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Ten months after launching, Johannesburg based crowdfunding platform The People’s Fund has made its first payout of R43 800 to 42 investors who earlier this year invested a total of R219 000 in a Bloemfontein based internet company, MySurfer.
The People’s Fund is an initiative of three companies — entrepreneurship networking organisation the Hookup Dinner, BrownSense which runs a monthly market in Midrand for black businesses and digital marketing company Payback.
Speaking to Ventureburn yesterday, platform’s co-founder Luyanda Jafta said it is the first of eight expected payments to MySurfer investors who invested in the campaign which ran from November last year to February.
MySurfer provides affordable internet to students and approached the platform after securing a contract from a student accommodation company in the same city. The internet company needed capital to buy and install the wireless access points in 175 buildings.
Jafta said his crowdfunding platform, which allows ordinary people to buy assets that entrepreneurs need in their business and retain ownership of these until they have been repaid, has since launching 10 months ago raised over R1.5-million for 11 black businesses through 12 campaigns.
Some of their campaigns include buying 360 hives for bee-keeping company Native Nosi, buying a vehicle refrigeration system for Pretoria based chopped vegetable delivery service ChefCuts — to launching a crowd-owned cinema chain, iStarring Cinemas.
The People’s Fund crowdfunding platform has raised over R1.5-million in 10 months for black businesses through 12 campaigns
About 1000 investors have taken part in the campaigns so far. The largest individual contribution from any one investor has been R50 000.
Jafta said most of the investors on the platform are aged between 25 and 35 years old. Initially about 60% were white, but he said the percentage of black investors has grown thanks to a stokvel run by BrownSense. Contributions from BrownSense now account for about 20% of all contributions.
Over 20% in returns for investors
Annualised, the return on the contribution the crowd puts in, is at 30% (around 22% once the fees the platform takes are discounted). “This represents at least two times what the best fixed deposit in the country offers,” said Jafta.
He said the platform typically levies a fee of 20% to 30% on the value of the initial asset, which is then paid back to investors in the form of a royalty, over the lifetime of the asset.
The platform’s owners generate a revenue by leverages a fee of 10% on each investor’s contribution for a campaign.
But not cheap for businesses
But these returns mean businesses will have to pay quite a hefty fee — perhaps double what they would have had to pay had they gone via a local bank, but about the same as another local online lending platform, RainFin — to get funding through the platform.
The platform’s focus is on black-owned businesses and Jafta said the platform will only bankroll businesses that are looking for asset finance and that are able to generate a year-on-year revenue of 20% to 30%.
It’s largely because of these two criteria that the platform has opted to run campaigns for just 12 of the about 150 applications it had received.
Jafta said a large number of applications so far have come from startups with no proven revenue that are looking for working capital to pay salaries rather than to finance the purchase of assets.
‘Even FSB struggled to place us’
Crowdfunding is not regulated in South Africa, but Jafta said the platform is not out of step with any local legislation.
The platform does not provide loans or take equity in the companies it helps investors fund, but rather allows investors to purchase and retain ownership of an asset until they have been repaid by the participating business or organisation.
Like this, there is no need for the platform to fall under any license, he said, adding that “even the FSB (Financial Services Board) struggled to place us”.
All investors need do, he said is to ensure that they get a certificate of ownership of the asset they are helping finance.
Yet to fund tenderers
Jafta said the platform’s primary goal for the year is to become a Section 12J company; which would allow any contribution made by the crowd to be tax deductible, he added.
“We also want to focus on industrial projects such as construction and agriculture. These offer great partnerships with government and the like to truly extract value and allow for broad ownership of the economy,” he said.
The platform’s current projects include JustLaundry, a laundry delivery service looking to buy some more machinery to service a greater audience. The laundry service has offered the crowd R5 per kilo of laundry completed in the next six years.
Jafta said the platform has not funded assets for any black contractors who win government tenders, but has sought to deal instead with black startups with fast moving consumer goods.
However, he added that the platform is in talks to partner with a government department to help mentor black businesses.
For now the platform, he said, is still trying to work out how it will finance businesses that service the government.
Featured image: The People’s Fund co-founder Luyanda Jafta (Supplied)