Hitting-Up the internet – routes to securing funding – angel networks and crowdfunding

• Author: Matthew Jackson
• Comments: 2

Imagine this: you’ve got an awesome idea. It doesn’t matter if it’s a business idea or a creative idea; you’ve just got this idea. You’re pretty sure it’s the next big thing. It’s going to change the way we think, do business, approach challenges or view the world. There’s only one problem, you don’t have the cash to make it happen.

So, you do what anyone would, you approach the bank or some surly investors and you ask for a pretty big chunk of change to get your project off the ground. They’re not impressed. The concept is foreign and the idea seems risky. You’re asking for too much money for an idea which has never been tested.

You can’t guarantee your results, but your market research would suggest that you’re in with a pretty good shot. You’ve got the vision, the drive, the determination and the plan to make it happen; potential investors just don’t seem to get it. Oh well; you’re stuffed. Without the cash your big idea is destined for that big idea bin in the sky. That blows; you could have changed the world.

Enter crowdfunding and angel networks. Now you’re not asking anyone for a big chunk of change anymore; in fact, you’re asking for pocket change from hundreds of people. These people are technology savvy. They’ve witnessed the birth of great ideas from Facebook to the Vuvuzela and they know that occasionally it’s the long-shots which change the world.

Crowdfunding and angel networks are two models for raising funds which use the internet to tap into the pockets of hundreds, if not thousands, of people. It’s probably the finest example of democracy in action; investors get to place their vote of confidence in you with the most trusted ballot in existence - their chequebooks.

There’s a very big difference between an angel network fund and a crowdfund. A crowdfund appeals to the benevolence of a project or start-up’s supporters and contributors. Various rewards and incentives are used to draw investors in, but investors don’t really expect to get anything out of the project other than the successful execution of the project.

Angel network investors, on the other hand, aren’t getting involved with your projects for the altruistic good. They like money and would like to get their hands on some more of it. They’re willing to take a chance on your project in return for convertible debt or ownership equity.  They’re taking a serious risk on you. In return, they’re after high returns. Unlike your typical angel investors, who front a large portion of a given start-up’s capital, angel networks share the risk of investment by gathering small amounts of money from a large number of people and investing it into promising projects. In this way they manage to get their fingers in some promising pies and minimise their losses created by unsuccessful projects.

If you’re considering using an angel network or crowdfunding to finance your next big idea, there are a couple of things that you need to consider first. The first thing to take into account is whether or not the model will work for you. Angel networks are going to need an awesome idea backed by a solid business plan. With crowdfunds you’re going to have to be able to appeal to peoples’ better sides and get them to open up their wallets to support you, so your idea really needs to be appealing or have some sort of emotional hook to work.

The next thing you need to consider is what channel to use. Crowdfunding and angel networks have some serious legal requirements. You’re not going to be able to simply set one up yourself. Luckily there are platforms in existence which take care of the legal and financial stuff. All you’ve got to do is market your idea and your crowdfund and reach your target amount (most crowdfunds will return money to investors if the target amount for a project is not reached.)

At this point in time, there aren’t that many crowdfunding solutions available to South Africans, but we’ve gone through the options and have come up with some sites that South Africans should know about.

Our favourite system so far has to be our very own home-grown crowdfund. They’re not actually a crowdfund, they’re an angel network, but still, they’re actively looking for great South African tech start-up ideas. They’ve got a pretty serious selection process, but if you’re in the tech game and live in SA you should definitely have a look at these guys.

If you’re looking for a real crowdfund solution you should try looking at Ulule.com. They’re still in the beta stage of development, but their signup process has been expedited using Facebook connect and they’re willing to handle really creative endeavours. It looks like a goodie to me.

RocketHub follows a very similar model to Ulule.com and is a crowdfunding platform which is pretty diverse in its applications. Check it out by clicking on the image below.

Our list isn’t exactly what you’d call comprehensive, but it’s got sites which we think are suited to South Africans. If you’d like to know more about the intricacies of crowd funding check out this awesome post on Think Vitamin or have a look at web distortion’s list of crowdfunding sites.