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Crowdfunding platforms are growing really popular in Africa.
They are an active alternative source of finance in more developed countries for start up companies and creative artists.
But first, what is crowd funding?
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.
Basically, it enables interactions between two sets of people; those who have money, '
investors' and those who need the money '
businesses or individuals'
A platform is a digital business that depends on two or more core user actions.
Bringing it all together, crowd funding platforms are digital businesses that enable interaction between two parties; the investor and the business owner/creative individual
Models of crowdfunding
There are two main models of crowdfunding; donation-based funding and investment funding.
With donation-based funding, funders give towards a project in return for the product, perks or a gift. For instance, I might want to raise funds to create a drone and In return for your funding, I'll give you a sample drone or a thank you note. (I'm you won't want a thank you note.)
Investment funding is where businesses seek capital and offer shareholding to those who part with funds.
Kickstarter is the world's largest funding platform for creative projects. It is more focused on donation based funding. Crowdfunder is a top site for investment funding.
In Nigeria, investment funding platforms are more popular. We have platforms like Farmcrowdy and Thriveagric. I thought it was interesting that most platforms in Nigeria exist in the agriculture space. I guess there is a clear funding gap in that space anyway.
2 key factors to look out for before you invest in a platform
I get a lot of questions on what to look out for when investing in any of these platforms.
Two of the most fundamental characteristics to look for when investing in a crowdfunding platform are security and credibility.
Credibility
- Make sure to explore the platform’s team to see if there is a collection of substantial experience and expertise.
- Established. Stick with an established platform. Crowdfunding hasn’t been around for that long and it may be best to steer clear of platforms that are relatively new to the space.
- Track record. Look at their proven track record of deals and opportunities. Examine whether there is evidence of projects that have generated returns.
- Make sure the platform provides a transparent process. If the process is not clear, and fairly simple, it may be an indicator of additional disorganization.
- Accurate information. Legitimate real estate crowdfunding platforms should be able to provide expert, and up-do-date, information including data on current market trends to help you understand the market and your investment possibilities.
- Vetted opportunities. The platform you choose should be able to offer you detailed profiles on all of their available, pre-vetted, opportunities that include a breakdown of the risk factors and return profile.
- Customer service. While the crowdfunding industry is built on the foundation of the Internet, customer service in all forms should be timely and professional. Whether you prefer communication via phone, email or online chat, make sure your platform excels in all of these areas to assure that you have the support you need, when you need it.
- Diverse opportunities. Whether you are shopping for tangible items or real estate investment opportunities, it is good to check out the inventory first. Make sure your platform choice has a diverse amount of opportunities to choose from that fit your portfolio needs