According to a 2013 study commissioned by the World Bank, the global crowdfunding market could reach between $90 billion and $96 billion – roughly 1.8 times the size of the global venture capital industry – by the year 2025. The People’s Fund, a South African asset crowdfunding platform that began in July 2017, sees the potential for this to add value to local entrepreneurs.
“The objective of the business is to build a people-run economy,” says ‘Bootcamp General’ Luyanda Jafta. “People’s excess cashflow that would usually go onto the balance sheets of financial institutions instead goes to small businesses that grow and build the economy.”
Jafta started the company by partnering Paybook, his digital marketing agency, with Selebogo Molefe’s The Hookup Dinner (an entrepreneurial networking community with a presence in over a dozen countries) and Mzuzukile Soni’s BrownSense (a platform for black-owned businesses to find customers). He soon realised that their skill sets were a perfect match.
“South Africa is the stokvel capital of the world and simultaneously has high youth unemployment,” he says. “We felt that this excess capital could be used to help entrepreneurs who might not have access to digital audiences as well as capital but could start employing people given the opportunity. We also felt that average everyday South Africans want to play a meaningful role in the economy and get a return for it.”
Building the economy with excess money
The People’s Fund gives entrepreneurs a platform to crowdfund for assets they need in their businesses. These assets are bought and owned by everyday people that earn a royalty for usage of their asset by the entrepreneur, who essentially manages the asset on the crowd’s behalf.
“It’s hard for entrepreneurs to get funding for their businesses to keep going,” Jafta says. “We also think the primary people who run this economy – the middle class – deserve to be rewarded. They value the ability of getting a higher than normal return with the assets, the ability to directly build the economy with excess money, and the ability to choose what sort of businesses they would like to see more of.”
Even with only around a dozen people working on it and marketing done primarily through Facebook and Google, The People’s Fund has had around 300 contributors from across the country. It also raised over R250 000 in the first few months.
“We think this opportunity appeals to their desire to be part of a start-up without the need to leave their occupations and become an entrepreneur,” Jafta says. “That’s what we think the magic of our platform is: the ability for people to use their money to vote on what they would like to see in the world.”
Finding the appeal of each business
As a company that’s been bootstrapped from the beginning – it takes 10% of whatever is raised on the platform – The People’s Fund has yet to reach profitability. But it keeps expenses low, mostly by covering these from the three partner companies so that the platform can blossom unabated.
“One of the most common challenges is finding a model that works for any kind of business,” Jafta says. “In our earlier campaigns, we did crowdfunding the product-based way (where we would crowdfund and the audience would get a product at the end of the campaign). We found that our original model meant that people only contributed to campaigns that mattered to them. But with the asset crowdfunding model, people can find the appeal of each business. More importantly, they can look at the possibility of return.”
Another constant challenge is dealing with the reliability of entrepreneurs. At the time of writing, the platform only has two active campaigns (with another four in the pipeline) due to the fact that a large number of applicants can’t complete basic tasks such as delivering documents for evaluation. That’s why The People’s Fund uses a vetting period to determine reliability; it’s the only way it can know it has a solid entrepreneur who can handle problems when things (inevitably) go haywire.
“A good example is a campaign we have currently for Beehives for Native Nosi, a beekeeping company,” Jafta says. “You buy a beehive for R1 200 and the beehive is managed by Native Nosi, which extracts the honey and sells it. You as the beehive owner earn R36 per kilogram of honey sold.”
Another example is the campaign to own a Stimela Beer Tap. The brewing company, whose motto is “Passion, Legacy, Excellence”, was born out of a passion not only to reinvent simple and full-flavoured beer but to create a sense of community around the craft. It currently has six beer taps in and around Gauteng and is adding an additional ten, with the plan to start in Pretoria and Midrand before going nationwide long term.
“Each beer tap costs R37 000 in total and you purchase a portion of it for R1 000,” Jafta explains. “Each beer tap has four beer lines (dispensers). Three will be used for Stimela brands of beer and the fourth will be rented out to another craft beer. The 37 tap owners will earn R140 per keg sold from the tap. Put another way, each person earns R3.80 per keg of beer sold. You own the tap for four years and then it is passed onto Stimela Brewing Company after this period. Put another way, your earnings per keg acts as a buyback by Stimela Brewing Company.”
Including everyone in the process
Even though crowdfunding seems to be old news in the developed world, the fact that it’s just getting started in South Africa means these are “exciting times” for Jafta. But he believes that the winnings are only going to come from being able to include everyone in the process.
“As a digital company with predominantly black people in it, we are privileged enough to see both sides of the market and how white and Indian people (who are the strongest buying digital market) and black and coloured people (who prefer markets and experiential buying) interact with our platform and how to marry these two markets into a single platform,” he says. “We also feel the traditional methods of crowdfunding are unsustainable, as they rely on goodwill. This presents the opportunity for people to participate at the profit level of a company without the headache of the legal work of equity crowdfunding.”
Looking ahead, the plan is to partner with corporates to enable The People’s Fund to execute on its campaigns in a way that the single platform can’t. It’s about being the linchpin between the public/private investment and the general public in a way that benefits everyone concerned.
“We want to democratise the access to high-yield vehicles such as start-ups to everyday people, and also the economic means of production such as capital to start-ups,” Jafta says. “Our platform is headed toward being a data-rich resource on what industry people want to be part of and can help long-term infrastructure planning and investment.”
For more information: www.thepeople.co.za
“It’s hard for entrepreneurs to get funding for their businesses to keep going”
“...the winnings are only going to come from being able to include everyone in the process”