The Babandu website. This is a crowd funding platform that allows African startups and social enterprises to raise capital from their networks and bring their ideas to life. PHOTO | SALATON NJAU | NATION MEDIA GROUP
What you need to know:
Partnership
Startup accelerator programme Nailabis running Babandu, a web-based crowdfunding.
Nailab partnered with Dutch-based venture 1%Club to enable the firms increase their access to finance.
For the last six months, startup accelerator programme Nailab has been running Babandu, a web-based crowdfunding platform, with much success. The online platform, a first of its kind in Africa, allows startups and social enterprises to raise capital by mobilising their networks.
To set up the site, Nailab partnered with Dutch-based venture 1%Club to enable the firms increase their access to finance. In an interview with Business Daily, Nailab chief executive Sam Gichuru said Babandu which in the Luhya language means people, was initiated after the incubators saw the hardships that many entrepreneurs were facing in finding avenues to raise money for their startups.
“Most common ways for startups to get additional funding is through venture capitalists but the downturn is that they lose some of their equity but crowdfunding helps to secure capital without losing equity as opposed to obtaining money through venture capitalists. We are trying to improve the current system to enable more startups enlist and have access to crowd funding,” he said
Eight startups have joined the platform since its inception, with a total of Sh650,000 being raised as their capital. Two startups have successfully raised the targetted amount through the site.
Mr Gichuru said besides being an easier means of raising funds, crowd funding was also one way of making startups accountable to the larger community and of ensuring they are responsible in the business decisions they make.
There are various types of crowd funding sites, though the most common ones allow one to identify a goal and raise money by publicising their cause across various networks.
Some crowdfunding sites are all or nothing, meaning that if an individual is seeking to raise Sh50,000 by the end of their 30-day campaign but only manage to collect half or three quarters of that amount, the money collected is returned to the project’s backers. Such sites require startups to ensure that they reach the target lest they lose the little they have collected.
1%Club, the site on which Babandu currently rides, is a platform through which startups can enlist and be able to raise money within their networks. The Dutch-based venture has set up Cheetah fund through which African startups can access financing for their businesses. Unlike other funds where startups are provided with 100 per cent financing, startups enlisted for the Cheetah fund have to meet some minimum conditions to qualify.
First, they have to create a goal for their campaign, highlighting the particular use for the capital required. Secondly they need to clearly state how much capital they are seeking , with the fund providing the balance if they manage to raise 30 per cent of the money through their own networks in 30 days.
“They must have an active social engagement to ensure that they reach their target in the shortest time possible which can easily be done with an appealing campaign that involves members of the public to back it up. The best way is to ensure that your campaign is clear, concise and shows the ultimate the goal,” he says.
According to Suzanne van Straaten of the 1% Club, crowdfunding is not only about raising capital but also about building a community around your business or concept.
“It is an ideal way of doing market research, because you can involve your network actively in your startup and are likely to get lots of feedback. Most investors see too much risk with startups but once you have run a successful crowdfunding campaign, you have a perfect ‘proof of concept’ with which to attract bigger investors in future,” she said.
Ms Straaten believes that it is the vibrant start-up culture in Africa and particularly in Kenya, South Africa, Nigeria that led to the setting up of the Cheetah fund to complement the strong drive for making a change and succeeding among entrepreneurs with access to capital grants.
Among the reasons some startups fail to realise their targets is poor planning.
“It is not just about going online, stating your cause and the funds automatically trickling in, you have to plan how you can maintain the momentum of the campaign until the target is achieved,” she says.
Her advice is simple: Even before startups begin thinking of the best pitch to write, they need to lay down a plan for the campaign— from the channels they will use to send out messages and reminders for people they are in constant interactions with to support them .
Mobile application M-Changa is also another way through which startups can raise funds conveniently through the use of mobile money. The application not only allows an individual to start campaigns but to also send out customized fund-raising messages to potential contributors via text.
The fact that payments can be made via credit card and PayPal means that contributors can be sourced from all over the world. It is also possible to have up to three “treasurers” who authorise the withdrawals of the money collected, making it a more accountable system.
California-based JumpStart Africa recently launched their crowd funding platform similar to Kickstarter but supporting projects from across the continent. The site allows users to not only create campaigns but also launch them at a time of their convenience.
