOURCES
The open nature of online platforms can afford aspiring
entrepreneurs direct access to individuals who have run
successful crowdfunding campaigns.14 One anonymous
entrepreneur remarked, The people with prior success in
my field on Kickstarter were great peer mentors. They were
very generous with their time and sincerely wanted to help
me succeed by sharing their contacts and knowledge.
BOX 6. DEVELATECH
Develatech (Kenya) is a company that produces
and sells clean cookstoves and is an incubatee
of the Kenya Climate Innovation Center. The
company targeted African customers via the
African crowdfunding platform, the 1% Club
and also took advantage of a matching scheme
being offered by the Cheetah Fund. Using this
scheme, he successfully raised a total of 15,000
(about $17,000).
14
Crowdfunding
in Emerging Markets:
6. IN ADDITION TO FUNDING,
CROWDFUNDING CAN HAVE
NON-MONETARY BENEFITS
Beyond monetary gains, crowdfunding was shown
to increase the outward visibility and transparency
of a company, which in turn increases its perceived
trustworthiness with customers, investors and partners.
A number of entrepreneurs with whom we spoke did not
hit their fundraising goals but could still be considered
successful. They effectively delivered on crowdfunding
campaign promises, raised a nominal amount of fundraising,
and improved the relative position of their companies.
One anonymous entrepreneur who did not reach a set
fundraising goal stated, Ive received calls from everyone,
from recruitment agencies to equity partners. As a direct
result of the campaign, the company signed a contract
worth $120,000 with one of its partners. Exposure from
the campaign was used to foster and build new strategic
partnerships.
We started a key partnership with Cisco, says another
entrepreneur who did not hit her funding target. We
realized the campaign can give new partners
access to the bottom of the pyramid. It
also allows the campaign sponsors
to use their brands to recruit
talent. People are asking
us for internships and
work, said another.
Credits Photo:
Jonathan Ernst
/ World Bank
15
CONCLUSION
While the six lessons above should serve as a practical guide
for entrepreneurs looking to utilize crowdfunding, the
lessons also indicate a number of potential actions for both
public and private actors to improve the function of the EAF
crowdfunding ecosystem.
The discussion of opportunity costs, choosing a platform
and networking strategies highlights the clear need
for more industry data and transparency. Governments,
academic institutions, development institutions and the
private sector should consider knowledge partnerships to
capture and share industry data. An interesting model for
such partnership is the Microfinance Information Exchange,
a non-profit organization that acts as a business information
provider in the microfinance sector that was originally
incubated by the World Bank. Similarly, entrepreneurs who
have crowdfunded should openly share their successes and
failures as bloggers, mentors and coaches. Incubators should
serve as hosting grounds for these practitioners and offer
unique and locally-tailored training programs that stem from
the experiences of these entrepreneurs.
Further, the private sector can monetize research on
network effects and fundraising norms across the
continent, similar to the Krowdster tool. Entrepreneurs
are hungry for information that helps them understand
the potential of crowdfunding and make informed
decisions. A central listing of crowdfunding platforms and
accreditation tools by neutral third parties could increase
the trustworthiness of burgeoning crowdfunding platforms
among international networks and increase the fundraising
potential of EAF entrepreneurs.
Regarding the supply of capital in Africa, the Cheetah
Fund model could potentially be scaled across the East
Africa region, or even the entire continent, to include
other crowdfunding platforms and instruments, such as
debt. Such an intervention could bring many fundraising
efforts online, which would increase the likelihood of firms
realizing the positive non-monetary benefits mentioned in
Section 6: Crowdfunding non-monetary benefits. Firms that
successfully access the monetary and non-monetary benefits
of crowdfunding are found to be more competitive and more
sustainable, which would be a boon for African and emerging
market startup ecosystems.16
16 http://www.camac.gov.au/camac/camac.nsf/byheadline/
pdfsubmissions_6/$file/a_tompkins_ipledg_csef.pdf
16
Crowdfunding
in Emerging Markets:
Washington, DC 20433
Website: www.infodev.org
Email: info@infodev.org
Twitter: @infoDev
Facebook: /infoDevWBG