Crowdfunding Kenya

Q1: Suppose you are the entrepreneur of a business in an emerging market. What are the advantages, you believe, you may derive by considering crowdfunding to raise funds for your business? What can be the disadvantages of such crowdfunding?

Q2: Is crowdfunding very much unique? How it differentiates from the traditional ways of sourcing funds?

Q3: What factors, you think, are critical to the successes of a crowdfunding program?

Introduction

Crowdfunding is a technique of raising the fund which is based on the capability to make money from people or entities with the view to convert the promising thoughts into an actual business (Christopher Charlesworth, 2015). It allows floating a small amount of capital from individuals for small businesses, having limited options for financing. It is the new concept of raising the fund, which is based on the method of the internet. This method is attractive for the entrepreneurs as it allows to raise the fund only for small businesses having limited options of financing. However, it serves as a means of marketability testing. Investors can contribute to the designs or concepts in which that believe in, even the small amount. In addition, Government value this method as it has a positive impact on the economy, such as job creation, fostering the recovery of the economy and also innovation (Christopher Charlesworth, 2015). In emerging markets, there may be capital constraints that can be overcome by crowdfunding internationally. There are various types of crowdfunding, namely; Donation-based, reward-based, debt-based and equity-based (DK Eiteman, 2016). However, the regulatory norms for equity-based crowdfunding in several countries are very strict. For example, in Denmark, equity-based crowdfunding is not possible for Danish-based businesses. The way around it is to open a pro forma address in the country of origin of a foreign crowdfunding platform. As a result, UK equity platforms have started operations in Denmark (Crowdfunding Hub, 2016). The concept of crowdfunding is currently growing significantly. However, its growth shall be probably puffed up once the projected changes in regulations are made. Because of the innovation of this approach, various fears and problems arise, that may result in an underestimation of the concept and perhaps unexploited opportunities. Kenya is one of the emerging markets; wherein there are many business start-ups, that resort to crowdfunding application in order to gain access to the capital. This report will further discuss the advantages and disadvantages, crowdfunding in comparison to traditional funding and critical success factors of crowdfunding in the light of crowdfunding Kenya. These points will be discussed in the report considering the case of Kenya, the African country, which has recently encouraged the crowdfunding method of fundraising in order to gain access to the capital for business development.

Advantages and Disadvantages of Crowdfunding

Advantages: 

Few of the advantages of crowdfunding are discussed below (Loreta Valanciene, 2013):

• In crowdfunding, the right to have control over the business is always in the business start-up's hand, and the investors have no right to enforce any decision on start-ups. On the other hand, control over the business decision is shared with the stakeholders in case of traditional funding. For instance, in business angels and venture capital, investors gain substantial control over the decisions of the company (Loreta Valanciene, 2013).
• Raising fund by platforms of crowdfunding is remarkably accessible. Platforms of crowdfunding solve the issue which is majorly faced by entrepreneurs as they flop in raising capital for venture for two main reasons. First is, most entrepreneurs fail to qualify in venture capital as they are unable to grow strong enough, and they do not have the capacity for a huge public offering. Another reason is, very fewer venture capitalists need money compared to many entrepreneurs who are in need of money. In addition, crowdfunding fills the capital gap between the requirement of money between small enterprises that have limited financing options. In the capital cycle, after the seed stage, firms need financing for operational activities, and it is during this stage crowdfunding fills the vacuum.  
• Businesses that have an online presence can gain access to investors with much ease. Also, crowdfunding provides the benefits entrepreneurs, who are not present online and who seek for raising capital by means of crowdfunding platforms, a chance for testing marketability. The entire device of crowdfunding is to attract the huge crowd, who may find an idea to be interesting, and also worth in investment, attention and time. If many people are certain of the business model or idea, it will be crowdfunded, and it is likely to succeed.
• Finally, crowdfunding also aids for communities by both global and local means. Further, crowdfunding will also act as a tool for individuals for investing in their own societies which will assist in creating sustainable health of the economy.