Through Thundafund, Open Streets Cape Town received an investment of R40 720 from a crowd-funding community of 70 supporters. (Image © Lisa Burnell for Cape Town Partnership)
• Patrick Schofield
Co-founder, Thundafund
+27 72 3100 198
skype: ipatrick.ischofield
twitter: @PakSchofield
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A huge 70% of new businesses fail in their first year, says Patrick Schofield, co-founder of new South African crowd-funding platform Thundafund. But group funding can turn this alarming statistic on its head – by testing whether there is a market for a new idea before pouring cash into it.
Billed as “African rainmakers”, Thundafund is the country’s first official, online crowd-funding initiative. It is based in Cape Town and focuses on creative and innovative projects likely to bring social and economic benefits.
In the six months after it went live in June 2013, Thundafund raised over R425 000 for 20 projects. It aims to raise at least R1-million in 2014. “It is growing nicely,” Schofield says. The three-year goal, based on extensive global and local research, is to have 3 400 projects funded, R173-million raised and 10 000 jobs created.
On a single day at the end of November 2013, 21 projects were submitted for consideration. So far, almost 300 ideas have been pitched, 12% of which have “gone live” – are online and open to funding. In a different model from international crowd-funding sites, Thundafund does not simply let any project on to its books. All ideas submitted are carefully considered by a group of experts. Those making the grade are mentored, raising their chances of success.
“The international average for successful projects is 40%. Thundafund is sitting around 80%,” says Schofield. This is both good and bad: it shows the model can work, but it suggests the platform may be too cautious in taking on new projects.
Sustainable businesses
“The reason it is doing very well is because we are not just a crowd-funding platform,” Schofield says. “We’re a crowd-funding business support platform, which means we won’t put campaigns up there unless we think they’ve at least got a pretty good chance of success.”
The project is based on solid principles, one of which is to avoid charity. “We spent over a year researching crowd-funding and looking at what would work best in South Africa. We came to a number of decisions. One, that we did not want a charity platform, because I do not believe that charities build sustainable enterprise, which is what we need in South Africa.
“We also saw that crowd-funding had been incredibly successful in the United States and Europe, but those are very developed markets, and they are working from a much higher base of business skills and IT penetration. In South Africa, there are so many people and youth coming out of school, starting up ideas, but our education system has not actually prepared us to run enterprises. Coming up with ideas we are good at. Figuring out how to make them ideas that will work we’re not so good at.”
That’s where the mentorship business support comes in, which Thundafund calls micro-mentoring. It uses a “Three Steps Ahead” policy: entrepreneurs who started their own businesses three years ago, and who know exactly what it’s like to be in that starter phase, mentor and guide the new start-ups. “It’s the right advice at the right time given by the right people.”
New pitches are questioned about the strength of their network and social media presence, their value proposition, and what they offer in return for funding. “That is one of the main things we do at Thundafund, and it is very much part of our ethos: we’re not about donations. There is definitely space for donations, NGOs and charities in South Africa, but it is not our space.”
Schofield argues that a healthy society with a sustainable economy, able to fend for itself and compete globally, can only be built on a trade-based system. “I really do believe that right from the level of human dignity, that people respect each other a lot more when they trade rather than go the donation route.”
Schofield is almost evangelical about crowd-funding’s ability to build communities and bring rewards – rewards that include recognition and access. Invest in a good cause, such as building a school, and you’re investing in the future of the children. For that, the return is recognition for what you are doing, which is social standing in society, and that has huge value.
Taking the risk
Thundafund’s main focus is creativity and innovation. South Africa has plenty of both, but there are real barriers to mass growth potential. One is a lack of access to capital. South African investors are traditionally conservative, particularly in the technology sector.
“There are several reasons for that prudence, or inability to take risk by the venture capitalists,” says Schofield. “Most importantly is that they can’t get their money back. If you loan someone money, below R500 000, because of the legal processes it takes to get the cash back, you might as well give the damn stuff away. If they don’t give it back, to get it back through the legal routes is very expensive and almost not worth it. So it makes it very difficult for anyone to loan cash, which in turn makes it very difficult for people to borrow cash to start businesses.”
Another option is government funding, which is often grant funding – and grant funding is generally spent inefficiently. The government by necessity has to be extremely risk-averse because of the potential for accusations of corruption – and in fact, when there are large wads of cash there is a large scope for corruption. “On the other hand, governments are in a position to be, and are often remarkable risk takers – because they push money into a lot of things that are unproven.”
South Africa has a history of communities supporting people to start new ideas, such as the incredibly popular stokvels, which function as savings clubs, and investment clubs. “Crowd-funding is just the next level up. It works on the idea that if you come together, you can make something happen. Whether it’s through a theatre performance or a book or writing an iPhone app, you begin to see how people will invest in those as they see it working.”
Creativity is much more accessible than innovation in South Africa at present. A large number of people are creating the most beautiful artisanal products, from plates to jewellery to clothing. Technology is still relatively new. “A lot of what’s on Thundafund at the moment is much more in the creativity space, but we are actively engaging to ensure that innovation grows rapidly.”
The platform is building a relationship with the Cape Peninsular University of Technology, for example, and from this year it will be compulsory for industrial design students to do a crowd-funding campaign on Thundafund.
Reward
It’s a good practical training ground for the students. Crowd-funding acts like a sort of retail mall for ideas. As an investor, you buy ideas that haven’t been realised yet, but which you love. “In essence, you are pre-buying the product, for example a bicycle gadget or a theatre performance: if you love it, pre-buy your tickets; if you love it, buy a dinner with the director, come to dress rehearsal, or get invited to the after-party.”
There is always that reward. Firstly, it is for backers to recognise that they are not donating, and secondly, it allows the creators of the project to think in terms of a trade. For investing in Oranjezicht City Farm, for example, backers can Pimp Your Patch – they can name their row of vegetables, and even spend time at the city farm learning about gardening.
It’s a pretty contemporary idea: a return on investment being something less tangible than cash in your bank or a dividend paid out. “People pay huge amounts for recognition and standing within society, and for access, such as being a beta tester of a new app or tickets to the opening night of a new performance… That’s a value that is being recognised – and it’s a trade.”
Market research
The return is the crux, but so is the ability of crowd-funding to test an idea. “It’s not just about creating something that is an ego trip; it’s about saying that this product that we create actually has a market in the world. That’s where crowd-funding can be very exciting. You’re guiding people; you’ve got to show that there is a market for a product and that people want it.”
It’s an idea reiterated by Paul Dalton from Daddy’s Dragons, an incubator that works to increase the success rate of entrepreneurs. “Funding is a hot topic,” he said at the Thundafund landed launch on 28 November 2013, held in the stylish Cape Quarter in De Waterkant. “But you don’t need funding to start a business. More important is to go into the market place and get validation for your idea.”
Schofield adds that you have to let go of your ego and accept that either the market likes your product or it doesn’t – and he’s learned this lesson by making his own mistakes along the way.
The partners
The Thundafund partners include Schofield; Jamie Walker; Eban Welby-Solomon, who heads up Social Alpha, which invests in impact investment; and Lunda Wright, a “tech dude” from Ghana. In building the platform, they partnered with Buzzbnk in the United Kingdom, which provided the initial backend. It was an efficient way of doing business: rather than rebuilding the combustion engine, Thundafund built on top of existing technology, reforming it for local needs.
This route cut costs: “When we first thought of building Thundafund, we needed R6-million to get out the door. By the time we went live, we had used under a million. We used the principles of crowd-funding, and tested the idea on the market, before building on it.”
Thundafund is the only local crowd-funding entity in the creativity and innovation space. It is a small enterprise: there are four staff members in South Africa, and six in the British backing company. There are more people in Bulgaria, where the site build was done and the technical backend remains. In time, the technical development will be brought to South Africa.
Given Gain, which is based in Stellenbosch, is in the donation space. It is linked to an international organisation based in Switzerland, and provides non-profit organisations with secure online tools including online donation payment processing, CRM database, website, communication tools and fundraising tools.
The projects
Thundafunded projects include:
- Evolve Ybike, a 3-in-1 combination tricycle and balance bike, in which 65 supporters helped exceed the target of R30 000 to raise R49 070 – 165% crowd-funded project
- T2T Africa Expedition Team, in which 82 supporters raise R61 150, exceeding the target of R13 500 by 453%
- Mooibos Vertical Gardens, which achieved R18 773 raised off a R10 000 target, equalling 188% crowd-funded with 37 supporters
- Benguela, which raised R10 770 on a R9 000 target to finalise recording costs for their fifth album –120% crowd-funded by 44 supporters
- Oranjezicht City Farm, which raised R30 950, 310% more than its R10 000 target, to help realise the farm’s aim of a “veggielution”
- Open Streets Cape Town, which got investment of R40 720 from a crowd-funding community of 70 supporters
