The KCIC is watching crowdfunding closely to better understand how it can be utilized as an innovative financing tool that can solve the “last mile funding problem” faced by many local start-ups.
Crowdfunding combines the traditional practice of raising funds from friends, family and communities with the power of the Internet, mobile technologies, and social networks. It democratizes financing by putting the decision to fund new ventures in the hands of the communities and customers who would eventually benefit the most. In developing countries, the market is still in its infancy but the potential is significant. The latest World Bank/infoDev study Crowdfunding's Potential for the Developing World estimates that there are up to 344 million households in the developing world able to make small crowdfund investments in community businesses. All together these households will have the ability to invest up to US$96 billion a year by 2025.
To help Kenyan entrepreneurs tap this emerging market, the Kenya CIC partnered up with Crowdfund Capital Advisors (CCA) to conduct two days of hands-on training on the current status of crowdfunding in Kenya and the world. The seminar brought together a diverse group of local entrepreneurs, international experts, and local regulators to examine and discuss in detail the full range of topics related to the introduction of crowdfunding as a valuable alternative to more traditional ways of financing.
The audience of entrepreneurs who attended the training varied greatly in their familiarity with crowdfunding - a few had run unsuccessful campaigns in the past and other were true novices. As such, the seminar began with an overview of existing platforms and financing products offered, followed by an in-depth discussion on which platforms were best suited for the various businesses in the room.
“Should a consumer-facing charcoal briquettes company with 1,000 Facebook likes run a pre-sale IndieGogo campaign, or look for a Kenya-based platform?”
“Should a lighting company with a recent business plan competition win under its belt target Diaspora for charitable donations through a platform like Kiva?”
As the final training day wore on, the companies role-played various scenarios around strategic questions like these and more. The highest performing companies, as judged by a panel of CCA experts and KCIC staff, were selected to participate in a pitch competition in which 20 companies presented their innovative business concepts. Out of these 20 entrepreneurs, seven were selected to receive further support and mentorship to launch and run their own crowdfunding campaigns.
The finalists selected to participate in the program include:
- Skynotch Energy, a renewable energy company that promotes access to clean and affordable lighting technologies.
- Icoal Concept Ltd, a company involved in transforming waste from charcoal industry into affordable energy.
- Develatech, a local start-up developing a user-friendly and fuel-efficient cook stove that uses wood, charcoal, and/or briquettes.
- Wisdom Innovation, a company that produces energy efficient gasification stoves.
- Global Supplies, a company focused on the production of green biomass briquettes from agricultural waste.
- The Human Needs Project, an initiative developed to provide clean water in poor urban areas through an innovative business model involving local entrepreneurs.
- Wanda Organic Ltd, an innovative social enterprise specifically focused on soil health and sustainable agriculture.
For these companies, the hard work did not end with the competition. They are now working with CCA and Kenya CIC experts to design, launch and run their crowdfunding campaigns and raise the funds they need to start/scale up their projects. Ultimately, the money raised by these ventures will be only one output of the exercise. The data captured by the Kenya CIC on these seven winning companies and their campaigns - whether or not they turn out to be successful - will be a stepping stone to a better understanding of the challenges and opportunities of crowdfunding in the country.
The event itself was an effective way to test the first reactions of the local community of entrepreneurs towards this innovative technique. Overall, the seminar proved to be very effective in introducing the potential of crowdfunding. A survey conducted among the participants showed that after the training, almost all the entrepreneurs considered crowdfunding as a “good financing tool for their businesses.” This result is even more promising considering that the same survey highlighted how 94% of the participants began the seminar with a negative opinion on the local applicability of this technique.
In line with the strategic vision of the Kenya CIC, crowdfunding emerged as an innovative tool that can be critical to supporting startups and emerging entrepreneurs in the local clean-tech sector. “It was an eye-opening opportunity from all the traditional ways of raising capitals for start-ups and businesses,” said one of the participants commenting on his training experience. “It introduced me to a new way of raising funds, to a new approach that will help me achieve my goals.”