In recent years, crowdfunding has surged in popularity as a viable alternative investment option in Nigeria. This dynamic platform provides entrepreneurs and investors with fresh avenues to secure funding and engage in groundbreaking projects. We will explore the dynamic landscape of crowdfunding investment and its potential benefits in Nigeria.
What is Crowdfunding?
Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, often strangers, typically via the Internet. It involves the use of small amounts of capital from a diverse group of individuals most of whom are not familiar with each other, to finance a new business venture.
Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists.
Crowdfunding contributors can include friends, family members, investment groups, personal investors, and those interested in the business venture. The goal is to attract as many potential investors as possible.
Key facts and highlights
- Crowdfunding, also known as "online financing," is defined as raising funds to finance a project or business from the public using an online platform.
- The concept has recently been promoted as a way of assisting small businesses and start-ups looking for investment capital to help get their business ventures off the ground.
- Crowdfunding is regulated by the Securities and Exchange Commission.
- Through crowdfunding, individuals can invest in entrepreneurial start-ups through an intermediary, such as a broker-dealer or a "funding portal." or intermediary.
Types of Crowdfunding
1. Reward-Based Crowdfunding: Rewards campaigns are a popular method of crowdfunding. You will seek funding by offering rewards as incentives to those who provide support. You can offer different rewards based on the amount backers contribute.
A very good example of reward-based crowdfunding in Nigeria is the "Farmcrowdy" platform. Farmcrowdy is an agri-tech company that connects farmers with investors through its crowdfunding platform. Investors can fund agricultural projects such as poultry farming, crop cultivation, and fish farming, and in return, they receive a share of the profits generated from the project. Additionally, investors may receive rewards such as fresh produce, farm visits, or exclusive updates on the progress of the farming activities. This model allows individuals to support agriculture in Nigeria while also earning potential returns on their investment and receiving tangible rewards.
2. Equity-Based Crowdfunding: Equity crowdfunding, also referred to as investment-based crowdfunding, offers contributors the opportunity to acquire a financial interest in the company they invest in. Through this model, backers receive a share of equity in your business. Unlike other forms of crowdfunding, equity-based backers have a vested interest in the success of your business, as their returns are directly tied to its performance.
One example of equity-based crowdfunding in Nigeria is the platform "Chaka". Chaka is a fintech company that provides access to global investment opportunities for Nigerian investors. Through Chaka's platform, individuals can invest in stocks, Exchange-Traded Funds (ETFs), and other financial instruments listed on international stock exchanges such as the New York Stock Exchange (NYSE) and the NASDAQ. Investors have the opportunity to purchase shares in companies such as Tesla, Amazon, and Apple, among others, and build a diversified investment portfolio. Chaka operates as an equity crowdfunding platform, allowing investors to acquire ownership stakes in companies listed on global stock markets.
3. Debt-Based Crowdfunding: Debt-based crowdfunding, or loan-based crowdfunding, is a form of crowdfunding whereby individuals lend money in exchange for the promise of repayment with interest. You will specify the timeframe within which you will pay back the money. Investors act as lenders, and the online crowdfunding platform facilitates the lending process. An example of debt-based crowdfunding is peer-to-peer lending where loose bands of individuals pool resources to lend to a business with an agreement for profit-sharing in the venture. This type of crowdfunding is often resorted to by small to medium-sized businesses that cannot afford traditional debt financing from banks.
A popular example of debt-based crowdfunding in Nigeria is the platform "FINT". FINT is a peer-to-peer lending platform that connects borrowers with investors seeking to earn returns by funding loans. Borrowers can apply for loans ranging from personal loans to business loans, and investors have the opportunity to fund these loans in exchange for interest payments. FINT facilitates the lending process, including credit assessment, loan disbursement, and repayment collection. This model allows individuals and businesses to access financing while providing investors with the opportunity to earn returns on their investment through interest payments.
4. Donation-Based Crowdfunding: Donation-based crowdfunding involves donations from a community of supporters. Donors do not expect financial returns, rewards, or repayment. Instead, they contribute from goodwill, empathy, or a desire to support a cause.
In 2022, notable Nollywood actors such as Patience Ozokwor and Mr Ibu, joined a political group called the 40 Million Ballots Movement to launch the "Fund40MB Donation Campaign". The campaign aimed to support Peter Obi, the presidential candidate of the Labour Party (LP), in his bid for the presidency of Nigeria. A fundraising account was created for the campaign to raise money worldwide for various support groups working to carry out rural sensitisation, door-to-door campaigns and other programmes to actualize Obi's Presidency.
Opportunities in Crowdfunding Investment
1. Access to Capital: Crowdfunding provides a platform for entrepreneurs to access capital from a diverse pool of investors, including individuals, institutions, and crowdfunding platforms. This democratization of capital allows startups and small businesses to bypass traditional financing channels and secure funding for their projects. In other words, it is an alternative finance option for startups and small businesses that have struggled to get bank loans or traditional funding. It can be a fast way to raise finance with no upfront fees
2. Market Validation: Crowdfunding campaigns serve as a means to validate market demand for new products or services. By gauging investor interest and securing financial support, entrepreneurs can validate their business ideas and gain valuable insights into consumer preferences before launching their ventures.
Presenting a specific project or business online is a crucial marketing strategy that can yield substantial benefits. It can secure media attention, provide valuable feedback and expert guidance, and enable entrepreneurs test the public's reaction to their ideas. If people show a keen interest in investing, it signals a strong probability that the idea will succeed in the market. Moreover, investors can oversee the progress and effectively promote the brand through their networks.
3. Community Engagement: Crowdfunding fosters community engagement and support, allowing entrepreneurs to build a loyal customer base and cultivate brand advocates. Investors who contribute to crowdfunding campaigns often become early adopters and ambassadors for the brand, helping to drive awareness and generate buzz around the product or service.
Conclusion
Crowdfunding investment has the potential to transform the
Nigerian entrepreneurial landscape by providing access to capital,
fostering innovation, and empowering individuals to participate in
the growth of emerging businesses and ventures. As the industry
continues to evolve, it is essential for entrepreneurs and
investors to stay informed about the latest developments and
opportunities in crowdfunding investment in Nigeria.
In summary, crowdfunding investment in Nigeria presents a promising
avenue for raising capital, supporting innovation, and driving
economic growth in the country. With the right support and
infrastructure in place, crowdfunding has the potential to unlock
new opportunities for entrepreneurs and investors alike.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
