Crowdfunding: gateway to financial access

Lack of funding biggest hindrance to business ideas

KARACHI: If you carried out a survey in Pakistan, USA or in any country around the world today and asked what is the biggest hurdle in starting up a new business or in scaling up an existing one, the top answer across all geographies would be the same – access to financial capital.

Of course, in developing countries like Pakistan and India, the situation is dire. For new entrepreneurs or business owners struggling to expand their existing proven business model, no formal source of funding is available.

The traditional source, which includes loans for banks, is not much of an option, as they require credit history, collaterals or liens, which many of the young budding entrepreneurs cannot provide.

In addition, a complete host of opportunities, which exist and are flourishing in the developed world, also do not exist here; such as presence of angel funds, venture capitalists or a robust capital market.

However, in recent times, a transformation is under way, which can change the entire outlook as it relates to access to financing.

This new concept received a boost by the new digital age, where the world has become a single community. A world where with a press of a few buttons you can connect to a person sitting in the US, Brazil or a place as remote as Antarctica or Timbuktu.

Few decades ago, an entrepreneur’s first stop for funding was their family or the community in which he lived. This community has now grown from a few hundreds to nearly 3 to 4 billion strong, all thanks to the arrival of the ‘internet’; this concept is referred to Crowdfunding.

This type of financing ranges from funding a new business startup to financing design or promoting a novel invention or sustaining a social cause.



Crowdfunding, which is a little less than a decade old, has started to become quite a significant economic engine. Today it is estimated that there are +700 on-line Crowdfunding sites, which are funding a multitude of projects.

Globally it is estimated that in 2012 nearly $2.7 billion of funds were raised using this channel. It’s estimated that by 2015 this number could reach $15 billion.

Today anyone sitting in any country can raise funds using Crowdfunding, but how does one succeed with Crowdfunding? First thing to remember is that it is not for everyone.

Some rules of thumbs are that if you are launching a new business or an innovative product, its development must be in the late prototype phase. It should not be just an idea or an early stage prototype. One should be able to show the ‘crowd’ what they will be paying for. Then, the business idea or product should be about solving a problem or about coming up with a creative solution to an existing problem.

Additionally, the product or business should have a community focus benefit and a clear consumer facing. A team, which will take the project to culmination, should be in place, with proper qualification and clear potential for delivering.

As you will be approaching people who have never met you, you must be able to connect your project’s objective, with their deep passion that you can deliver on their expectations.

As Crowdfunding has evolved over time, it has taken many shapes. What you need to figure out is which type of Crowdfunding is right for your project. Their variety includes social donations, collecting donations for a social cause or for helping some major disaster victims. Then there are business donations, which act as angel investors, for example helping an entrepreneur get a foothold by giving funds with no expectations of returns.

There is the debt category which is micro-lending where the entrepreneur is expected to return the loan and interest. Another form would be rewards, giving reward and incentives to attract funding with various tangible and intangible rewards.

Finally, there is equity which involves funding with an expectation to own part of the equity of the product/project started.

In Pakistan there is a huge opportunity to evolve on this front. Until we evolve, the global Crowdfunding sites can help you pursue your passion and raise much needed funding. Remember that there is always someone out there. Where there is passion, there is always a way.

THE WRITER IS ASSOCIATED WITH THE CORPORATE SECTOR AND A SUPPORTER OF MANY SOCIAL ENTERPRISES AND FOUNDATIONS

Published in The Express Tribune, May 11^th,  2015.

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