Crowdfunding: what you need to know before parting with your cash

It’s helped launch businesses, academic careers, music albums, bolstered the reach of much-needed charity organisations and even saved lives. And yet there remains a modicum of suspicion among those who still do not know about crowdfunding and how it works.

Simply put, crowdfunding is carried out via a platform that acts as mediator between project creators and the general public (the crowd), who fund the project within a predetermined time frame.

Wynand Myburgh, the manager and bassist for local award-winning rock band Fokofpolisiekar, says we live in a time where people will use whatever medium to channel your cash into their own pockets.

So, when one of your Facebook “buddies” tags you in their effort to contribute funds to a charity close to their hearts, instead of birthday wishes and gifts, it does pique one’s suspicion.

“It is our duty as users of modern technology to be aware of this and make the correct choices. Still, a scam is a scam and right now someone is getting scammed somewhere. It is desperate times and people are desperate. Scammers feed on that desperation,” Myburgh told The Citizen.

However, when it comes to crowdfunding and the various platforms managing various fundraising projects around the world, he places his full support behind the initiative as a financial springboard.

Fokofpolisiekar are no strangers to crowdfunding and, in 2017, ran a hugely successful reward-based project to release an album. Initially setting a target of R500,000 for their album, the public and fan outpouring saw the amount reach R1 million.

“We wanted the funds to record and market new music. So, we offered our fans a lot of different merchandise and various incentives in order to raise the money to cover the album cost.

“Our campaign was basically an e-commerce store in the back-end, but a crowdfunding campaign in the front end. So, people did not just buy a piece of merchandise from us as a standard e-commerce store, there was also the incentive that their purchase would help fund new music,” said Myburgh.

South Africa has its fair share of crowdfunding platforms and the band opted for the popular Thundafund platform, which they say resulted in a 100% mutually beneficial experience for the band as well as their fans.

And yet Fokofpolisiekar is just one of the myriad examples of how crowdfunding is a powerful tool for allowing many individuals to follow their dreams and academic aspirations.

In South Africa, education or the lack thereof remains a contentious issue and more than 50% of the country’s youth between the ages of 18 and 24 say they cannot afford tertiary education.

Leana de Beer, CEO of Feenix, a crowdfunding platform that helps South African students raise funds towards their education, said government financial aid is available to students from households with combined incomes below R350,000, but many students from middle-income households, called the ‘missing middle’, do not qualify for this type of aid and fall through the cracks.

“Feenix was born out of the #FeesMustFall movement and the need for individuals and the corporate sector to get involved in making education accessible. And today, we can look back on R35 million that has been crowdfunded for more than 1,000 students,” said De Beer.

De Beer further reckons that crowdfunding is also about more than just money.

In an increasingly alienating modern world, crowdfunding is essential to recovering the deteriorating spirit of community and is, in some way, a clear and demonstrable expression of ubuntu in South Africa.

“Crowdfunding is basically in our DNA as a nation; you can see this in the traditional practices, such as stokvels and burial societies, that have been around for over a century.

“Understanding this link, we see that people are becoming more and more comfortable with the principle behind crowdfunding in the digital space.

If you look at news reports, you will see examples of organisations such as ourselves and Back-A-Buddy, both examples of what can be done to improve lives through the power of crowdfunding,” De Beer told The Citizen.

Speaking under condition of anonymity due to his affiliation with a major local financial institution, one member of the general public says if you use a reliable platform and find an offer you see value in, crowdfunding is a decent way for someone who wants to invest in start-ups but does not have the finances to fund one alone to get exposure as an angel investor.

“It also allows for those who cannot secure financing in traditional ways, in the form of bank loans or equity investments due to bad credit history or the business not meeting the requirements for the loan/investment.”

However, where money is concerned, there will always be those trying to illegally access that cashflow.

From tenders to BEE misappropriation and the African “prince” who needs your help accessing his family inheritance in Nigeria, it does not hurt to be cautious when asked to part with your hard-earned cash.

“My advice is to do proper research, so that you are 100% comfortable with the screening and verification measures that are in place. You need to be perfectly satisfied that any money you donate will be used in the intended manner,” advises De Beer.

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