Time is right for VCs, equity crowdfunding platforms to collaborate [Opinion]

Crowdfunding, a fairly new concept in South Africa has emerged as an epic tale, marking the start of a new era.

SA equity crowdfunding platform Uprise.Africa‘s third campaign, a regtech identity platform called Intergreatme recently shook the investment industry in South Africa (the campaign ended last week — Ed, see more here and here).

Within a few days of its launch, we had an overwhelming amount of market validation. The financial sector has witnessed the inevitable wave that is crowdfunding, which has led to a surge of excitement in related fields.

The question now is whether crowdfunding will replace venture capitalists by 2025?

Well, we think not. Crowdfunding is a new phenomenon in South Africa and while there is a lot of hype around it, it certainly does not mean that the venture capital model will become extinct.

Uprise.Africa’s Tabassum Qadir argues that the time is right for VCs, other funders to collaborate with crowdfunding sites

Rather, it speaks of the comradery that will mark the collaboration between the two. A collaboration that is yet to be explored in South Africa.

Why do we believe in this collaboration?

Globally, VCs are getting used to the idea of equity crowdfunding, and are even discovering the merits associated with it.

Firstly, VCs view these platforms as a data repository, which gives them real-time feedback about campaigns that gain popularity.

This comes in very handy for VCs since they get data points on early market validation, allowing them to use this data for their campaigns.

Crowdfunding and VCs can come together and close deals as:

1.Crowdfunding is an additional validation for VCs

If a company has gone through a crowdfunding round, it automatically implies that it has ironed out all the minor errors in its documentation and processes. It has also been internally and externally vetted and has had their fundamentals reviewed and put in order.

This means that they have already had one round of market traction, which is a symbol of the faith and confidence that the investors have in the company.

2.Crowdfunding can combine its strengths with VCs

The key to making a startup work in the 21st century is bringing together the strengths, guidance and mentorship of companies.

The ideal way for an entrepreneur to break into the economic market is to consider the combined value of the VCs and crowdfunding. This can help not only to stabilise the financial aspect of the business but also help build connections with the right people.

Each shareholder is a potential advocate and marketing agent for the business and even the smallest investor that can bring market traction is a huge asset.

Often, it is the smaller investors who rely on a profitable return, that talk up the business they invest in, bringing in followers, supporters and even clients.

3.Crowdfunding can create a snowball effect

This often happens in the startup world when a founder spends six months to a year meeting different investors, pitching their business and receiving feedback.

However, investors often respond by requesting a plethora of assurances be it insights on the revenue projections, or seeing more investors come on board, among other things.

Basically, it is very difficult to ensure that investors walk the final mile and it requires a gentle hand to have them commit to a startup. Equity crowdfunding can be that one gentle helping hand.

As is evident in many cases across the globe, Crowdfunding platforms are raising their own funds for co-investments, alongside VCs and private equity firms. A VC might decide to come in as an investor by committing a sum of capital to various companies using a crowdfunding platform.

By sharing the investment ticket, VCs and Crowdfunding platforms can utilise each other’s strengths.

Uprise Africa has issued a call for an interest in co-funding partners to provide finance and strategic guidance to small businesses (see this story). See this form.

Read more: Uprise Africa calls on funders to co-invest with crowdfunding platform

Tabassum Qadir is the CEO of Uprise.Africa, a South African equity crowdfunding platform.