S Africans turn to crowdfunding sites

Crowdfunding is a wake-up call for those who think you can put an idea out there, sit back and watch the money roll in. By Thalia Holmes.

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Caitlin Clerk, 24, has porcelain-white skin, big grey-green eyes framed by long lashes and dark, flowing hair. She extends a slender, soft arm in greeting. Her voice has a melodic timbre to it. As she settles next to a piano and sight-sings tunes for an upcoming stage show, it’s easy to see she’s a performer.

A few months ago, she was one of a sea of struggling entertainers in South Africa. A psychology and English graduate from the University of the Witwaters­rand, she decided two years ago to pursue her passion ­– a career on the stage.

With Phantom of the Opera and Annie under her belt, Clerk was looking for meaningful things to add to her CV when she came across an advert for an audition for the New York Film Academy. Six South Africans would be chosen to participate in a four-week course at the world-renowned artistic training hub.

“When I found out I had been accepted, I didn’t know how to react,” she said. “I never thought for a moment that would happen. Once I knew I was in, I couldn’t not go,” she said. But she needed R70 000 to do it.

She petitioned “hundreds” of organisations for sponsorship, with no success. Eventually, a family friend suggested crowdfunding, something Clerk had never heard of. After Googling the concept, she came across startme.co.za, a local crowdfunding website with a similar business model to its American-based counterpart, Kickstarter.

Last year alone, Kickstarter helped 18 000 businesses to raise US$320m.

The concept is simple. The website gives entrepreneurs, artists and other project owners a platform to present their ideas and convince possible contributors of the worthiness of their cause.

Donors can give amounts as small as R50. And project creators offer rewards for those who buy in, which grow in size as the contribution amount increases. In some cases, contributors make donations in exchange for the first versions of a new prototype or product.

A plan to produce glow-in-the-dark plants advertised on Kickstarter proved wildly successful in the US, with 8 433 donors donating almost $500 000 in just 44 days, Time magazine reported.

Contributors, it turns out, were rather excited about the glow-in-the-dark seeds being offered as tokens of thanks.

Locally, the Ybike Evolve, a combination tricycle and balance bike aimed at helping children to develop their gross motor skills, raised R47 000 instead of its hoped-for R30 000 on a new local crowdfunding site, thundafund.com.

Almost all of its contributors bought the final product at a discount as their reward.

According to Ben Botes, one of the founders of StartMe, it’s a virtuous circle. Contributors create a market for the product or an audience for the artist.

But, for the most part, contributors are “usually friends or family” of the person doing the project, Botes said.

Clerk has found the same thing, although some of her largest contributions have come through second-tier connections.

And, in many cases, the “rewards” offered to contributors are a token rather than a real incentive to donate.

A R250 donation to Clerk’s cause will earn you a mention in her travel blog. R500 will get you a beaded ornament with your name left “somewhere special” in New York.

In order for your project to be featured on StartMe, it must go through a simple vetting process.

“We make sure the ideas being posted are real, that they are ethical and that they comply with legal requirements in the country,” Botes said.

The project owner sets a time limit by which their funding goals must be met, usually 60, 90 or 120 days.

Contributors are only required to pay if the funding goal is reached. If the goal is not met, the project owner gets nothing.

“The idea is that, if that amount is not raised, then it is questionable whether the project will succeed,” Botes said. StartMe takes a 5% fee from those projects that reach their target. “It’s really a pay-on-success-based model,” he said.

Since the company started in 2011, it has featured 125 projects. Of them, 15 have been successful. StartMe hopes to double its success rate next year and eventually see about a 30% rate.

There are other crowdfunding models, such as the American Indiegogo, which allows project managers to keep whatever funds are raised, even if they miss their target.

And then there’s the South African CrowdInvest, a site that offers investments in start-ups and, in some cases, shareholding.

The website has more than 300 registered investors, who receive a 5% return after a month. Start-ups have 60 days in which to reach their goal. Investors only pay up if the target is achieved.

Although these options spell hope for many, crowdfunding is not the solve-all some might believe it is. New York-based start-up specialist Ari Zoldan said, in fact, it is a “bad idea for a lot of start-ups”.

“It lets you kid yourself,” he wrote on the business site inc.com. “Convincing real investors that you’ve got what it takes is your company’s first reality check. Crowdfunding can let you postpone reality but not indefinitely.”

Besides that, it stops you from interacting with seasoned veterans who could give useful tips for your business, he said. “I would never recommend investing in a crowdfunded model. What does that tell you?”

Both Clerk and Botes agree that those who see crowdfunding as a passive way to earn money will inevitably fail.

“I think a lot of people make the mistake of thinking that crowdfunding is the easy way out. It’s not. It’s really, really difficult,” Clerk said. “Instead of convincing one big company to donate, you have to convince hundreds of people to believe in you.”

Most of her time in the past three weeks has been spent phoning and e-mailing people she knows asking for help, blogging, tweeting and facebooking about her project.

“I’ll ask people to share the message more than I ask them to donate,” she said. The result is that her project has moved towards its goal quicker than most others on the site.

But putting herself on the line has been an emotional experience. “You don’t realise how much it takes to speak to people’s hearts and get them to invest in you.”  — (c) 2013 Mail & Guardian

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