Diaspora crowdfunding for small businesses. You might be wondering if crowdfunding is possible for a small business? Yes, it is possible and it creates the opportunity for entrepreneurs and Small and Medium-Sized (SME) business owners to raise funds for their businesses.
In this article, we explore the use of crowdfunding by entrepreneurs in Africa through diaspora crowdfunding.
Read on if you want to know how can you can raise money online. Especially through diaspora crowdfunding for your small business.
As small business owner of an entrepreneur you may also be interested in opportunities that exist in starting a diaspora crowdfunding platform.
You may also be interested in knowing what you need to do, to make this method of financing work for your business or project.
This article is for you, if you are interested in smalll business crowdfunding.
Especially if you are seeking partnerships for your startup or small business with individuals or marketing firms located in the diaspora.
One of the problems faced by many small businesses or entrepreneurs in Africa is the struggle to raise money for their business ideas or projects.
If you are looking for ways to raise money for your business idea. You may consider raising money online through the monetary contributions of the people living abroad or diasporans.
That is, you can raise money from a large number of people living abroad online through diaspora crowdfunding.
Crowdfunding method for raising money.
Crowdfunding is a method for raising monetary contributions from a large number of people without geographical barrier.
Money is typically raised online to fund a project or venture. In the past 10 years, crowdfunding has evolved into more than $16 billion market.
However, among the developing countries, Africa is among the lowest performing in the world in terms of utilizing crowdfunding.
Methods of crowdfunding.
There are different methods of crowdfunding. The market is composed of various sub-types, including:
- Lending (debt).
- Charitable donations.
- Rewards crowdfunding.
Over the past few years, lending crowdfunding has been the fastest growing type.
The total crowdfunding market in the developing world was about $327 million in 2015 – about 2 percent of the global total.
Also, in 2015, the African crowdfunding market was estimated at about $70 million.
This accounted for less than half of one percent of global crowdfunding activity and about 21 percent of emerging market activity.
Of the $70 million African crowdfunding market, about 54 percent was generated by peer-to-peer lending platforms, such as Kiva.org.
The World Bank published a report in 2013, Crowdfunding’s Potential for the Developing World. It estimated that by 2025, there will be a $96 billion crowdfunding market in the developing world.
How do entrepreneurs use crowdfunding in Africa?
The use of crowdfunding by entrepreneurs in Africa is still in the early stage.
The low adoption of crowdfunding by African entrepreneurs can be attributed to a number of factors. Primarily regulatory and technology.
Regulatory factors are influenced by national regulatory environments that are not conducive for equity and debt crowdfunding.
For instance, in Nigeria, the acting SEC Director -General recently announced new regulations aimed at regulating crowdfunding to reduce risks for investors and financiers seeking to back small businesses and start-ups.
Hitherto, equity crowdfunding is illegal in Nigeria.
Technology limitations are due to environments where e-commerce is not widely utilised.
Despite the slow adoption of crowdfunding in developing economies and in Africa in particular, ample opportunities exist.
Particularly, for diaspora crowdfunding which builds upon the desire to capture a share of the growing African diaspora remittances.
What is diaspora crowdfunding?
Diaspora crowdfunding is an online method of raising monetary contributions from diasporans for projects or ventures by Startups or Small and Medium-sized Enterprises (SMEs).
These organisations and businesses located in a country of origin, raise funds through the diaspora (members of their country living abroad).
Or sometimes, depending on the project, through a wider diaspora population e.g. people from the same continent living abroad.
What opportunities exist through diaspora crowdfunding for SMEs?
Through small business diaspora crowdfunding, entrepreneurs can raise money for their business ideas or projects.
The crowdfunding platforms are typically online channels which means, that you can reach a wide diaspora audience.
Roles of diaspora crowdfunding platforms.
Diaspora crowdfunding platforms exist to drive innovation and entrepreneurship in Africa. They seek to encourage those in diaspora to back individuals back home who have great ideas.
Although making any investment is a leap of faith, it is relatively an easier leap for an African living abroad than for a foreigner to invest in Africa.
It might be easier for you to convince members of the African diaspora to invest in your business or a cause than a foreign investor who has no clue about the continent.
Moreover, a lot of African diaspora investors are looking for investment opportunities and ways to contribute back home.
Having said that, the willingness of diasporans to invest in businesses is significantly influenced by their risks perception.
How to raise money online through diaspora crowdfunding for your business idea.
A major problem startups and small businesses face is the problem of legitimacy. That is, establishing their genuineness.
This is often more difficult for small businesses compared to larger and more established businesses.
In order to attract funding through traditional means such as banks, a business needs to establish credibility.
However, this is difficult for small businesses due to their lack of personal assets, collateral or history of exchange.
Similarly, if you are looking for ways to raise money online through diaspora crowdfunding.
You need to work on building your the online reputation and that of your business.
This is very crucial especially for entrepreneurs and business owners in developing countries.
A diaspora research showed that reputation is important in order for entrepreneurs to be able to access financial support from people living abroad.
Although diasporans who are willing to invest in businesses back home are interested in your business idea.
They are also interest in how legitimate your business is.
They want to establish trust in your business before they can invest in it.
Diaspora investors also want to know who runs or owns the business they are investing in.
Therefore, they would most likely contribute to crowdfunding campaigns of those they already know.
This is information is particularly important if you are going to run the diaspora crowdfunding campaign by yourself using a crowdfunding platform.
If you cannot confidently access support from the wider diaspora. You may start with your personal networks in diaspora. For example, those in your network of family and friends.
Examples of crowdfunding platforms
Not all the crowdfunding platforms are explicitly targeting people living in diaspora.
However, LelapaFund which is based in France, particularly targets the African diaspora.
Other examples of crowdfunding platforms you can use are: Afrikwity that targets Francophone Africa.
In Kenya, M-Changa is a crowdfunding platform based on mobile technology that allows users to start campaigns and collect donations through SMS or online.
There is also Thundafund a local South African crowdfunding site.
Otherwise, there are lending crowdfunding platforms where some people in diaspora are already investing.
Rather than running your own campaign, you may want to borrow from lending crowdfunding platforms.
Diaspora crowdfunding for small businesses relies on raising monetary contributions online from people living outside their countries of origin.
Think about it, would you be willing to invest your hard earned money in a venture that does not look promising?
In order to be able to drive financial support for your small business idea or project through diaspora crowdfunding.
You need to establish the legitimacy of your business, get your small business online as soon as possible.