What is crowd funding?
This is a type of business financing whereby many people are given an option to put money into a cause, business or project.
Where else is crowd funding implemented?
The idea is mostly used in United States of America, kickstarter.com is the most prominent crowd funding platform. Unfortunately it is open to a few countries.
How much should I put in a crowd fund?
This is an independent decision but from a prudence perspective if you earn $200 per month then you will need a very good reason to be allowed to put in $2000 in a crowd fund. Ideally no more than 20% of your income should be allowed.
What type of crowd funding are there?
There is donation funding where the people put in money with no expectation of profit or payback for example Bernie Sanders’ campaign in United States. Then there is equity crowd funding where people buy a percentage in a project or business. This one represents a chance to be paid a dividend once the project or business turns profitable. The last is debt funding whereby money invested earns an interest which is paid back.
Which type of crowd funding is SIG considering?
SIG will consider a blend of equity and debt funding e.g. Eddie puts $20 in a project valued at $200, he will be paid back the $20 and own 10% of the project. When the project makes a profit Eddie is entitled to 10% of the distributable profit. If distributable profit is $1000 Eddie will get 10% of $1000 which is $100. One might wonder why Eddie is being paid more than he put in but it is important to appreciate Eddie took a risk therefore must be rewarded.
Is there a risk involved?
Like any investment there is risk involved for example a bank might close with your money locked in, a company in which you bought shares might go bankrupt or the company who are administering your retirement savings can invest in toxic assets like what happened with 2008 financial crisis. Crowd funding is also an investment.
How will SIG minimize risk?
To mitigate risk, SIG will vet people wishing to put in money, for example if you withdraw your retirement saving SIG will not accept it. Also SIG will only use crowd funding for projects requiring less capital (amount to be decided).
How will SIG ensure fairness?
To ensure fairness, SIG will engage the services of an independent attorney (lawyer) who will oversee the process to protect the rights of SIG and funders.
Will SIG consider funding bigger projects?
SIG is currently not considering this for own projects unless these projects involve a benefit which is implement with joint oversight of government for example (medical care & hospitals, schools, power generation).
Can I elect to have my profit share invested in other projects?
Yes SIG will give you an option to do this and new projects will give preference to previous funders before calling on new funders.
How will SIG ensure success of the projects?
Before we open a project to crowd funding we will do an assessment using tools such as Business Value Proposition to test the project. If we are not confident of the project, we will not request funding. We also look at the ratio of funding to profitability. If a project costs $2000 and can be sold to 500 customers at $2 per month then it has a chance of success than one costing $100,000 sold to 50,000 since it requires less customers to generate income. So due diligence will be done.
Will SIG not discriminate small investors in favour of big ones?
Like all investments, small investors are usually forced out by bigger ones especially once we have established ourselves as able to offer quality projects. SIG will give preference to 100 people bringing $10 than 1 person bringing $1000. We want to avoid the discrimination currently done by banks and investment houses.
What is the future outlook for SIG if it becomes big in this space?
Africa has a lot of wasted dollars because if you have $10 you are likely to squander than invest it, if you decide to invest the bank will give a small interest on a take it or leave it basis. As we become big prepare to see SIG change the African landscape. We will seek to list on the stock exchange and obviously anyone who participated in our projects will get an allocation of shares.
What motivated the idea of crowd funding?
I have friends and colleagues who are desperate to invest in something profitable, they end up investing in toxic schemes. I have 2 who invested in MMM and asked my thoughts before doing it, I told them my position regarding pyramid schemes. Despite my advice they put money out of desperation. There are many such people who want to do meaningful investment but feel the current financial system is inadequate.
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