Startups in Kenya face a serious challenge when raising capital. Numerous independent studies done over time have vindicated this position.
The trouble is doubled if the entrepreneur involved happens to be a young chap, probably a university student or one who has just graduated. These types usually have no major assets to act as collateral for credit from financial institutions.
They have no proven financial track records to talk about and hence banks consider them highly risky clients. The money availed by government through the various special purpose funds is simply too little.
Probably their most available shoulders to lean on are the harsh mobile money lenders. The end result of this unpleasant web is either promising business ideas that are never brought to life or if they are, they quickly die due to inadequate and unreliable funding.
However, there is a mechanism that is not normally given enough talk time in startup funding conversations locally. It is not new; in fact its early analogue form could be one of the oldest ways of raising capital for a new business.
It is time local startups gave a serious thought to crowd funding as a means of raising capital. Crowd funding is in simple analogy a digital fundraiser. It involves raising small amounts of money from a large number of people, typically via the Internet.
It is common in developed economies such as those of China, USA and UK. According to Statista, the global crowd funding sector amounted to $6.9 billion in 2019 and is projected to grow in the foreseeable future.
The increased uptake of crypto currencies such as bitcoin is boosting the sector given their ease of transfer globally. A simple internet search will reveal many crowd funding platforms both local and foreign each with their own individual strengths and weaknesses.
Though its overarching purpose is that of raising startup capital, crowd funding also indirectly provides a business idea validation mechanism as it applies the Linus’s Law or wisdom of the crowd to filter out non-viable ideas.
The likelihood of conducting a successful crowd funding initiative in Kenya is supported by unique underlying circumstances.
The amazing ease of money transfer, fairly good internet penetration rate, high level of social media activity, generosity of Kenyans and our entrenched Harambee culture just to name but a few. The main challenge though is lack of supportive laws especially for equity crowd funding.
Startup entrepreneurs need to learn and develop the requisite set of skills that will see them conduct successful crowd funding campaigns. For today I leave you some tips.
Conduct research to enable you choose your crowd funding platform wisely, describe yourself and the proposed business idea in truth and detail and also be realistic in the amount requested.
Moreover, an endorsement from a prominent respected person in your industry, having a team instead of solo effort and providing frequent project updates will also increase your success probability.
Finally work hard at your campaign, have some fun along the way and above all be grateful to those who put down some money to support your idea.
Dr. Kevin Wachira, lecturer, South Eastern Kenya University.