A report titled “Crowdfunding in Emerging Markets: Lessons from East African Startups”, that was commissioned by the World Bank, lists some six lessons that entrepreneurs need to know before crowdfunding for their projects. The report is especially useful since it gives practical examples of start-ups in East Africa crowd funded, providing lessons learnt in the process whether the initiatives were successful or not.
1. Crowdfunding is much more difficult than most entrepreneurs anticipate and is not for everyone.
Opportunity costs abound. Running a successful campaign requires significant human and financial resources. Entrepreneurs should research other crowdfunding campaigns in similar sector or geographic areas to understand what to expect and carefully consider how the opportunity costs of crowdfunding compares with other available sources of capital.
2. Business needs should dictate platform choice.
Entrepreneurs should realistically assess how much capital can be raised from crowdfunding platforms that serve their geographic areas. Debt and equity platforms that tend to enable larger amounts of funding are often not available in many emerging markets.
3. Payment systems impact platform choice.
Leading international crowdfunding platforms often set restrictions on who can launch campaigns and use
payment systems that bar contributions from developing world contributors. Local-based platforms are better
suited to engage the developing world, but have a much smaller pool of potential contributors.
4. Quality and quantity of contributor networks are key.
Entrepreneurs should spend a significant amount of time building a contact base that will contribute capital and promote the campaign. In addition, entrepreneurs who can “pre-raise” funds from their existing networks before a campaign goes live stand a better chance of meeting their fundraising goals.
5. Entrepreneurs should tap into complementary resources and organizations to increase their likelihood of success.
Business incubators and mentors can be essential sources of information and support for first-time crowdfunders. Matching funds have proven to be an effective tool to incentivize local contributors to channel their funds through online platforms.
6. Crowdfunding can have non-monetary benefits.
In addition to capital, crowdfunding helps businesses increase credibility and market awareness, which
sometimes resulted in partnerships, sales or investment. Entrepreneurs can also use feedback from contributors to
refine their products or business models.