Crowdfundings Potential in South Africa

Crowdfunding’s Potential in South Africa
Research Report
A research report submitted to The Graduate School of Business, University of Cape

Town, in partial fulfillment of the requirements for the degree of Master of Business
Administration 2013
Andrei Horga
Full Time 2013
Supervisor: Dr. Chipo Mlambo
ACKNOWLEDGEMENTS
First and foremost, thank you to my family – Sorina, Calin, Alina, Mariana, Nelu and
Duku for always being there for me. Thank you to my supervisor, Dr. Chipo Mlambo, for
the helpful suggestions on how to improve this report. Thank you to Patrick and Andrea,
your help was instrumental in creating this research report. Thank you to everyone I
interviewed – it was a pleasure. Thank you to all my classmates for the kindness and
support throughout this whole year; it’s been an unforgettable year. Special thanks to
Fabian, Vittoria, and Tommy for their logistical support these past few weeks. And last
but certainly not least, thank you to Madiba for everything you’ve given to this world - I
dedicate this report in your memory.
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ABSTRACT
South Africa has one of the highest unemployment rates in the world. Small and Medium
Enterprise (SME) support from government and traditional investors has failed to create
suitable levels of employment for the country. A qualitative, inductive investigation into
the potential online crowdfunding has for creating successful businesses and employment
was conducted over the period of one month in a current South African context. Barriers
to use, government’s role in crowdfunding, and the reason for Crowdfunding’s past
failures in South Africa were investigated. Nineteen semi-structured interviews were
conducted with actors in the crowdfunding world, of which twelve were with local Cape
Town projects using online crowdfunding for the first time, via a local crowdfunding
platform. Participants described various motivations on why they used crowdfunding,
barriers to using it successfully, successful campaigns, and opinions on what role the
government should have in crowdfunding. A majority of participants stated that the
mentorship provided to them through the partnering crowdfunding platform was key to
running a successful crowdfunding campaign. A majority stated government should have
an active role in crowdfunding, via promoting and investing in it. Various motivations for
using crowdfunding were given, with financial need and marketing being the top choices.
Locally crowdfunded businesses and projects were found to increase local employment
opportunities, and create new positions. Government partnership with local crowdfunding
platforms, and match funding, seems to be a likely probability in the future after the
success shown by these projects.
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DECLARATION
1) I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend
that it is one’s own.
2) I have used the American Psychological Association (APA) convention for

citation and referencing. Each contribution to, and quotation in, this research
report from the works of other people has been attributed, and has been cited and
referenced.
3) This research report is my own work.
4) I have not allowed, and will not allow, anyone to copy my work with the intention
of passing it off as his or her own work.
5) I acknowledge that copying someone else’s assignment or essay, or part of it, is

wrong, and declare that this is my own work.
Signed:
Name: Dan Andrei Horga
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TABLE OF CONTENTS
Acknowledgements ............................................................................................................. II
Abstract ............................................................................................................................. III
Table of Contents ................................................................................................................ 1
Table of Figures .................................................................................................................. 3
Table of Tables ................................................................................................................... 5
SECTION 1: Introduction ................................................................................................ 6
1.1 Research Area ........................................................................................................ 6
1.2 Purpose and Significance ....................................................................................... 9
1.3 Research Question and Scope .............................................................................. 11
1.4 Limitations of the Study....................................................................................... 12
1.6 Assumptions......................................................................................................... 12
1.7 Research Ethics ................................................................................................... 13
SECTION 2: Literature Review....................................................................................... 14
2.1 Introduction ......................................................................................................... 14
2.2 Background Discussion ..................................................................................... 14
2.2.1 Crowdsourcing’s Beginnings ........................................................................ 14
2.2.3 How Will Changes in the Law Enable an Equity Crowdfunding Model to
Operate? ........................................................................................................................ 21
2.2.4 Economic Situation in South Africa and Crowdfunding’s Potential in Improving
It. ................................................................................................................................... 25
2.3 Conclusion .......................................................................................................... 31
SECTION 3: Research Methodology .............................................................................. 33
3.1 Research Approach & Strategy ........................................................................... 33
3.2 Research Design, Data Collection Methods, and Research Instruments ............ 35
3.3 Population and Sampling .................................................................................... 37
3.4 Data Analysis ...................................................................................................... 38
SECTION 4: Research findings, analysis and discussion ............................................... 40
4.1 Research Findings, Analysis, & Discussion ........................................................... 40
4.1.1 Interview Groupings ........................................................................................ 40
1
4.2 Themes .................................................................................................................... 48
4.2.1 Barriers and Accessibility ................................................................................ 48
4.2.1.1 Alternative Financing................................................................................ 51
4.2.1.3 Concerns ....................................................................................................... 58
4.2.2 Government...................................................................................................... 63
4.2.3 Planning and Support ....................................................................................... 69
4.2.3.1 Crowdfunding Success in South Africa and Mentorship.......................... 72
4.2.4 Social Networks ............................................................................................... 77
4.2.4.1 Activating the Crowd ................................................................................ 78
4.2.4.2 Linking Communities ............................................................................... 79
4.2.4.3 Community ............................................................................................... 81
4.2.5 The Why and the How of Crowdfunding ........................................................ 83
4.2.5.1 Marketing .................................................................................................. 84
4.2.5.2 Financial Need .......................................................................................... 85
4.2.5.3 Validation.................................................................................................. 86
4.2.5.4 Traditional Crowdfunding ........................................................................ 89
4.3 Research Criteria Evaluation .................................................................................. 91
4.3.1 Credibility ........................................................................................................ 91
4.3.2 Transferability .................................................................................................. 91
4.3.3 Dependability ................................................................................................... 92
4.3.4 Confirmability .................................................................................................. 92
4.4 Research Limitations .............................................................................................. 93
SECTION 5: Research Conclusions ................................................................................. 95
SECTION 6: Future Research Directions ....................................................................... 101
References ....................................................................................................................... 102
Appendix 1: Six interview questions for entrepreneurs .................................................. 105
Appendix 2: table of codes and how they relate to themes............................................. 106
Appendix 3: Transcribed interviews ..................................Error! Bookmark not defined.
Appendix 4: Complete Research Findings ..................................................................... 111
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TABLE OF FIGURES
Figure 1: Crowdfunding Platform Growth 2007-2012 ....................................................... 8
Figure 2: Total Capital Raised in Thousands on Kickstarter by successful projects, 2009-
2012........................................................................................................................... 17
Figure 3: Types of Crowdfunding Ventures ..................................................................... 18
Figure 4: The different Models of Crowdfunding Presently Available.. .......................... 20
Figure 5: Number of Private Equity Crowdfunding (PEC) Platforms in Existence. ........ 21
Figure 6: Employment Versus Business Size in South Africa ......................................... 26
Figure 7 :Total Early Stage Entrepreneurial Activity, 2010 ............................................. 27
Figure 8: Market Potential for Crowdfunding Across the Regions .................................. 29
Figure 9: Four Elements of a Crowdfunding Investing Ecosystem. ................................. 30
Figure 10: Codes Comprising Barriers and Accessibility Theme. ................................... 48
Figure 11: Breakdown of Alternative Financing Subtheme Into Codes. .......................... 51
Figure 12: Was Alternative Financings Sought Out Before Turning to Crowdfunding? . 52
Figure 13: Barriers Sub-theme Broken Down into Corresponding Codes ....................... 53
Figure 14: A Breakdown of How Many Times Each Barrier was Mentioned Through All
Interviews.................................................................................................................. 54
Figure 15: Concerns Sub-theme Broken Down into Codes .............................................. 58
Figure 16: Concerns Cited, Grouped by the Number of Interviewees that Listed a
Concern When Speaking About Crowdfunding ....................................................... 59
Figure 17: Are People Concerned When Paying Online? Results Listed by Number of
Interviewees that Stated Each Answer ...................................................................... 60
Figure 18: Government Theme and Its Subthemes and Codes ......................................... 63
Figure 19: Government’s Role in Crowdfunding Subtheme, Broken Down by the Number
of Interviewees that Listed Each Role ...................................................................... 64
Figure 20: Planning and Support Theme Broken Down into Sub-themes and Codes. ..... 69
Figure 21: FundFind Success Rate Out of 23 Total Projects. ........................................... 73
Figure 22: StartMe’s Success Rate, 46 Total Projects ...................................................... 73
Figure 23: PlatformName’s Success Rate, 27 total projects. ............................................ 74
Figure 24: Social Networks Theme Broken Down into Sub-themes and Codes .............. 77
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Figure 25: The Why & How of Crowdfunding Theme Broken Down into Sub-themes and
Codes......................................................................................................................... 83
Figure 26: Reasons for Crowdfunding, and Number of Interviewees that Chose Each. .. 84
Figure 27: Do You Believe Crowdfunding Will Lead to Further Investment Interest in
Your Business? Results Broken Down by Number of Interviewees. ....................... 88
Figure 28: Reasons For Crowdfunding, and Number of Interviewees That Chose Each. 97
Figure 29: A Breakdown of How Many Times Each Barrier was Mentioned Through all
Interviews.................................................................................................................. 98
Figure 30: Government’s Role in Crowdfunding Sub-theme, Broken Down by the
Number of Interviewees that Listed Each Role. ....................................................... 99
4
TABLE OF TABLES
Table 1: Anonymous interview subjects and their background. Original. ....................... 40
Table 2: Interview length. location, and format. Original. ............................................... 43
Table 3: Coding of Themes. Original ............................................................................... 46
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SECTION 1: INTRODUCTION
1.1 Research Area
Micro, Small and Medium Enterprises (MSMEs) account for over 90% of enterprises in
the whole world, and are a critical source of output and employment. They employee
33% of formal sector workers in low-income countries, and 62% of formal workers in
high-income countries. Further more, many developing countries have large informal
economies, and the real number of employees working at MSME’s is significantly higher
in these emerging markets (Vandenberg, 2009).
Traditionally, early startup businesses only had access to limited sources of seed funds to
start and expand their businesses with. These were usually personal savings, equity home
loans, credit cards, friends and family members, angel investors, and venture capitalists (
(Agrawal, Catalini, & Goldfarb, 2013). Entrepreneurs in emerging markets face further
challenges such as the inability to obtain bank loans due to no formal banking history or
lack of collateral (Demirguc-Kunt and Peria, 2008). However, with the creation of
Sellaband in 2006, a new method of raising seed capital was created – crowdfunding.
Crowdfunding is defined as “an open call, essentially through the Internet, for the
provision of financial resources either in form of donations (without rewards) or in ex-
change for some form of reward and/or voting rights in order to support initiatives for
specific purposes" (Lambert & Schwienbacher, 2010).
It comes out of the historically older crowdsourcing movement, which itself is defined as
“the act of taking a job traditionally performed by a designated agent (usually an
employee) and outsourcing it to an undefined, generally large group of people in the form
of an open call” (Howe, 2008). The generally accepted varieties of crowdsourcing are:
crowdfunding, crowd voting, crowdlending, microwork, creative crowdsourcing, wisdom
of the crowd, and inducement prize contests (Howe, 2008).
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Crowdsourcing is not a new concept – for instance the Statue of Liberty was
crowdsourced in the 1884 by over 100,000 American citizens. Only $150,000 (all values
are USD) dollars were allocated for building the pedestal when the statue was supposed
to arrive. Joseph Pulitzer, through his newspaper, asked for small donations from the
American public to help come up with the funds. Over 100,000 Americans donated on
average less than a dollar (Hemer, 2011). The Oxford English Dictionary is another
example – it’s first edition was completed by asking the English public to help identify
all the English words in usage, and to come up with a definition and example (Lanxon,
2011). A modern equivalent is Wikipedia, where members of the public work together to
create encyclopedic articles on a broad range of topics.
Already today, crowdfunding is an acceptable source of start-up funding. Kickstarter, a

crowdfunding platform, has supplied 664 million dollars from global funders to over
48,000 successful projects (Kickstarter, 2013). Over 60% of donors are more than 5000
km away from the project they fund – there is no requirement that the funder be a citizen
of the country the business is based in (Agrawal, Catalini, & Goldfarb, 2011). The
increase in these crowdfunding sites is startling; from 2006 to 2012 there has been a
557% growth, from a handful of crowdfunding platforms more than 800 sites now
operating – the figure below illustrates this (Freitas & Amado, 2013). Worldwide, $2.7
billion dollars was raised through crowdfunding in 2012, an 81% increase year on year.
Out of this, $1.6 Billion was raised in North America. This year, $5.1 billion is expected
to be raised, with no signs of a slowdown (Drake, 2012).
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Figure 1: Crowdfunding Platform Growth 2007-2012. Reprinted from “Crowdfunding in urban planning :
Opportunities and Obstacles” by Freitas, C. De, & Amado, J , 2013.
Sites such as Kickstarter and IndieGoGo work on a donation model. That is to say, the
funders (or public) pledge small amounts of money to the creator (or company) in return
for a gift, which in many cases is the actual finished product – when it is complete. These
sites work on different models – the most popular take an all or nothing approach,
meaning that if the creator fails to reach his monetary funding goal, he or she gets
nothing. Other sites will dispense whatever amount of money is pledged to the creator,
even if it is below the target.
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1.2 Purpose and Significance
This is an exploratory research report that attempts to understand why crowdfunding

platforms in South Africa have failed, and how to overcome these failures, in the hopes
of creating a best practice guide on how to successfully crowdfund in South Africa and
similar emerging markets. This will be done by using semi-structured interviews with
locally successfully crowdfunded projects in Cape Town, and those that are just starting
out, to gain an insight on what makes them successful. Crowdfunding platforms
themselves will be interviewed, as will the federal South African government, in hopes of
gaining insight on how to create a better regulatory framework for crowdfunding in this
country.
Local start up companies can be interviewed on their awareness of alternative startup

capital, and their opinion on using crowdfunding for this purpose. In the USA alone, 600
out of 600,000 small businesses funded every year receive venture capital, and about
17,000 receive angel capital (AngelBlog, 2012). Only one out of 100 businesses pitched
to VCs gets funded, and around 1 in 72 businesses pitched to Angels get funded (Payne,
2013). Contrast this with the odds of getting funded on Kickstarter – 48,103 projects were
funded out of a total of 112,944 advertised – a whopping 42.6% success rate (Kickstarter,
2013).
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The public is greatly affected by whatever happens with crowdfunding. The potential for
crowdfunding in emerging markets is massive – the world bank estimates that there are
344 million potential households in emerging markets capable of making small
crowdfund investments, with the ability to deploy up to $96 Billion USD by 2025 in
these investments, 1.8 times the global amount of annual venture capital invested.
Employment growth potential is very large as well. If we look at the USA, Angel
investors contributed 22.9 billion dollars to 67,030 entrepreneurial ventures in 2012,
creating 274,800 jobs (Sohl, 2012). Venture Capital firms contributed 28.3 billion dollars
to 3,267 ventures in 2012 (Agrawal, Catalini, & Goldfarb, 2013). Overall venture-backed
companies account for 11.87 million jobs and 3.1 trillion dollars in revenue, which makes
up 11% of private sector jobs and 21% of US GDP respectively (“Frequently Asked
Questions About Venture Capital,” 2013).
The knock on effects of employment and GDP growth would be spectacular if

crowdfunding takes off with the public, as we have seen. But will the public invest? Are
they concerned they will be defrauded? Why have so many crowdfunding platforms
failed in South Africa? How can the government support crowdfunding? What are the
best practices for a crowdfunding project seeking funds in an emerging market? These
are the issues this report will look into.
There is no academic literature on crowdfunding in emerging markets, as this is such a

new area. This piece is significant because it seeks to answer the above questions and to
give a practical example of what works and what doesn’t in emerging market
crowdfunding.
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1.3 Research Question and Scope
One main research question has been created after analyzing the literature review.
Main Question:
What is the potential of crowdfunding in South Africa for creating employment?
Sub Question 1:
- Why have so many crowdfunding platforms failed in South Africa?
Sub Question 2:
- What are the barriers to running a successful crowdfunding campaign in
South Africa, and how can they be overcome?
Sub Question 3:
- What role should the government play in enabling crowdfunding in South
Africa?
The sub questions link into the main question, as the researcher attempts to seek out what
the “best practices” are for succeeding in a crowdfunding campaign, and what role
government should play in helping out these entrepreneurs.
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1.4 Limitations of the Study
This study will rely on vocal interviews being conducted. The sample size and
demographics of interviewees will be a limiting factor. Only local Cape Town based
crowdfunding projects will be interviewed – there are not many out there, and what
works for them with respect to crowdfunding may not hold true for other emerging
markets. Data gained may be extrapolated to the rest of the world, but this is not the main
focus.
As this is a small-scale qualitative study, it is possible that the findings and outcomes of
the research will not be general enough to apply to other countries. The researcher is
focusing on interviews from businesses in Cape Town. We cannot assume that these
opinions will transfer to Africa, Asia, or other locations not covered.
1.6 Assumptions
The researcher assumes that interviewees will answer questions honestly and in an
unbiased fashion. It is also assumed that interviewees will understand the questions being
asked. If these assumptions are not met, the internal validity of the data gathered will be
questionable, and any conclusions resulting from this data will not be valid. The
researcher does not foresee any problems with interviewees answering questions
untruthfully.
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1.7 Research Ethics
Participants will be informed to the purpose of this study, that their participation is
voluntary, and that their personal details will be kept confidential at all times. Participants
will be notified that their answers to interview questions will be transcribed and coded,
and that their names will be made anonymous. If participants wish to see the transcribed
and coded interviews, they will be provided to them at such time as it is available.
Participants will be notified that they are free to leave the study at any time. Participants
will also be able to review the final draft of this research report if they choose to do so,
and will be given a copy of the final report if they request one.
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SECTION 2: LITERATURE REVIEW
2.1 Introduction
This literature review will focus on a few concepts. Firstly, what is crowdsourcing and
how did it historically begin and evolve into crowdfunding? Secondly, how does
crowdfunding in its current form work, and how is it different from traditional investment
models? Thirdly, How will changes government regulation allow an equity crowdfunding
model to operate, and what are the implications of this to South Africa? Lastly, what are
South Africa’s current economic problems and what is crowdfunding’s potential in
solving those problems in South Africa?
2.2 Background Discussion
2.2.1 Crowdsourcing’s Beginnings
Crowdsourcing is a portmanteau of ‘outsourcing the crowd’ – Jeff Howe coined the word
in 2007. It is traditionally defined as “the act of taking a job traditionally performed by a
designated agent (usually an employee) and outsourcing it to an undefined, generally
large group of people in the form of an open call” (Howe, 2008). Despite this term being
traditionally linked with the Internet age, Howe (2008) states “trend is appearing now not
because the Internet made crowdsourcing possible, but because it made it more
effective”. Albors et al. (2008) agree, stating “thanks to the possibilities of Web 2.0,
organizations can interact with other parties more effectively facilitating online
collaboration and sharing among users.”
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Kleeman et al. (2008) argue that the presence of Web 2.0 is a prerequisite for
crowdsourcing. However, looking back into history we see that crowdsourcing was used
long before the Internet era. The Oxford English Dictionary, for example, was
crowdsourced. An open call was made to the whole English speaking population of the
world, asking them to identify all words in the English language, describe these terms,
along with an example, and mail them to Oxford where they could be put together into a
dictionary (Lanxon, 2011). With the help of the Internet, the crowdsourcing model spread
and evolved. New crowdsourcing methods have been created, such as crowdvoting,
microwork, macrowork, wisdom of the crowd, creative crowdsourcing, inducement prize
contests, implicit crowdsourcing, and of course crowdfunding (Howe, 2008).
Crowdvoting involves the crowd voting on what they’d like to see done – an example is
threadless.com, where users create t-shirt designs, which are voted on by other users,
with the most popular ones are printed and sold (Howe, 2008).
Microwork involves the crowd doing small, simple, tasks that computers cannot, in return
for a small amount of money. Amazon’s Mechanical Turk is a perfect example – it offers
miniscule amounts of money for tasks computers are unable to perform – such as
searching for a missing yacht in satellite photos, for example (Howe, 2008).
Macrowork requires the crowd to fill in skilled positions for a certain amount of time. E-
lance is an example, where users can bid on specific programming jobs that require a
certain amount of time and skill to complete. Anyone can post a task on eLance. Creative
crowdsourcing is similar, but it focuses more on creative domains such as graphic design,
architecture, art, music, and film (Howe, 2008).
Wisdom of the crowd, or “collective intelligence”, is based on the idea that a group of
people is more knowledgeable than an individual. Wikipedia is an example – anyone can
edit any page, but by having the collective intelligence of the crowd, articles can be
created by the crowd that are much richer in detail and accuracy than any one individual
could create (Howe, 2008).
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Surowiecki's work "Wisdom of the Crowd" (2004) popularized the notion that the
Internet community could help problem solve and make decisions. Travis (2008) furthers
this notion, saying these principals could be used in research and development.
Inducement prize contests are web-based idea competitions. An example is InnoCentive,
a platform where unsolved corporate science problems are posted. Anyone is free to work
on the solution, and the first person to successfully solve the problem is paid from
$10,000 to 1$ million, depending on the job.
Implicit crowdsourcing is a form of crowdsourcing where users don’t realize they are
contributing to a goal. For example, Google will data-mine a user’s search history to find
keywords for ads.
Lastly, Crowdfunding is the process of funding a project via the small contributions of
many people. It’s defined as “an open call, essentially through the Internet, for the
provision of financial resources either in form of donations (without rewards) or in ex-
change for some form of reward and/or voting rights in order to support initiatives for
specific purposes" (Lambert & Schwienbacher, 2010).
As we can see, crowdsourcing means different things to different people. Estellés-arolas

& González-ladrón-de-guevara (2012) have come up with an integrated crowdsource
definition that takes all these different forms into mind. It is described as “a type of
participative online activity in which an individual, an institution, a non-profit
organization, or company proposes to a group of individuals of varying knowledge,
heterogeneity, and number, via a flexible open call, the voluntary undertaking of a task.
The undertaking of the task, of variable complexity and modularity, and in which the
crowd should participate bringing their work, money, knowledge and/or experience,
always entails mutual benefit. The user will receive the satisfaction of a given type of
need, be it economic, social recognition, self-esteem, or the development of individual
skills”.
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2.2.2 The Different Models of Crowdfunding
The beginnings of online crowdfunding start with the crowdfunding platform Sellaband.
In 2006, Sellaband was launched online. It was, and still is, a music only platform. Fans
were able to fund unsigned bands. When funding reached 50,000 dollars, the band would
receive the money and put it to use on creating a CD in a music studio. The funders were
rewarded with the produced CD, and a share of any further CDs sold. Thus Sellaband
was funding the equivalent of preselling CDs.
Three years later in 2009, Kickstarter launched and took the world by storm. It allowed
funders to back any creative project, not limited to the music domain. It was wildly
successful. The figure below plots its growth from 2009-2012
Figure 2: Total Capital Raised in thousands on Kickstarter by successful projects, 2009-2012. Reprinted from
“Some simple economics of crowdfunding” by Agrawal et al., 2013.
What do people fund? The figure below shows where the $2.6 billion spent in 2012 went
to. We see that funding Businesses and Entrepreneurship is the second most common
cause, with 16.9% of the share.
17
Figure 3: Types of crowdfunding ventures, adapted from “Crowdfunding among IT Entrepreneurs in Sweden -
A Qualitative Study of the Funding Ecosystem and IT Entrepreneurs’” by Ingram & Teigland, 2013.
Presently, there are over 800 crowdfunding platforms online. All work on one of four
funding models. The first is the donation model – funders will donate their own funds in
return for an intangible benefit – such an example is GoFundMe.
Secondly, and the most popular, is the reward model where funders will receive a reward
for the fund they contribute, with different levels of rewards based on how much was
contributed. The biggest players in this model are Kickstarter and IndieGoGo. Kickstarter
only allows US companies to ask for funding, but there is no such restriction on
IndieGoGo. Sometimes the funder will receive the finished product based on their
contribution, thus this could be seen as a source of pre-purchasing.
Within this model, there are different ways funding takes place. Kickstarter and others
have a return rule, if the donations of funds does not reach a monetary goal, within a
certain time, the funds are returned to the donors and the project is not funded it is an
“all-or-nothing” approach. Others work on a direct donation model where whatever is
donated will be given to the asking company, even if it does not reach its goal.
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Wash & Solomon (2013) looked at which method was better, and found that both
methods have distinct strengths. They state “Direct donations provide an incentive for
donors to coordinate to solve the complementarity problem, and are more likely to fully
fund projects even when total donations in the marketplace are small. The return rule
encourages people to donate to more projects and to higher risk projects, but has the
potential of spreading out contributions among too many projects, causing few of them to
reach their goal. Both mechanisms appear to be viable means for partially solving the
complementarity problem in matching marketplaces” (Wash & Solomon, 2013)
Thirdly is the lending model. Depending on the platform, funders could be lending
money to an individual, a group, or an entrepreneur in the third world. The funders
receive their money back, usually with interest, unless the loan is socially motivated. A
large socially motivated crowdlending site is Kiva- it offers micro financing to third
world entrepreneurs.
Lastly, the most recent form of crowdfunding is equity crowdfunding. Here, funders will
contribute funds to purchasing shares in private companies. In return, they are rewarded
with shares in the company, shares of the profit the company makes, voting rights, and
whatever else is agreed on.
This form of crowdfunding is very recent, and is presently still illegal in the USA. The
JOBS Act was signed in 2012, making this form of crowdfunding legal, but the Securities
and Exchange Commission (SEC) has not yet implemented the law. It is expected that the
first stage of implementation will be in September 2013, when the ban on public
solicitation of private companies will be lifted. The following year all restrictions will be
lifted, and the public will be able to invest up to $2,000 a year online into private equity
companies. The EU bans EU-wide equity crowdfunding, but country specific local equity
crowdfunding is allowed, and is a thriving business in the UK, Sweden, and Germany.
Australia also allows private equity crowdfunding. A figure of the different forms of
crowdfunding is listed below.
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Figure 4: The different models of crowdfunding presently available. Reprinted from “An introduction to
crowdfunding” by Nesta 2012.
These new models of sourcing start up capital are turning the world upside down. No
longer is the power of private equity investment held in angel and venture capitalists. The
democratization of early stage funding is taking place already, in such countries as the
United Kingdom and Australia. Within the year, the United States will open its doors and
the world will follow. Will South Africa follow in its footsteps?
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2.2.3 How Will Changes in the Law Enable an Equity Crowdfunding Model to
Operate?
Currently private equity crowdfunding is only legal in the United Kingdom, Sweden,
Germany, and Australia. Cumming, Günther, & Schweizer (2012) describe the state of
private equity crowdfunding (PEC) as following: “As of April 2012, there were a total of
thirty-nine crowdfunding platforms that facilitate equity crowdfunding or revenue-
sharing models, which is 7.3% of the 452 total crowdfunding sites in existence”. A figure
shows PEC’s share of the crowdfunding market below.
Figure 5: Number of private equity crowdfunding (PEC) platforms in existence. Retrieved from “Signaling in
Equity Crowdfunding” by Cumming, Günther, & Schweizer, 2012.
Currently, in order to invest in a private firm, investors must be accredited in the USA,
under Rule 506(c). This is a legacy of the 1933 Securities Act. Accredited in this term
means the person has over 1 million dollars in wealth, not including his/her main house,
or the person makes over 200,000 dollars a year. Rapoport (2012) argues that “only
approximately 10 per cent of accredited investors have invested in Rule 506 offerings.
Once Rule 506(c) offerings are permitted to be advertised publicly over the internet and
broadcast media, more potential investors will be aware of investment opportunities, and
early stage companies will have access to a greater range of funding sources”
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Pope (2011) argues, and argues that a small offering exemption is long overdue in the
USA, and that such an exemption will allow entrepreneurs “to use crowdfunding to raise
capital for business growth and development”. Shiller (2012) agrees, stating that
“capitalism must be constantly updated through innovation in order to be successful in its
purpose of achieving society's goals. Three recent innovations—the benefit corporation,
crowd funding, and the social impact bond—are good examples of how finance and
financiers can contribute to attaining these goals.”
President Obama signed the Jumpstart our Businesses Act in April 2012, giving life to
PEC in the USA. The first stage, confusingly called Stage 2, due to be implemented
September 2013, lifts the restrictions that private equity sales cannot solicit the public
(Agrawal et al., 2013b). The third stage, due to be implemented in 2014, indeed makes a
small offering exemption, allowing companies to fundraise up to 1 million dollars from
the public, not just accredited investors. Meanwhile, the American pubic will be allowed
to invest the greater of $2,000 or 5% of their salary if their income is under $100,000 a
year, and if their income is greater than $100,000 they are allowed to invest 10% of their
income, up to a maximum of $100,000. These transactions must be made through a
broker, or authorized “funding portal” (Hanks, 2013).
On the surface, this appears to be great news for the general public that was completely
locked out of the private equity market. Gains in this market are known to exceed 15%
per annum, and the public now has access to it. However, Rapoport (2012) states that this
upcoming change in the law does not go far enough, as it restricts investment companies
from buying funds on private equity portals. This, in turn, does not allow investors to
diversify to a great extent, and thus market risk is unreasonably high. He states that “in
early-stage investing, perhaps more than any other field, the prudent investor must have a
well-diversified set of investments to ensure that the failures are balanced by the
superstars. The easiest way to diversify an investment portfolio is to participate in a
pooled fund managed by a professional investor. By pooling capital, even an investor
with limited resources can gain the benefits of diversification by spreading her capital
among several different start-ups”.
22
The general public is thus not allowed the benefits of a pooled fund – a fundamental
mistake it seems. However, let us not forget that these laws have not been implemented
yet, and they are still up for public comment and debate. Hopefully pieces such as
Rapaport’s will encourage Congress to lift the ban on investment funds operating in PEC.
The situation in Europe is not as developed on a broad scale. While PEC is legal in
specific European countries, only citizens of those specific countries can invest in
companies advertising private sales. International sales are not allowed. (Hanks, 2013)
argues that “Until pan-European regulation is effected, the true potential of this new form
of capital-raising will not be realized.”
On the outside, it seems like the EU has looser laws when it comes to private equity
offerings. Offerings under 5 million euro or to less than 150 people are exempt from the
Prospectus Directive – meaning that the companies offering their shares do not have to
create an expensive Prospectus before they fundraise. However, below 5 million,
National laws take effect, and there are all sorts of different regulations within states of
the EU. Under 100,000 euro, EU law pre-empts National law, and no Prospectus is
required (Hanks, 2013).
However, as Hanks (2013) points out, “the problem is that, if US expectations are any
guide, crowdfunding and other small online offerings are likely to fall within the
E100,000 to E5 million range. Depending on the regulations which various national
authorities impose on offerings falling within this range, small online offerings may
either be unnaturally constrained to amounts less than E100,000, or may be subject to
varying regulatory burden in different jurisdictions, causing the issuer to offer its
securities only in certain countries”. As we can see, this will cause the issuer of funds to
only fundraise in one particular country, as they will likely not want to deal with 27
different sets of regulations on fundraising. This, in turn will stifle broader, EU-wide
funding.
23
What happens in the EU and Europe with regards to PEC will be looked at closely in
South Africa and the emerging market. Currently private equity crowdfunding is illegal
in South Africa, but with the sustained success of rewards based crowdfunding, this may
change.
And what about the public? A huge issue is fraud – how does the public know it’s
investment is going to a legitimate business and not a crook? Belleflamme, Lambert, &
Schwienbacher (2011) argue that crowdfunders are most likely to be given very little
consumer protection against fraud, as they only invest tiny amounts. Stemler (2013)
replies that the crowdfunding portals the SEC will create have “requirements to prevent
fraud and abuse, including ensuring that investors understand investing and its risks and
monitoring investor compliance with individual investment limits. Furthermore, funding
portals are prohibited from offering investment advice and from actively pushing
securities on investors.” However, as of the present day, the SEC has not listed the
antifraud prevention measures that portals will have to implement.
Hanks (2013) looks at both sides of the argument, specifically with the ability of the
“wisdom of the crowd” to pick up frauds and concludes that “while some crowdfunding
proponents have asserted that there will be little fraud in the crowdfunding context, some
confusion has crept into the debate by reason of the use of ‘fraud’ to mean different
things. It is true that the ‘crowd’ may be able to identify and ‘out’ a fake promoter or a
fake product. But the antifraud provisions of US securities law are much broader than
that. Liability attaches to any ‘untrue statement of a material fact’ and the liability that
applies to Title III crowdfunding imposes the burden of proof on the issuer.”
On the other side of the fence, the public will now be able to legally invest in a lucrative
market that was not open to them before, with gains of 20% not uncommon (Lerner,
2006). The public also stands to gain from all the extra employment, economic growth,
and tax revenues that come with an increase of successful businesses.
24
2.2.4 Economic Situation in South Africa and Crowdfunding’s Potential in
Improving It.
SMMEs account for 40% of South Africa’s GDP (“Business South Africa,” 2008), with
about 6 million in existence at last count (Amra, Hlatshwayo, & Mcmillan, 2013). Since
1994, South Africa’s unemployment rate has consistently hovered around 25%, and it
remains one of South Africa’s key developmental challenges (Amra et al., 2013). This
number increases to 40% if we include those that have given up the search for work
(J.P.Morgan & Dalberg, 2010). It is even higher for youth, with a staggering 70%
unemployed (Mbele, 2013). Indeed, youth between the ages of 15 and 24 make up more
than half of the 10 million unemployed people in South Africa (Mbele, 2013).
Amra et al. (2013) found that women have a significantly lower probability of being
employed than males, and that Coloureds, Whites, and Indians have a significantly higher
probability of being employed than Africans. Kingdon & Knight (2001) found that the
unemployed in South Africa do not choose to be unemployed, and that the unemployed
are worse off than the informally employed. Klasen & Woolard (2000) found that most
unemployed people in South Africa had access to employment income or state transfers
received by other household members. However, this was found to be detrimental, as it
drags many households supporting unemployed people into poverty and it involuntarily
increases house size.
These findings have grave implications for the future of South Africa. It creates a cycle of
poverty and unemployment that is hard to break, with many children choosing to forgo
education to chase job opportunities, as shown by the 67.8% matric pass rate in South
Africa (Education, 2013).
25
The New Growth Plan, released by the Ministry of Economics in 2010, aims to create
employment via the development of small business, with an expected reduction in the
unemployment rate from 25% to 15% (J.P.Morgan & Dalberg, 2010). If we look at
J.P.Morgan & Dalberg's (2010) report on SMEs in South Africa, we see that currently 5.6
million small businesses produce 11.6 million total jobs in South Africa, out of a total of
18 million in the labour force (“Labor Force, Total in South Africa.,” 2010). We see that
67% of small businesses, defined as those with less than 5 employees, have no employees
other than the owners (J.P.Morgan & Dalberg, 2010). Since small businesses represent
97% of SMMEs, this is worrying (J.P.Morgan & Dalberg, 2010). Clearly, if the smallest
businesses in the country could be engaged to expand, they would create more
employment. A figure of small business employment is shown below.
Figure 6: Employment versus business size in South Africa. Retrieved from “Catalyst for Growth in South
Africa” by J.P. Morgan & Dalberg, 2010.
26
Early stage entrepreneurial activity in South, as measured by the Global Entrepreneurship
Monitor (2010), also fell short, with South Africa scoring 35 out of 54 countries, with a
score of 9, below the average of 11.7, and far behind it’s emerging market peers. A figure
is shown below.
Figure 7 :Total Early Stage Entrepreneurial Activity, 2010. Retrieved from “GEM 2010 Global Report” by the
Global Entrepreneurship Monitor, 2010.
Why are small businesses failing to take off in South Africa? Lawton (2002) describes
business mentorship as a key to SME success. J.P.Morgan & Dalberg (2010) builds on
this and describe South African businesses as having a lack of knowledge and networks
required to be successful in a particular market. Lack of an enabling environment is seen
as a key barrier to growth, with crime and theft being ranked as a high barrier.
The banking system remains the main source of capital to start and grow businesses, with
47% of business owners formally banking with commercial banks in South Africa
(J.P.Morgan & Dalberg, 2010). However Segrado (2005) states that while commercial
banks in emerging markets are in a perfect position to extend financial services to micro
entrepreneurs, they are still reluctant to do so. Dalberg Global Development Advisor
(2012) found that lack of collateral is the primary reason that banks don’t extend credit in
South Africa, and that high interest rates charged on credit is one of SMME’s biggest
challenges in South Africa.
27
Crowdfunding enables new and existing business owners to raise funds for their
businesses. It breaks down the barriers that the poor in this country are faced with – lack
of collateral or credit history. It is different from micro financing, as there is no principal
or debt to repay, just a product or service to deliver, and it allows for market validation of
the business idea.
There have been no academic studies on the effects of crowdfunding on job growth, as
this is such a new area, but Prive (2013) suggests that a startup that has gone through a
successful seed round of financing can hire at least four people full time. Clearly
President Obama signed the Jumpstart Our Jobs (JOBS) Act, which legalizes private
equity crowdfunding, because the prevailing wisdom was that it would create jobs, as the
title alludes to. FitzGerald (2013) states that the impact of crowdfunding on business
creation, job growth, and financial markets will not be known for a while, but it is a risk
worth taking.
The World Bank (2013)states that crowdfunding is starting to spread globally and it’s
potential in the developing world could be significant for the employment, innovation,
and growth. In order to do this it must learn what the factors for successful crowdfunding
are from the developed world. It also makes mention that emerging markets have the
opportunity to implement entrepreneurial funding systems that include crowdfunding
investment that are more advanced than the legacy systems prevalent in the developing
word, and thus leapfrog the developed world in this regard.
The World Bank (2013) report states that Africa will have $2.5 billion out of the $95
billion in yearly crowdfunding investment in emerging markets by 2025. This is due in
part to the small amount of social media penetration in Africa, likely due to limited
Internet connectivity. A figure is shown below.
28
Figure 8: Market Potential for Crowdfunding Across the Regions. Retrieved from “Crowdfunding’s Potential
for the Developing World” by The World Bank, 2013
The report concludes that policy makers must focus on four key enablers for a successful
crowdfunding investment ecosystem, namely economic regulation, entrepreneurial
culture, community engagement, and technology. A figure of this framework is shown
below.
29
Figure 9: Four elements of a Crowdfunding Investing Ecosystem. Retrieved from “Crowdfunding’s Potential for
the Developing World” by The World Bank, 2013
30
2.3 Conclusion
The literature review discussed what crowdsourcing is; a way of sourcing from the
crowd, and how it evolved to crowdfunding through the use of the Internet. It then
discussed how crowdfunding currently works in all its variations, and how it is different
from traditional models of funding such as loans and venture capital. The academic
discussion around how the current changes in law in the US and Europe are enabling
equity crowdfunding was summarized, and it was noted that this will guide the future of
equity crowdfunding law for South Africa.
The current economic conditions of South Africa were highlighted – 10 million people
without a job and a very high and consistent unemployment rate of 25% (40% when
including those not looking for work), with 70% youth unemployment representing half
of the 10 million unemployed (Mbele, 2013). The great influence of SMMEs in South
Africa on economic activity was mentioned – they create 40% of the nations GDP, and
11.6 million of it’s 18 million jobs (“Business South Africa,” 2008).
It was noted that crowdfunding in emerging markets has the potential to create 95 billion
dollars of investment a year by 2025, almost twice the venture capital investments in the
world, with 2.5 billion of yearly investments in Africa alone (World Bank, 2013).
Semi structured interviews with current South African crowdfunding platforms,

businesses looking for crowdfunding, and federal government will be conducted to
further explore the four research questions created.
31
Namely, as shown in the Appendix 1, I will structure my interviews to specifically ask
crowdfunding projects what their barriers to success have been and their perceived role
for government. I will ask current successful crowdfunding platforms why others before
them have failed and what they are doing to ensure the success of their sponsored
projects, and if this is helping to grow businesses. Lastly, I will ask government where
they perceive their role in all of this and whether they see crowdfunding increasing
employment.
32
SECTION 3: RESEARCH METHODOLOGY
3.1 Research Approach & Strategy
The research methodology employed will be qualitative inductive theory development

using multiple case studies. An inductive approach is appropriate because inductive
research seeks to take general observations and make conclusions from them, creating
theory in the process. Semi structured interviews will be used to gather information.
These interviews will be transcribed and coded. Codes will be combined into themes, and
generalizations will be inferred from this information.
As crowdfunding is such a new area of study, qualitative research methods are very
appropriate according to Eisenhardt (1989). Creswell (2013) agrees when he states that
qualitative research is an appropriate means for finding information on a
topic that has scant information available and lacks an established theoretical basis.
I will be seeking not just one perspective, but many, from local businesses that have used
crowdfunding, using multiple case studies. Guba & Lincoln (1998) agree that this an
appropriate use of qualitative methods when they state that “the goal of a qualitative
research project is not to always find a single ultimate answer to a complex problem, but
to recognize that there may be multiple perspectives held by different people and that
each of these perspectives has equal truth or validity”.
33
Relevant research questions were developed via an extensive literature review.
Data gathering interviews were conducted on twelve locally crowdfunded projects, one
successful local crowdfunding platform, one successfully crowdfunded project from
overseas, and local township businesses to seek out the answers to my research questions.
Thomas (2006) states that an inductive approach is one which “primarily use[s] detailed
readings of raw data do derive concepts, themes, or a model through interpretations made
from the raw data by an evaluator or researcher”. Following on, conclusions were drawn
by transcribing, coding and theming interviews using my own interpretation of the data.
Assumptions were made that interviewees clearly understood the questions, and that they
answered them honestly.
The major advantage of qualitative research is that the researcher can provide more depth
and detail than in quantitative research – the researcher can record attitudes, feelings, and
behaviours. Qualitative research methods have the advantage of exposing the researcher
to different viewpoints and perspectives.
The disadvantages of qualitative research is that there are usually less people studied
when compared to quantitative studies, and there are no variables to control for. This then
makes it harder to generalize a finding to the whole population.
34
3.2 Research Design, Data Collection Methods, and Research Instruments
The research design followed a case study design. Exclusively primary data was retrieved
in the form of nineteen semi-structured interviews. Each interview lasted from 10 to 90
minutes. As this is an explorative study, surveys and questionnaires were inappropriate as
these instruments were too rigid. A semi structured interview allowed for more flexible
data gathering, with the ability to explore specific areas the subjects mentioned in further
detail than a survey would allow. As it was unknown what the outcome of these
interviews would be, as there has been no previous study on South African
crowdfunding, the choice of semi-structured interviews was appropriate.
The majority of interviews were conducted at a local Cape Town crowdfunding platform
launch event. The platform name was made anonymous, with the placement
PlatformName standing for this local platform throughout the report and transcribed
interviews. Twelve interviews were conducted here, 11 of which were with local
businesses that have raised or are looking to raise funds on PlatformName. Out of the 11
interviewed, two had already successfully raised what they were asking for, while 10
were launching on PlatformName that day and are still in the process of crowdfunding.
All these interviews were conducted face to face, with a recording device in one hand,
and a notepad in the other to jot down notes. All interviews followed the same structure,
namely introductions and ethical clearance, followed by a set of five open-ended
questions, with room to explore responses further. The six questions can be seen in
Appendix 1. A more thorough, but unplanned interview, was conducted with a high level
member of the Department of Arts and Culture who was a keynote speaker at the
conference. The transcript of this can be found as Interview #19, in Appendix 3.1.
1
Please contact the researcher at [email protected] for the full transcriptions of the interviews.
35
A further two interviews were conducted on Skype. These interviews were also recorded.
One was conducted with a New Zealand based company that successfully crowdfunded
more than ten times the amount they sought on the world’s largest crowdfunding site,
Kickstarter. A similar, but more thorough set of 12 questions was discussed with the two
co-founders of this company. These questions and the transcript of the interview can be
seen as Interview #6 in Appendix 3. The other interview was conducted with a UCT GSB
instructor that had successfully used crowdfunding to bring a local musical act to Cape
Town using the local musical crowdfunding platform Troubadour Appendix 3 holds the
questions and transcripts of this interview under Interview #7.
A thorough fifteen question, 90 minute long interview was conducted with the only
successful South African crowdfunding platform out there, PlatformName, at their local
offices in Woodstock. This interview and its questions can be found as Interview #19 in
Appendix 3.
Lastly, impromptu interviews were conducted over the day long Shapekasi
Entrepreneurship Conference in Khayeltisha. Some were recorded, whilst others were
not, with only field notes being taken down. These did not follow a set structure, but
rather explored local township businesses’ knowledge of crowdfunding and it’s potential
to help them out in their endeavors. Transcripts and notes of these interviews can be
found as Interviews #2-5 in Appendix 3.
36
3.3 Population and Sampling
The initial sample group was identified as any local Cape Town business that had
launched, or was in the process, of launching a rewards based crowdfunding campaign.
The first interview conducted was with the owners of the local PlatformName
crowdfunding platform, the only active platform in Cape Town. The owners suggested I
speak to projects launching on their platform at their official launch party the next week,
which I did – a form of snowball sampling. This is how I found 11 of the businesses
interviewed. This form of sampling was appropriate in this instance as this is an
exploratory study, and the amount of local businesses crowdfunding is extremely small
and concentrated on PlatformName.
This event was also where I met the representative of the Department of Arts and Culture,
conducting an on the spot impromptu interview with her. In addition, to get a more
diverse view, a highly successful international crowdfunding project from Kickstarter
was interviewed. An interview was also conducted with a person who ran a successful
musical event (but not business) on the local Troubadour crowdfunding platform.
Lastly, interviews were conducted on an ad hoc, random basis at the Shapekasi

Entrepreneurship Conference in Khayelitsha, as I walked by stalls promoting products
and businesses. At times people came and approached me to tell me about their
experience with crowdfunding, as they had heard I was there researching the subject.
37
3.4 Data Analysis
An inductive, thematic analysis of the data gathered was conducted. (Bryman & Bell,
2011) have provided a six-step guide on how to conduct such an analysis, and these were
the methods that were followed in producing this research report. The steps were as
follows:
1. Familiarize yourself with the data

Before each interview, the researcher did preliminary research on the business or person
being interviewed. The researched transcribed every audio interview himself, repeatedly
listening to what was said by the interviewee. If something was discussed that the
researcher was not knowledgeable of, such as abbreviations or people that the researcher
was not familiar with, further research would be done after the fact to try and understand
what was being expressed.
2. Generate initial codes

After transcribing the interviews, the researcher used a software called Dedoose to assign
codes to certain information in the interviews. A total of 121 codes were produced from
the 19 interviews, with many of these being sub codes of main codes. A total of 37 main
codes were produced, with many, but not all, having sub codes. Iterations were done after
all transcripts were coded, seeking to reduce the number of codes by grouping like codes.
3. Search for themes

A matrix of code co-occurrence was created on Dedoose, where the researcher could see
all the codes, and when two or more codes co-occurred, and the number of co-
occurrences of each. Large number of specific co-occurrences generally inferred that the
two codes belong to the same category.
38
4. Review themes
Themes were reviewed to make sure that their codes all belong there. Smaller themes
were grouped into larger ones when it made sense to the researcher. A total of six themes
emerged.
5. Define and name themes

The five themes that emerged were named accordingly, based on what the researcher felt
was appropriate given the codes and context.
6. Produce the report

The report was produced over the course of two weeks, as soon as the last interview
finished on November 28.
This way of analyzing the data is justified according to Thomas (2006), who stated that
the result of an inductive analysis should produce a framework that summarizes the raw
data and conveys key themes and processes.
39
SECTION 4: RESEARCH FINDINGS, ANALYSIS AND DISCUSSION
4.1 Research Findings, Analysis, & Discussion
4.1.1 Interview Groupings

Nineteen interviews were conducted, with 17 of them being fully recorded. The
interviewer also took down notes on a paper pad or laptop whilst the interviewee was
responding. Notes of the context, location, tone, and gestures made were taken down
when appropriate. The structure of the interviews was semi structured, with a core of six
basic questions, as show in Appendix 1, however more were added when appropriate, and
the researcher made every attempt to dive in deeper when possible. The interviewees
were made anonymous, a table of who they are and what company they represent is listed
below.
Table 1: Anonymous interview subjects and their background. Original.
PlatformOwner & PA Owner of a successful Cape Town based online

crowdfunding platform, and his PA.
TownshipEntrepreneur1 Local township shoemaker looking to expand his business
TownshipEntrepreneur2 Local township DJ selling t-shirts to support his shows
LocalCrowdFunder1, Local entrepreneur that will crowdfund his renewable
Angel, AngelPA energy idea on PlatformOwner's website, an Angel
Investor from AngelHub, and the Angel's PA
ZimbabweCrowdFunder Tech entrepreneur who crowdfunded his way onto
StartUpBus Africa using mobile money
InternationalCrowdFunde Two founders of a business in a developed country that
r1 & 2 raised 10x the amount asked for on Kickstarter
LocalCrowdFunder2 Person who ran a successful crowdfunding campaign to
40
bring a musical artist to Cape Town on her own accord
TownshipEntrepreneur3 Township entrepreneur running a bakery that successfully
used PlatformOwner's platform to raise capital to expand
his business.
LocalCrowdFunder3 Person representing a social after school project brining
together at youth risk and unwanted dogs, currently
seeking funding on PlatformOwner's Platform
LocalCrowdFunder4 Founder of a hanging garden system, currently seeking
funding on PlatformOwner's Platform
LocalCrowdFunder5 Founder of a community open streets even, successfully
raised required funds on PlatformOwner's Platform
LocalCrowdFunder6 Founder of a tech startup focusing on hand crafted
speakers, launching crowdfunding campaign on day of
interview on PlatformOwner's Platform
LocalCrowdFunder7 Artist behind a film project currently seeking funding on
PlatformOwner's Platform
LocalCrowdFunder8 Artist behind an art installation, launching a

crowdfunding campaign on day of interview on
LocalCrowdFunder9 Performer behind an performance project, launching a
LocalCrowdFunder10 Person promoting a locally produced TV show, currently
seeking funding on PlatformOwner's Platform
LocalCrowdFunder11 Poet promoting new book, successfully raised required
funds on PlatformOwner's Platform for a book launch
LocalCrowdFunder12 Founder of a lesson course on Xhosa, launching a
41
Government Person of very high position in Department of Arts and
Culture, South Africa federal government.
A list of where the interview took place, how long it lasted, the method used, and whether
the interview was fully transcribed or not is listed below. The interview numbers
correspond to Appendix 3’s transcribed interviews. Only one out of 19 interviews was
not recorded on audio, and thus not transcribed, but notes have been provided in absence
of this. One other interview was partially recorded, with beginning notes added in before
the full transcript as seen in Appendix 3 for Interview #4.
42
Table 2: Interview length. location, and format. Original.
# Interviewee Duratio Location Method Transcribed?

n
1 PlatformOwner & PA 01:10:55 Woodstock, Face to Y
Western Face
Cape
2 TownshipEntrepreneur1 00:05:25 Khayelitsha, Face to Y
Western Face
Cape
3 TownshipEntrepreneur2 00:03:30 Khayelitsha, Face to Y
Western Face
Cape
4 LocalCrowdFunder1, Unknow Khayelitsha, Face to P
AngelInvestor, AngelPA n Western Face
Cape
5 ZimbabweCrowdFunder Unknow Khayelitsha, Face to N
n Western Face
Cape
6 InternationalCrowdFunder1 00:33:15 Skype Skype Y
&2
7 LocalCrowdFunder2 00:28:30 Skype Skype Y
8 TownshipEntrepreneur3 00:20:13 Green Point, Face to Y
Western Face
Cape
9 LocalCrowdFunder3 00:12:50 Green Point, Face to Y
Western Face
Cape
Western Face
43
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
Western Face
Cape
19 Government 0:14:22 Green Point, Face to Y
Western Face
Cape
44
Codes that were only used sparingly and in only a small amount of interviews (mostly
one) were treated as outliers and removed before consolidating the remaining codes into
themes. Thirty-two main codes emerged out of this process, with many having sub codes
– including this category of codes, the number of total codes stands at 120 codes. A full
table of codes and how they relate to themes can be found in Appendix 2.
Through numerous iterations, the researcher managed to group all the main 32 codes into
five themes.
Five main themes emerged from the coding of the data were:
1) Barriers and Accessibility
2) Government
3) Planning and Support
4) Social Networks
5) The why and how of crowdfunding
The table below shows which of the main codes were grouped into what themes.
45
Table 3: Coding of Themes. Original
Activating the Crowd Social Networks

Minority shareholders Barriers & Accessibility
Alternative Financing Barriers & Accessibility
Arts & Creativity Why Crowdfund & How?
Barriers Barriers & Accessibility
Community Social Networks
Competition Government
Concerns Barriers & Accessibility
Concerns of Paying online? Barriers & Accessibility
Criticisms of CF Barriers & Accessibility
Crowdfunding Types Why Crowdfund & How?
Did Mentorship help? Planning & Support
Entrepreneurship Planning & Support
Financing Barriers & Accessibility
Funding Gap Barriers & Accessibility
Further interest from investors post
Campaign? Why Crowdfund & How?
Government Government
Innovation Planning & Support
Investment Barriers & Accessibility
JOBS Act Government
Looked at Alternative Funding? Barriers & Accessibility
Mobile Money Barriers & Accessibility
Natural Selection Government
Partners Planning & Support
Planning Planning & Support
Raising more than requested Planning & Support
Reason for Crowdfunding Why Crowdfund & How?
46
SMEs Government
Success Planning & Support
Planning & Support Planning & Support
Sustainability Planning & Support
Would use platform again Why Crowdfund & How?
47
4.2 Themes
Five themes will be discussed, diving into greater coding detail when appropriate. The
researcher feels these five themes overall encompass all of the major worldviews and
opinions expressed in the interviews.
4.2.1 Barriers and Accessibility
Alternative
Financing
Mobile Money Barriers
Funding Gap
Barriers and Concerns
Accessibility
Criticisms of
Investment Crowdfunding
Financing
Figure 10: Codes comprising Barriers and Accessibility theme. Original
This theme consists of the nine main codes seen above. Some of these codes, such as
Barriers have sub-codes, and the most prominent have been expanded out below, with
further explanation and analysis.
48
Accessibility in this context has to do with how accessible things are, both from an
entrepreneurial point of view – such as financial grants, and from a societal point of view,
such as Internet access and formal banking that enables a person to engage in
crowdfunding online. Entrepreneurs interviewed faced varying barriers and accessibility
issues as shown in the codes, the most common of which are highlighted and discussed
below.
Seeking out financing was seen as a direct time competitor of creating a great product. As
an example, InternationalCrowdFunder1 stated that with respect to finding finance
“the prevailing wisdom seems to be ‘looking for funding is like a fulltime job’ and if you
don’t really need it then it takes, and especially if you’re a team of two, it takes valuable
time and effort away from actually making stuff so when we – crowdfunding makes it so
you don’t have to do that”. Here he shows that looking for traditional financing is an
entrepreneurial barrier to focusing on creating your product, as it takes up so much time.
LocalCrowdFunder1 described not having access to traditional startup capital in South

Africa as a barrier to business growth, with crowdfunding a potential solution when he
stated “the gap is between entrepreneurs and the funding. So the interesting thing that
came out is that entrepreneurs startups are looking for between 500,000 and 5 million, but
VCs and other funders, they start at 10 million. So you find this complete disconnect
between the ecosystem”. Indeed the World Bank (2013) in it’s report mentions that this is
small stage funding is exactly where crowdfunding can shine, as venture capitalists and
angel investors don’t bother investing such small sums of money.
Mobile payments were a big topic when it came to enabling great accessibility of
crowdfunding on the continent. Indeed, ZimbabweCrowdFunder stated that the only
reason he was successfully crowdfunded his way onto the StartUpBus Africa in
Zimbabwe was through mobile payment systems like MPesa. Otherwise, he thought he
could not raise enough capital online from his network in Zimbabwe due to lack of access
to formal banking. LocalCrowdFunder2 agreed when stating that “there might be a way
of [crowdfunding without traditional banking], I don’t know if you’re looking at cell
49
phones, people have cellphones, so is there another way that people could go about, so
for example, in townships it’s big”.
A Ghanaian participant on the StartUpBus stated that he attempted to crowdfund in

Ghana via IndieGoGo, a large well know American crowdfunding platform, but people
were concerned with paying online with their credit cards, and he was unsuccessful in
raising capital from his network. Perhaps if there was a way of crowdfunding using
mobile currency he would of not had this problem. Government seems to agree when
stating that “Mobile technology in Africa has been amazing. MPesa in particular” when
speaking about increasing access to crowdfunding to the African masses.
There were only two mentions of minority shareholders as being a barrier.

AngelInvestor was concerned about investing in businesses that were previously equity
crowdfunded because of the mass amount of minority shareholders they would have to
deal with, and noted this as a barrier to further investment from his side.
InternationalCrowdFunder1 thought the same, saying, “I think there’s a completely
different set of benefits and concerns for the equity-based stuff. Yea I mean, I totally
understand that you wouldn’t want to be dealing with thousands of minority shareholders,
unless you really, really had to. So I think by, from the project creator side, I think you’re
probably more attractive as an investment vehicle if you’ve just done it your self and
taken regular crowdfunding, then if you had gone equity crowdfunding”. However it is
noted that UK based Seedrs, the biggest equity crowdfunding platform in the world,
pools all minority shares sold on its site into one legal shareholder, itself, to get over this
problem (Seedrs, 2013).
50
4.2.1.1 Alternative Financing
Disapora
Grants
Alternative Bartering
Financing
International
Donors
Figure 11: Breakdown of Alternative Financing subtheme into codes. Original.
A key question asked to every startup interviewed was whether they searched for
alternative forms of financings before crowdfunding, or whether they jumped straight in.
The interviewee was further asked to explain whether they had access to this form of
financing or whether they did not.
Out of those that answered 5 stated that they did indeed look at alternative funding before
hand, and 2 stated that they did not. A figure is shown below. Further discussion of
barriers to formal financing is found under the Barriers subtheme.
51
Alternative +inancing sought
before crowdfunding ?
Yes
No
Figure 12: Was alternative financings sought out before turning to crowdfunding? Results broken down by
number of interviewees. Original.
Grants and government support were described as coming with too much red tape and
creative control. For example, LocalCrowdFunder12 states that “a government grant,
yea I could go get a government grant and fight with a whole bunch of other people for
the government's money, and then have the government breathing over my shoulder, I
have to put out millions of forms, and then I have to deliver a certain thing which they
might try to influence in certain ways. And I just don't feel like that”.
LocalCrowdFunder7 states that “Look, there are things like the DTI we can approach,
ok. But it takes 18 months to get money out of there. And we don't have that amount of
time so - we'd all starve to death in the meantime” when describing government support.
Government support is seen as taking to long to deliver. PA sums up this ethos, stating
that “one of out HR people said, everyone else rolls out the red carpet, but in SA we roll
out the red tape”. However, it is noted that in further findings, all entrepreneurs
interviewed welcome government support of crowdfunding itself.
52
4.2.1.2 Barriers
Lack of
Wealth Philantrophy Barriers to
distribution Capital
Culture of
Value Entitlement
Secrecy Disposable
Concerns income
Risk
Barriers Ease of use
No Guidance Education
Internet
Poverty Connectivety
Lack of
Mindset Education
Accessibility
Figure 13: Barriers sub-theme broken down into corresponding codes. Original.
Barriers was a major subtheme, encompasses things that are barriers to entrepreneurs,
government, and the public when it comes to using, implementing, or promoting
crowdfunding. It also encompasses barriers that entrepreneurs face in general when
attempting to start a business in the South African socio-economic climate.
The figure below shows how many times each barrier was mentioned in all of the
interviews conducted. Education is the most commonly mentioned barrier, with 9
occurrences, followed closely by risk with eight. Wealth distribution comes in third with
6 mentions, and lack of education and lack of philanthropy come in fourth with 5
mentions each.
53
Figure 14: A breakdown of how many times each barrier was mentioned through all interviews. Original.
When education was mentioned, it was used in varying contexts. One such context was
that the public is not properly educated about how crowdfunding works, and about the
safety of paying online. LocalCrowdFunder3 sums this up when she states “So you
know even guiding my parents through the process [of crowdfunding], with them it's the
old generation, looking at the website…not knowing where to click, even though it says
‘to support this project click here’ in the right hand corner. So if somebody did a little bit
of, yea I mean, they need to be educated, [unintelligible] somebody to sort of take it on”.
This further ties into the role government should play in crowdfunding, as interviewees
specifically stated that the government has a role to educate the public about
crowdfunding. This will be further discussed in the Government theme.
PlatformOwner supports this view, when he comments specifically on equity

crowdfunding he mentions, “Will it become a reality? Yes. Challenges will be trust, huge
trust. Regulatory challenges will come in second. Education and understanding of how it
works”.
54
An entrepreneur’s own lack of education about how crowdfunding is also a barrier. As
PlatformOwner puts it, “I think that one of the drawbacks of this [crowdfunding] is that;
it took me a long time to understand how this works. And I think unless you are engaging
with social media, unless you're engaging with internet shopping, it could be - which is
generally, it seems to be a younger generation thing. I don't think people are like huh?
They don't get it. It's almost like people are educating people on how this operates. And I
had to educate myself, because I also didn't know how I could do it, and I didn't know...
because I'm doing a performance, I didn't know how I could generate money through
doing a performance. I don't have such concrete things; I've had to generate concrete
objects in order to develop the rewards. But it took me a while to understand that - to
look at how we'd do it”.
TownshipEntrepreneur3 states that “I've been in and out of banks, waiting for financial
institutions, I've talked to many people. I've talked to many institutions, national financial
institutions. But however, no one was there to assist me, therefore there was something in
the back of my head that told me that I should start leveraging what I have”.
Lack of education also tied into other barriers, such as lack of access to capital.
LocalCrowdFunder6 points out that “I was lucky enough to be able to borrow enough
cash to start this from my dad. Most people aren't, so I think, from entrepreneurship
circles I have been in, a lot of people say, I don't know how to get the funding, I don't
know how to get this started, I don't know where to begin”.
55
Risk is always a barrier to starting a new enterprise, as there is inherent risk in any
businesses, and especially small businesses as 5 of 7 small businesses in South Africa
will fail within a year of starting up (Kgosana, 2013). When speaking about risk,
LocalCrowdFunder6 mentions “I think just from a logical perspective, the concept of
risk is something that's very intimidating for a lot of entrepreneurs when it comes to
money. So the possibility of being able to say well, I don't have enough for a production
run, I'm not going to take a risk - I think that's very appealing as well.” Risk therefore
holds back people from starting their own businesses, and there is a higher risk when
using traditional lending such as banking, which requires collateral that can be lost, as
compared to crowdfunding, which requires nothing but a product to deliver.
PlatformOwner agrees with this position when he states “Well yea, and that’s one of the
reasons I think rewards based crowdfunding is what I call appropriate crowdfunding, and
why it’s the model we went for here, rather than loan, because you know – Kiva, loans,
that kind of stuff. You give me 100 bucks; I give you 100 bucks back in terms of product.
That means, I only have to give you one product. If you give me $100 and I have to pay
you back $100 plus interest, that means I’ve got to sell 10 x $100 to make the profit, to
pay you back. So the ask for return is so much bigger. Whereas this is much more
straightforward. Here’s $100, I give you $100 back, and I make a profit on it. That’s a
way to start a business. Sorry that’s a way to make it accessible for people to take the risk
to start a business.” When describing equity crowdfunding PlatformOwner states, “look,
I think once it’s established I think it’s pretty much of a no-brainer for the government to
get involved. Because they are mitigating risk, spreading it across, not just amongst
themselves, but sharing it across people. So it just makes sense, for the guys who are
doing it already, who have gotten onto it”. Indeed PlatformOwner goes on to propose a
match funding partnership model with government, that matches successful locally
crowdsourced campaign as they are “supporting success”. More on this is included in the
Government theme discussion.
56
Unequal wealth distribution was seen as a concern by multiple entrepreneurs, as
LocalCrowdFunder2 states “my big challenge though is… that the audience was pretty
much all white, and well to do and so I really did not want to repeat that, given the
context we live in so I really worked hard. So that’s the downside of this crowdsourcing,
is that you’re only sourcing from a certain type of crowd”. PlatformOwner attempts to
make crowdfunding more accessible to lower economic classes by incentivizing
accelerators to partner with less well off entrepreneurs working on startups, where the
accelerators will take a certain % of funds raised via crowdfunding. PlatformOwner
states, “how we expand it [access to capital] even further, to the less affluent or less
connected classes, is through accelerator programs, which are cutting the hook. So, we’ve
thought long and hard about this, and we’ve come up with solutions”.
InternationalCrowdFunder1 believes that a lot of the projects and businesses on

crowdfunding platforms are not essential, and that people from developed countries will
not invest in any project unless they have disposable income. This is contrasted with
LocalCrowdFunder2’s opinion that those with less actually give more, stating “I don’t
know about SA but in North America, there’s been plenty of studies done that say people
with less money are actually more generous. In terms of the percentage of their income
that they give. And so, you know, there could be some potential around [this]”. Indeed,
the World Bank (2013) seems to agree, stating that those with incomes of over 10,000
USD per year are the target population for crowdfunding donors/investors in emerging
markets.
57
4.2.1.3 Concerns
Opportunity
Cost
Failure Fraud
Concerns
Trust Issues Debt
Figure 15: Concerns sub-theme broken down into codes. Original.
While similar to barriers, concerns were different in that they were more opinions of what
entrepreneurs thought held them and crowdfunding back, as opposed to actual barriers
that they faced. A breakdown of how many entrepreneurs listed each concern is listed
below.
58
Figure 16: Concerns cited, grouped by the number of interviewees that listed a concern when speaking about
crowdfunding. Original.
Trust issues were found to be the biggest concern, with five entrepreneurs mentioning
trust as a concern. InternationalCrowdFunder1 states that in emerging markets “there’s
trust issues maybe. I would imagine there would be some sort of correlation in countries
with higher crime or fraud rates, that there would be less willingness to give money to
someone because they have an idea, even if they’ve kind of proved it on a crowdfunding
page. Because if you grow up being suspicious of other people and what they’re going to
do, with money then you don’t have the trust to give to strangers so I think it’s somewhat
of a luxury good, in that sense. Or at least a luxury, a luxury to be able to give money like
that in a lot of ways. So that trust thing would be a big one.”
Debt concerns were high on the mind of LocalCrowdFunder9, stating “for my particular
project, I have been self funding, and I've been so overloaded that I've gotten into debt as
a result. So I'm looking at alternative forms, other ways of doing it”.
59
Every business attempting to crowdfund was asked whether they felt lack of trust with
online payments in South Africa was a concern, as South Africa has traditionally had
slower online purchasing uptake than the developed world. The results were mixed, with
6 stating that trust in online payments was a real concern for their business, while 4 stated
that it was not a concern. A figure is shown below.
Are people concerned when

paying online?
4
Not concerned
Concerned
6
Figure 17: Are people concerned when paying online? Results listed by number of interviewees that stated each
answer. Original.
Out of those that stated trust in online payments was a concern, some such as
LocalCrowdFunder3 stating “Well first of all people would rather be weary, so a lot of
what has happened is I've had family members giving me the cash, I've gone online a
number of times with my credit card, which I don't mind, and so a bit of weariness, but I
think, generally being misinformed”. LocalCrowdFunder6 states that “instinctively I'm
going to go with yes [online trust is an issue], actually I haven't thought about that at all.
But I think there is still, as a very, very sweeping generalization that identifying culturally
when it comes to technology South Africans are about 3 years behind the US”.
LocalCrowdFunder7 listed this as being their biggest obstacle when they said
“Definitely they weary. They would rather give us cash in hand then take out a credit
card, and fill in the credit card details. But that's been our biggest obstacle”.
60
LocalCrowdFunder4 mentioned, “I've heard that feedback myself [that people are
weary of spending online in SA]”. LocalCrowdFunder2 states, “I ended up selling
tickets by hand anyway to lots of people because they weren’t getting around. Like I
knew, they said they wanted a ticket, but they were just not doing it, and I felt like it was
a barrier, because they’re just not used to it. And it’s not the most, I mean I think it can
be, the platform of actual payment, you know, it was still in the guinea pig stage, so it
wasn’t as smooth as it could have been… and it was also challenging because people that
did have money, aren’t used to paying online”.
Those on the other side of the argument, such as LocalCrowdFunder12 stated “No, not
anymore. If someone’s got a credit card, they've surely done all that payments by now. I
don't see it as a significant”. TownshipEntrepreneur3 had his goals exceeded, and
expressed doubt that people were weary of giving online, stating “in fact, they were not,
they were not [weary of paying online], I don't want to lie, they were not, because for me,
I exceeded my target. That show's that people are willing to, people are looking for
something that's innovative yet, giving back to the community, they want to be part of
parcel that, part of parcel of what, a winning team that's giving”. LocalCrowdFunder10
also see it as safe, stating, “not really [people are not weary of donating online], it's quite
safe; your details are quite secure. So they don't really have any big issues”.
Other concerns were fraud – PlatformOwner mentioning, “one of the key issues of CF
in SA is lack of trust of SA platforms by overseas supporters. They say, who are these
hippies? Secondly, overseas banks don’t let credit cards go through. You have to phone
them and authorize it. I find it mind-boggling; credit cards go through more easily in a
bar then with TF”. However no project creator mentioned fraud as a concern.
They did, however, mention debt as a concern, LocalCrowdFunder9 stating “for my

particular project, I have been self funding, and I've been so overloaded that I've gotten
into debt as a result. So I'm looking at alternative forms, other ways of doing it”.
61
InternationalCrowdFunder1 states that if they did not use crowdfunding, they would
“have tried to get equity or debt investment from elsewhere and plunk down a whole
bunch of cash on something that wouldn’t of really had a chant to validate properly”.
Finding 1A: There were many barriers to using crowdfunding, both as a project creator
and project donor. Education was found to be the most common barrier associated with
starting a crowdfunding campaign and supporting a campaign, followed by risk and
unequal wealth distribution.
Finding 1B: The majority of Entrepreneurs searched out alternative, traditional forms of
financing before moving on to crowdfunding.
Finding 1C: Local entrepreneurs are divided over whether the South African public is
weary of donating online.
62
4.2.2 Government
Competition
Natural Selection JOBS Act
Government
Government's Role
in CF
SMEs • Social Development
• SME Development • Match Funding
• Township Business • Government
Promotion of CF
• Government support
Figure 18: Government theme and its subthemes and codes. Original.
One of the main research questions this report is seeking to find is what role, if any, the
government should play when it comes to crowdfunding. Each entrepreneur interviewed
that was seeking funds on a crowdfunding platform was asked this question. Fourteen of
the interviewees said government should have a role to play. Eight of those said they
should match funds that have been successfully crowdfunded, if the target is met, as this
is “the government supporting success”. Six mentioned the government should support
crowdfunding in some way, but did not give specifics.
63
Five mentioned the government should promote crowdfunding. Four said there was too
much red tape and that government should cut it. One said government’s role was social
development, inclusive of crowdfunding. A visual figure of these replies is shown below.
Government's Role in Crowdfunding
1
4 Social Development
Match Funding
8
Government
Promotion of CF
6
Government support
Cutting red tape
Figure 19: Government’s Role in Crowdfunding subtheme, broken down by the number of interviewees that
listed each role. Original.
When discussing the most spoken about code in this theme, match funding,
LocalCrowdFunder12 stated that “That would be nice if they could match it. That
would be nice if they offered something like yo, if you can get to a certain level, we'll
match it. That would be great. And obviously government's role is huge. They've got
bazillions bro. Bazillions and bazillions, and what else is there to invest in, especially
with social enterprises where you've got businesses that are already trying to have a triple
bottom line”. LocalCrowdFunder6 thought this would be nice for disadvantaged people,
stating “that would definitely figure, especially for disadvantaged guys that should
definitely be on the radar, yea”.
64
The government representative herself, Government, stated, “So we're looking at
multiple options, none of which at this point are sort of anything set in stone. But kind of
thinking about the possibility of doing a bit of financing so there would almost be a
matching, so if projects that we believe are worthy, come to the floor, then we might be
able to [invest]”. She further stated “we're really interested, from my perspective, in
looking for underfunded opportunity to go hey - you need small amount of money - and
we go how can we help those small amounts of money to generate it to those of people
that need it. So watch this space right, because we're still figuring it out - there is no
nationally mandated position at all.”
Our local crowdfunding platform is seeking to put just such a plan in place, with
PlatformOwner stating that “what we’re doing with the Department of Arts and Culture,
for example, and in this case with a bunch of others as well, is you give us $1 million that
you normally give to a whole bunch of projects, normally you’d give $1 million to 10
projects, out of those 3 will be successful, 5 will be ok, and 2 will bum out all together.
You give us the million bucks, we invest in 10 projects, and those 10 projects work like
this. They will only get the cash, when they raise a matching amount on CF. So 20
projects will apply for the funds, and all will be told that, you’ve got 1:1 up to 50,000-
100,000, and the ones that are successful and raise 50k, get another 50k, and they’re
ready to go. Government is investing in success. And they’re told two things, one, that
the project is actually wanted in the market, two, the people putting the project together,
whether it’s a craft project, or whether textile or computer project, they actually have
enough noggin to run a successful marketing campaign. If you can’t market, and the
people don’t want it, well then, it was a dud anyway. The problem is the government
can’t figure which out of those 10 is going to work [grants], so crowdfunding does it for
them. So Department of Arts and Culture looks and says, oh, we like that! More efficient
use of capital, and better returns for them.” As seen, they are pioneers in the match
funding movement, and believe greatly in it. As the government has also expressed
support, this has a real potential to shift the startup climate in South Africa.
65
Others interviewed wanted government to simply promote crowdfunding and stay out of
investing directly in crowdfunding projects. LocalCrowdFunder9 says, “You know,
what I get, the spirit of CF and crowdsourcing is that I think that the major principle, is
that it's informal, it's ad-hoc, it's fluid, it's flexible. And things like government are
establishments, they're institutions, they're huge lumbering animals that take a long time
to just turn their head, let alone turn around. And what these things address is things that
are happening in the moment and you've got to have that kind of fluidity. So I don't think
- yes, endorse it, but I don't even think they'll understand”. LocalCrowdFunder10 thinks
more awareness can be created about local crowdfunding projects if the government
promotes and endorses it, saying, “They can make their role in promoting it. Because the
more - you get more awareness through this thing. However while anybody, even from
Europe, can donate to your project, you know, it's the numbers online that have access to
it - I think promoting and talking about it would be much better.” LocalCrowdFunder6
agrees, stating, “government's role should be to promote it to, to build that network. The
essence of CF is - it's a very elegant thing - you're not pushing anything people don't
want. They only participate if they want to so it should be a very valid platform for
government to be supportive of”. As will be noted in the social network theme, linking
social networks is a great way to support crowdfunding projects.
When asked what role government should have in investing in equity crowdfunded
projects, Government had a reserved stand, stating “I mean I've been to a bunch of
international Arts conferences over the last, let's say, 5 or 6 years, and CF is always been
discussed. But I'm not aware of any government as such, that invests in Kickstarter or any
of those CF platforms”.
66
Very small government investments seem to be too big of a financial burden for the
return they generate, as Government stated “the fantastic thing about CF is it's almost
like taking care of the pennies so the pounds can take care of themselves, because in
essence, the more people that come on board, the more little bits of money will make a
huge difference. Whereas for us in the government respective administrators - little bits
of money is a huge unmitigated nightmare. We spend as much money administrating
R1000 as we R100,000 as we do R100,000,000. So for us to think about creating
opportunities for 30,000 bucks here, 40,000 bucks it's actually really high.”
LocalCrowdFunder4 also thought the governments should provide support outside of

fund matching and promotion by linking networks, stating “it might be like a good next
step - there's a lot of Dragon's Den of, you know maybe, I don't know if government can
pull their heads out of their - to do something like that. But even if it's sort of, they sort of
a next level, where there's maybe like Angel Investors or sort of a Dragon's Den type of
thing, that once you've made it in the CF, you sort of can go pitch to a VC or something”.
LocalCrowdFunder11 thought general investment from the government in
crowdfunding, in a non specific form, would create jobs and businesses, stating “the
government is - in SA - I mean I don’t know about other countries but South Africa there
is a huge - most people are unemployed, and, and, instead of saying - because we need to
create jobs, they should be a greater push on innovation so I think even for all of Africa, I
think we have an incredible affinity because our underdevelopment, for me, is a blessing,
because we get to create, you know, we get to craft things that haven't been done yet, or
find - at the same time learn from the rest of the world, you know, and kind of source
what's already there. So I definitely think the SA government should absolutely invest
like million in CF.”
67
Finding 2A: Local entrepreneurs want a government role in crowdfunding, with match
funding and financial support being the most popular option, followed by government
promotion of crowdfunding.
Finding 2B: Administration of small amounts of government money for crowdfunding is

not financially viable for the government.
Finding 2C: Government partnerships with local crowdfunding platforms are being
discussed at the moment to get around the problem found in 2B. Support for the idea is
high amongst the majority of interviewees.
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4.2.3 Planning and Support
Entrepreneurship
Sustainabiity Innovation
Support
Planning
&
• Initial Help
• Envisioning Partners
• Creator Engagement • Accelerators
• Mentorship
• Project Acceptance
Support
Planning
• Preplanning
Success • Pilot Projects
• Meeting Targets
• Scaling
Rasing more than

requested
Figure 20: Planning and Support theme broken down into sub0themes and codes. Original.
Two key related research sub-questions were, why have previous South African
crowdfunding platforms failed, and how can barriers to running a successful
crowdfunding campaign be overcome? Planning and Support of crowdfunding businesses
where theorized to be the answer to both questions, with the researcher believing a lack
of mentorship and support on previous crowdfunding platforms in South Africa ensured
their downfall.
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Every local entrepreneur interviewed that has used, or is using crowdfunding on
PlatformOwner’s platform, which offers a high amount of mentorship and support, was
asked whether they felt the mentorship they received helped with running a successful
crowdfunding campaign.
Every single entrepreneur stated that mentorship did indeed help with running his or her
campaign. LocalCrowdFunder12states “They've been amazing; PlatformOwner and
PA have been amazing. And look, we've just started, but they've told me what I need, and
they've really helped put in what I've asked them to put in, in terms of like information,
so there's been a lot of effort on their side. And I think they create a very supportive
thing. And they're also quite clear on what they think will work, and what they need from
us and that sort of thing. So I think they've been great.” LocalCrowdFunder9, when
speaking about whether the mentorship has helped states “Very well. I've had a lot of
exposure to PlatformOwner and PA, they're incredibly supportive”.
LocalCrowdFunder3 states that “PlatformName has been really fantastic with regards to
supporting us and just being available, like really available, and interested in what we're
doing, and very responsive, and direct with us, and replying to emails, and giving us
encouragement, and helping to market our initiative on their platform. It's really being a
learning experience for us too. It's helped us to realize how important it is to craft your
marketing strategy really well, look to have focus, and a goal”.
TownshipEntrepreneur3 states how the mentorship was instrumental for running a

successful campaign, “PlatformOwner was important. Because really, he was, because
we had meetings, workshops, where we sit down and see how we can actually take this to
another level. But me and him and PlatformName, the relationship we had was more on
the campaign. Because we wanted the campaign to be successful”. LocalCrowdFunder8
“found them incredibly enthusiastic, I have to acknowledge that this is us launching right
now, real time, so I don't know much to reflect on, apart from the process of getting us
here. And I found, you I know PlatformOwner from before and his new, his staff that
I've met, or his colleagues, they've been really enthusiastic and wonderful about the
process. Very, very encouraging”.
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Others stated the mentorship also helped them envision and develop their business idea,
and plan things out from the beginning. One creative project with no previous business
experience, LocalCrowdFunder11, stated that “It's been amazing, because first of all, if
you're a creative and you haven't really been an entrepreneur, there's certain things you
don't think about, and so, basically CF kind of - when you apply, they give you lots of
things to think about and they say, what's your first milestones? You know, what you
gonna do when you get so much money. So they give you goals, and you have to think
about what are you goals and how do you want to publish this, and how do you want to
develop the time, if you're afraid of most things. Sometimes you don't know how to think
to carefully about other ideas, about, you know, selling, you know, kind of get your
product out there. And so they really help you think about those fine details that you
would want their experience. And interface, by writing those things when applying, it
also helps you to envision”.
Some, like TownshipEntrepreneur3, described the support received from

PlatformOwner as instrumental to building new networks that helped their business
succeed, stating “everything that I was doing, he was involved, you understand. He was
involved as well in connecting those people?” LocalCrowdFunder7 also had a similar
experience, stating, “well yes, they've [PlatformName] been very encouraging. They've
helped us with developing the network” This subtheme of linking networks is further
discussed in the following Social Networks theme.
Planning before a crowdfunding campaign linked into the support and mentorship for
many interviewed, with the majority having planned thoroughly with PlatformOwner
before launching. LocalCrowdFunder4 recalls that “they've [PlatformName] given us
quite a lot of sort of guidelines to look for, forms, and things that actually guide you
through step by step through the structure, the whole image. Structure your video, which
was a nightmare for me, like videoing myself is not a good look. And then there's
packaging, and you know, all your descriptions, and packaging extensions for different
tiers and stuff like that so - so it's been - they've got quite a lean sort of structure and they
lead you through the process, and submit it, and they give you feedback, and say, great”.
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One interviewee, InternationalCrowdFunder1, that did not have mentorship or
platform support still stated that planning and going through different scenarios of what
could happen was instrumental to their success in raising funds on Kickstarter. They
raised 11 times more than the $30,000 USD requested for a production run of their
product. When speaking about any potential problems faced by the business now that
they’ve raised much more than requested InternationalCrowdFunder1 explains that “I
would say in our case it doesn’t create any problems. It creates maybe, potentially, a little
bit more pressure to do a good job, but we put a lot of time into setting things up,
basically planning for success, which I think is something that a lot of crowdfunding
campaigns don’t actually do”. His business partner InternationalCrowdFunder2 agrees,
saying, “I think we’re in the minority not having scaling problems. A remarkable amount
of Kickstarter or crowdfunding campaigns seem to not work through all the various
scenarios, so like, we were planning for scenarios like, what if we are on track to not even
make our 30k target. Right through to what do we do if we make 10 times the target”.
4.2.3.1 Crowdfunding Success in South Africa and Mentorship
It was theorized that current and previous crowdfunding websites in South Africa, such as
StartMe and FundFind have produced a large number of unsuccessful crowdfunding
campaigns because they offered no mentorship and support. Indeed, some platforms have
completely seized to exist due to their failures, such as crowdfunding.co.za (Neville,
2011). Local businesses and entrepreneurs stay away from the large international
platforms, with a previous study showing that only 1 in 151 backers on Kickstarter come
from South Africa, and no projects based in South Africa were funded. (Onofre & Jesus,
2013). A more recent article shows five South African projects seeking funds on
Kickstarter (CapeTownActiva, 2013). Compare this with the 96 current projects listed on
South Africa’s three main crowdfunding platforms: FundFind, StartMe, and
PlatformOwner’s PlatformName.
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A study of how many projects have successfully been funded on these sites is shown in
the following figures.
FundFind Success Rate
6%
24% Funded
Open, no funding
29%
Open, partially funded
Failed, partially funded
41% Failed, No Funding

0%
Figure 21: FundFind success rate out of 23 total projects. Original.
StartMe Success Rate
22% Funded
28%
Open, no funding
4% Failed, partially funded
41% Failed, No Funding

5%
Figure 22: StartMe’s success rate, 46 total projects.
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PlatformName Success Rate
0%
13%
Funded
Open, no funding
29%
58% Failed, partially funded
Failed, No Funding
0%
Figure 23: PlatformName’s success rate, 27 total projects. Original.
As is clearly shown, PlatformName has the greatest success rate. Of closed projects, 78%
received at least the minimum funding they seeked, if not more. It also has zero projects
that are open with no funding, and zero projects that failed to get any sort of funding, in
stark comparison to the countless projects on FundFind and StartMe that have no
funding. When quizzed on why this was, PlatformOwner stated “it’s huge [the success
rate], but that’s because… yesterday one of the projects, after 5 days, they’re on zero, so
PA just send’s them a message, saying “hi, your project’s at zero, it’s not good for you,
and it’s not reflecting well on where you’re at, we’re taking it down”. It’s called sticking
a firecracker up someone’s…”
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In addition, not all projects that apply to crowdfund on PlatformName get approved, as
PlatformOwner states “240 [have applied], 22 have gone live right? But that’s not
because we’re saying, sorry, you’re not good enough, with each project, it’s if the project
is not right for crowdfunding, we’re just saying… don’t waste your time with asking for
submission or whatever, there are other channels you can look at”. Indeed, a key channel
of support is partnerships, as PlatformName will send a project that is not yet ready to
start a crowdfunding campaign to its accelerator partners, who will help flesh out the
business concept and get it ready for crowdfunding, in return for a 10-20% cut of funds
raised, once the project has crowdfunded. Thus accelerators and incentivized to help
grow small businesses, and to help launch a great crowdfunding campaign.
While such a model is currently very successful in South Africa, PlatformOwner states
that the mentorship and support currently offered by PlatformName is “unsustainable at
the level we’re doing it at. We’re working at 5% commission for NGOs, 7% for standard
business, and at those kind of levels, you could never offer that kind of level of support
we’re offering now, but we know it’s needed, so we gota figure it out. So what we’re
doing, is we’re building a network of partners around us that provide those services”. The
scalability and sustainability of this model rests on the ability to partner up with the right
accelerators and people.
Only 13% of projects have failed to receive funding on PlatformName. This is an

amazing rate, as Kickstarter, the world’s largest crowdfunding platform, has a 58%
failure rate (“Kickstarter Stats — Kickstarter,” 2013.).
PlatformName is also the only platform out of the three that offers extensive mentorship
and support. The researcher found that every project interviewed that used PlatformName
listed the mentorship from PlatformName as helping in their success.
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PlatformOwner stated that the reason previous crowdfunding platforms in South Africa
failed was because “they didn’t understand the basic principles of crowdfunding. That
technology is not the platform. Technology is like having a car, without having someone
know how to drive it. You build a car and you say, yea, look we can deliver goods. No
you don’t – you actually need to know how work the damn thing, plus the rules of the
road. Whereas we, what we looked at as crowdfunding, we said, crowdfunding works
when you active your audiences, so you gota educate you’re project creators about
engagement, with their funders”. With PA adding “That’s the whole mentorship that
really distinguishes PlatformName”.
LocalCrowdFunder4 supports this view, and states that “When I pitched my stuff at
PlatformName, I was a bit sort of, I didn't really want all that stuff - because I had done a
Kickstarter thing just as an experiment a couple of years back, spit out your stuff, and
stick it out there, there's like no - no real guidance or, you know, you sort of make your
[unintelligible] in the moment. Actually I think the PlatformName thing is really good,
because you get a lot of help structure.”
Finding 3A: Mentorship and support has helped locally crowdfunded businesses succeed
in reaching their funding targets.
Finding 3B: PlatformName’s innovative model of mentorship and accelerator

partnership is responsible for it’s very high 78% success rate. South African platforms
that do not offer these services have significantly lower success rates than PlatformName.
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4.2.4 Social Networks
Figure 24: Social Networks theme broken down into sub-themes and codes.
Social networks are intrinsically linked to crowdfunding, as crowdfunding in itself is a

way of sourcing financial capital from extended social networks. The codes comprising
this theme speak to how crowdfunding enables community and social network building,
and how a social network can be leveraged to create success in those businesses engaging
in crowdfunding.
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4.2.4.1 Activating the Crowd
Different ways of leveraging the crowd, or social network, were found to be beneficial to
businesses engaging in crowdfunding. One of these ways is getting prelaunch idea
validation. Social networks can be used to increase the quality of crowdfunded projects
online. Through a process of vetting, social networks can be leveraged to supply business
idea validation and support before the project even begins crowdfunding, enabling a
greater success rate.
PlatformOwner explains how this vetting system would work, stating “You’ve got a
project for the photography exhibition, we have 1000 people that have agreed to be
vetters… to be a vetter, anyone can be a vetter, and you just have to say I really know
about projects in the photography side, and I would like to be a vetter...you do a couple of
gauges to get an idea on whether this person actually has any experience in that field. 10
projects come, and then 3 are photography, those 3 projects you send through to a group
of 20 vetters, all of them who’ve said they’re interested in photography, those vetters, all
they need to do is give their yes, maybe, no, whether they like it or not, and if they want
to, the reasons why”.
“What you’re doing there, is you’re saying, look, no one person should have the yes, this
is defiantly going live, and you’re not saying, because those 20 said no, you can’t go up.
You’re saying, out of those 20, 18 of them really love your idea, and it’s awesome, and
you really got your casting right etc, and two of them said nah, hate your stuff – you got a
good chance of going live. If 18 of them said this idea sucks, and you’ve got no chance,
at least you go with your campaign if you want to carry on, understanding that’s going to
be a hard sell. With those 20 though, out of those 20, there’s likely going to be a couple
who really understand your topic, I might not know a lot about photography, and when
you say it’s going to cost R30,000 to get an XV 20 camera, and it actually only costs
10,000, I wouldn’t pick it up. But someone who knows their stuff in photography would
say, hang on, dude, seriously? What are you doing this now?”
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InternationalCrowdFunder1 explained how using crowdfunding enables businesses to
acquire customers and a social network right away, and in essence validating the idea. He
stated “why not get that [money] from people who actually love your product, so you’re
getting customers right from the start.”
TownshipEntrepreneur1 believes that crowdfunding can be used to sell direct to

customer, building a more personal relationship. He states that “that’s the whole idea,
that’s the whole thing. Not to be in Woolworths. For me, as a manufacturer and a
wholesaler, not to go and sell to Woolworths, no. But to sell to individuals, all over the
country”. PlatformOwner
4.2.4.2 Linking Communities
The most important finding from this theme was that crowdfunding itself is a way of
linking together diverse social networks, allowing for personal connections and sources
of capital that were not available to a business owner without crowdfunding.
LocalCrowdFunder2believes that social networks and relationships are much more

important than money, and “that really - and not just, yea, social networks, definitely,
social networks, not just two people who have money, but just two, you know, it's
relationships that make the world go around, not money, it's really relationships, and for
me the biggest shock that I've had coming her in SA, is seeing how many barriers there
are to, or how you know the, the country is so divided on racial and economic lines the
only ways those lines are going to be blurred is that people make a conscious effort to
recognize the resources that they inherently have because of their race”. If communities
could be linked and reorganized, the potential is massive in this country.
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PlatformOwner believes that crowdfunding is a way of building these diverse networks.
He states that “the social impact in this [crowdfunding] is going to be absolutely massive.
Because you’re going to cross over and build communities, it’s not Woolworths or
whatever big retailer agent coming and saying, here’s your stuff, this is your offering,
you pay us, we take your money, and we bugger off. It’s a, here’s my idea, speaking
directly to your audience, if you like it, you’re going to back me, we’re going to form a
community together, and from here we’re going to work forward together, so you do
another campaign. So you’re actually actively getting people together to form groups,
where they engage with each other, from different backgrounds and stuff, over something
that they like altogether”.
LocalCrowdFunder11 commenting on her experiences crowdfunding stated that “it's

been a lot of platform to meet, a lot of people that money can't buy you know… amazing
social connections, you meet like just the right person. Even today, I just met incredible
people, the sort of people I would of wanted to meet, that I just didn't know where to
meet them. And I just kind of found them over here.” As we can see, the relationships
built and the people met were more important to her than the money raised. Speaking
about PlatformName’s network building she states, “I would imagine that maybe they
would have more people to - the more they do it, the more they know how to connect
various things”.
TownshipEntrepreneur3, a previously disadvantaged person, who raised double what

he asked for to expand his township business states that “PlatformOwner was involved
as well in connecting those people… he was very, very close to it, and that is the reason
why it went well, because part of, I would say 70% of the backers came from the side of
PlatformName, you understand, so that helped me a lot”. LocalCrowdFunder7 stated
that “they've [PlatformName] been very encouraging. They've helped us with developing
the network”.
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LocalCrowdFunder6, when speaking about his biggest problems, stated that “marketing
was my biggest problem; this might be a good way to get a broader reach. You know,
you're networking, you're leveraging somebody else's network, as well as your own, so
for me the big appeal was the marketing”. Using the extended network he has build
through PlatformName was a way to increase the marketing, and hopefully success of his
product.
4.2.4.3 Community
Community was a code that was widely used in different contexts.

TownshipEntrepreneur3 thinks crowdfunding is about giving back to the community,
stating “people are willing to, people are looking for something that's innovative yet,
giving back to the community, they want to be part of parcel that, part of parcel of what,
a winning team that's giving, you know, because the concept itself, you are not about, it's
not about me.
PlatformOwner thought it was a way of engaging the community, stating

“crowdfunding is about getting off your tush, and doing it for yourself, and showing what
you want to do has the support of the communities around you”.
LocalCrowdFunder8 believed that by crowdfunding a project, the impact it has on a

local community is greater than by traditionally funding it. When speaking about his
project, he stated, “[my] particular project is one that tells a story. I think a story is
community based - you know, it needs to be heard; it needs to be kind of amplified. It's
not a secret; it's not something that has its value in intellectual property. It actually has its
value in its connectivity; it's a common, common cause. It kind of taps into an aspect of
us that we all recognize”.
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Finding 4A: Social networks can be leveraged to increase the chance of a crowdfunding
project meeting its funding goals, via vetting and direct non-financial support from the
crowd.
Finding 4B: Crowdfunding can be used as a way of linking together disconnected social
networks, and creating new communities that enable access to new people, relationships,
and sources of capital.
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4.2.5 The Why and the How of Crowdfunding
Figure 25: The Why & How of Crowdfunding theme broken down into sub-themes and codes. Original.
A key question asked to every entrepreneurial venture that used crowdfunding was why
they choose to use crowdfunding for their project? Tied in with this question and theme
was what type of crowdfunding they used, with all interviewees stating that they used
rewards based crowdfunding. No local examples of businesses using equity
crowdfunding exists, however the research attempted to contact businesses using this
form of crowdfunding in the United Kingdom, where it is legal, to no success.
Responses were varied, from the traditional answers of raising capital and market
validation, to unexpected answers such as marketing and creative control. A figure of the
different responses given is shown below. It is noted that respondents usually chose more
than one reason, with for example, marketing and validation co-occurring 4 times.
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Why did you decide to use
crowdfunding for your project or
business?
1
PR
1 2
Financial Need
7 8 Marketing
Employment Creation
2
Validation
9
Business Expansion
Figure 26: Reasons for crowdfunding, and number of interviewees that chose each. Original.
4.2.5.1 Marketing
The biggest reason for using crowdfunding was found to be marketing with 9
entrepreneurs giving this reason, followed closely by financial need with 8 choosing this
reason. This came contrary to the beliefs of the researcher, who felt financial need was
the biggest reason companies choose to crowdfund.
LocalCrowdFunder10, a charitable foundation seeking funds, explains that “with the

Internet it's much better than going door to door. Anybody can access it - from your
phone, at work, and from home, most people. So it's much easier for a lot of people, and
you can just share the link on Facebook and twitter. So the word spreads much quicker
than us going door to door”. LocalCrowdFunder6 states that the main reason that he
uses crowdfunding is “for me personally it's more for marketing, although I think that's
from a rather unique perspective”, going on to state that “when PlatformName launched,
I thought you know what. Marketing was my biggest problem; this might be a good way
to get a broader reach. You know, you're networking, you're leveraging somebody else's
network, as well as your own, so for me the big appeal was the marketing”.
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LocalCrowdFunder9, when asked whether marketing was a reason he was
crowdfunding, stated, “Yes, my project is very sociable anyways, because my project
involves generating conversations. That's literally what the performance is about, so it
seemed to work, it seemed to mesh very well with the basic principles of crowdfunding”.
LocalCrowdFunder4 states that the crowdfunding process “[is] a good marketing

exercise. I can get a lot of marketing just from the system, and events like this, the
website, all the marketing, the mailing, and all that stuff”.
LocalCrowdFunder8, when speaking about reasons for crowdfunding, mentions that

“you can have a good idea, but if you don't have the platform to tell it, or allowing that
megaphone, that digital megaphone to get it out there, it just gets lost in the attention
span. Everyone's a web designer now, everyone's got a story to tell, everyone's personal,
everyone's story or holiday photos are on Facebook. How do you compete? How do you
get some potential”? Here we see that a good “digital megaphone”, such as a popular
crowdfunding platform, can get the marketing message out there to the interested
population.
4.2.5.2 Financial Need
LocalCrowdFunder5 crowdfunded “because we had no money”.

LocalCrowdFunder10 used crowdfunding because of the inherent ability to raise a lot of
money from little donations, stating “we could do from as low as R100 from a normal
person in the community. So it's more accessible for everyone”. LocalCrowdFunder3,
also a charity, stated the same, saying, “we are an NGO in the making, and we need
significant funding to kind of make us sustainable. But we felt that by breaking down our
goals into smaller chunks and then trying to raise a certain amount of money through TF,
would help us to get the business going”. LocalCrowdFunder7 was also low on capital,
stating, “well basically, we sort of ran out of money, and we need enough money to make
a copy [of our pilot episode]” as his reason for using crowdfunding.
LocalCrowdFunder9 also needed to raise money, but thought it was a better approach
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then others, stating, “it just seems to be a far more human approach to generating money.
It's got a very strong social dynamic and it seems a lot kinder than traditional established
forms. So for me, it's a more futuristic, forward thinking way of generating money”.
LocalCrowdFunder10 sought out traditional financing, but failed, saying, “we did, we
still are in the process as well [of looking for traditional investors], we've had some say
maybe and some say no. So that's the other reason we decided maybe it is something
[crowdfunding] we should try as well”.
InternationalCrowdFunder1 mentions three reasons for using crowdfunding, “one,

marketing – it’s a – both in terms of people, users all over Kickstarter just looking for
stuff to buy, Kickstarter will help you market stuff if they like you, and you fit with their
ethos because they want to look good as well. But also in a secondary way, because the
media is in love with Kickstarter and crowdfunding, and they’ll be looking for a nice
story, were you have raised all this money in 30 days – and that’s a very easy headline to
write. Second one is validation, you can be very ambitious with your program plans
without having to lay down stacks of cash and not know if people are actually going to
buy it – as you’re preselling it. And the third one is money”.
4.2.5.3 Validation
Business idea validation scored very highly on reasons to use crowdfunding in this study,
with 7 entrepreneurs listing this as a reason. The ability to quickly, and without wasting
much time or money, see whether you can generate enough interest and potential
customers, allows entrepreneurs to discard ideas without support before countless hours
and dollars are spent on the idea. Those that are validated are much more likely to
succeed, as there is a customer base that has already pledged to buy the product or
support the project.
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Government mentions that, “it's so important that we use the opportunity with something
like PlatformName to test your ideas through the market, to listen to what the market is
telling you, but also then to transform your business ideas as your familiarity, as your
interactions with the market, change your self and your project idea”.
When LocalCrowdFunder1 was speaking about Mark Shuttleworth’s failed attempt to

crowdfund millions for a smartphone, he states “look at the value now, he’s now
conducted market research that’s a fraction of the price – for nothing”. It would have
been much pricier to find out that no one wants your product after it was already
produced. In this way, the business idea is validated before anything is actually created.
He continues, saying “it ties into what’s happening now in terms of your concept of the
lean startup, where, you know, the concept of fail fast, so if your thing doesn’t work
that’s going to give you a great indication – ok cool, it’s not going to work, fine. You
haven’t gone and wasted everybody’s time and money and energy, you know on
something that’s not going to work”. LocalCrowdFunder12 puts it nicely when he says
“if you all believe in it [his business idea], put your money where your mouth is, if you
don't, that tells me something, and I won't waste my time”.
PlatformOwner states that “that’s where crowdfunding in itself is so fantastic. It’s

literally, like right, ok, I believe I can at least deliver a reward on this, and if only means
that I need to produce 100 of these methane producing things because that’s what’s been
paid for, I produce 100 and figure out whether the business model works, and if it
doesn’t, like I said, ok, I’ve given my 100, I’ve paid everyone back through the product”.
Further commenting on whether this was in essence business idea validation, he stated
“that’s one of the reasons I think rewards based crowdfunding is what I call appropriate
crowdfunding, and why it’s the model we went for here, rather than loan”, implying that
yes, the model he alluded to is in essence validating its business idea by engaging in
crowdfunding.
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After speaking to interviewers about why they used crowdfunding, the researcher asked
whether they would use the platform again. Out of 9 asked, 8 said they would indeed use
crowdfunding again. InternationalCrowdFunder2 actually said they would consider
using equity crowdfunding, after their successful campaign on rewards-based Kickstarter,
stating that “I think if we were looking to raise equity I would definitely look at equity
crowdfunding options”.
The researcher asked nine entrepreneurs that used, or were using crowdfunding, whether
they believed that after a successful crowdfunding campaign they would receive more
investor interest, from traditional investors such as venture capitalists and government.
Eight believed that yes, they would garner further investor interest after a successful
campaign. A figure is shown below.
Do you believe crowdfunding will

lead to further investment
interest in your business?
Yes
No
Figure 27: Do you believe crowdfunding will lead to further investment interest in your business? Results
broken down by number of interviewees. Original.
Only one business stated that they actually had experienced further investor interest post
launch, this was likely because all the entrepreneurs interviewed had just finished their
crowdfunding campaign, or were just starting.
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4.2.5.4 Traditional Crowdfunding
Traditional, cash based, offline crowdfunding has existed in Africa for many years. It is
not a new concept; it relates with the African Ubuntu philosophical point of view that “I
am because you are”. Interviewees touched upon this subject, with some asking how it
could be leveraged even further into the non-cash domain. Government for example,
stated that “the other thing you might find to be very true in the rural areas is that there is
a way of banking in and around bartering. Whereas somebody will, and if they've made a
very interesting project that runs in the Alexandria Township environment, where people
- essentially you're looking at your houses to become art galleries. They get a small
revenue from it… so you might find that there's more traction in giving other than cash”.
In addition to bartering, there is also a traditional form crowdfunding evident in rural

Africa. LocalCrowdFunder9 states that “there's things like, what is it called...Lulolo.
Where they work, and they give a whole bunch of money each month into a kitsi, ok.
And then once, and every month one person takes that whole kiti. So there are structures
that are partly more of a structure of working money that are very local…just as a way, so
that each person can have a lump sum of money every now and then. Like suddenly,
you’ll get a whole lot of cash…[it’s] totally community based. So it's community sorting
itself out. Developing systems for itself”.
LocalCrowdFunder2 spoke about offline crowdfunding in Cape Town, when discussing

a charity that is about to go under, that is seeking funds to stay alive. She stated “the
whole organization is spending the entire month crowdfunding, not using a platform, but
just going out to the streets, and like trying to see if, they're basically saying, it's up to
SA, it's up to Cape Tonians, if you want to support our organization or not, and we're
going to die if you don't”.
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Government speaks about a similar rural system, stating “we have a version of
crowdfunding…essentially, at its simplest level, a bunch of women will get together and
each contribute an amount of money so they can go bulk grocery shopping at the end of
the month. So we can buy 50 cabbages from the market at a much cheaper price than I
can, you know - which is technically crowdfunding at its very lowest level”.
Finding 5A: Crowdfunding is locally suitable for a variety of businesses and projects, as
shown by the variety of successful projects on PlatformName.
Finding 5B: Marketing was the top reason for using crowdfunding locally, followed
closely by financial need and market validation.
Finding 5C: A majority of entrepreneurs interviewed stated that they would use
crowdfunding again.
Finding 5D: A majority of entrepreneurs thought that they would garner further
investment interest after a successful crowdfunding campaign.
Finding 5E: Traditional, cash based forms of crowdfunding already exist in Africa, and
have significant traction.
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4.3 Research Criteria Evaluation
4.3.1 Credibility
The researcher thoroughly reviewed the audio recordings of the interviews, and re-
listened to each interview in its full context at least three times, more for those that were
hard to understand. Where there was doubt on which word was used, the researchers best
guess of the word was placed in a bracket in the transcript to express uncertainty.
Unintelligible words and phrases were listed as [Unintelligible] in the transcript. The
researcher provided interviewees with a list of written questions if they asked for it, but
did not do it automatically as the spontaneity of the answer would have been diminished
had the interviewees had access to the questions before hand. When the interviewee did
not understand the question, every effort was made to re-ask and rephrase the question to
the interviewee until he or she understood.
4.3.2 Transferability
The research findings are general enough that they are transferable to any emerging
market that faces the same socio-economic issues South Africa does. The majority of the
findings would not be transferable to developed markets, as they lack the issues that
emerging markets have, such as lack of Internet connectivity, formal banking, and low
consumer trust.
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4.3.3 Dependability
All raw data sources have been stored on a hard drive, and in the cloud. These include the
audio interviews in m4a format, interview notes in docx format, transcribed interviews in
docx format, coded interviews in docx format, and on the cloud in Dedoose format under
a Dedoose user account. The research methodology, along with these raw data sources
will be stored together, and access will be granted to all future researchers to use it as
they please.
4.3.4 Confirmability
The researcher allowed information to emerge from the thematic analysis by itself, and
maintained his objectivity. Due to the time limits, a second, impartial opinion of the
findings was not performed. If there are future concerns around confirmability, an
external data audit can be performed
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4.4 Research Limitations
The research was limited to 19 interviewees, of which 18 were local South Africans.
Only one local crowdfunding platform was interviewed, out of the three that exist. This
was done deliberately, as this particular platform had the highest success rate, and the
researcher was attempting to find out what enabled local success on such platforms. No
equity crowdfunding businesses or platforms were interviewed, despite the researcher’s
best efforts to do so, and none exist in South Africa.
While conducting the thematic analysis, the researcher was mindful of the five pitfalls
described by Braun & Clarke (2006), namely;
1) Failure to actually analyze the data at all. The data presented was analyzed by the
researcher instead of just displaying excerpts from interviews. A
2) Using of the data collection questions (such as from an interview schedule) as the
themes that are reported. Themes were constructed around similar codes, and not around
research questions.
3) A weak or unconvincing analysis, where the themes do not appear to work. The
themes created were cohered a central idea, with subthemes clearly being identified when
appropriate.
4) A mismatch between the data and the analytic claims that are made about it. Every
effort was made to make sure analytical claims were grounded in data and not merely the
researcher’s opinion.
5) A mismatch between theory and analytic claims, or between the research questions and
the form of thematic analysis used. The thematic analysis used was appropriate for the
research question asked and the theory used.
93
The researcher has reviewed his data and findings in the context of the pitfalls set out by
Braun and Clark (2006), and is confident that the research avoids the five pitfalls listed.
94
SECTION 5: RESEARCH CONCLUSIONS
The researcher attempted to answer four questions throughout the report.
Firstly,
1) What is the potential of crowdfunding in South Africa for creating employment?

Through interviews and prior research on funding milestones, it was discovered that local
entrepreneurs were able to create additional employment after successful crowdfunding
campaigns, or pledged to do so if they met their targets. The researcher found various
examples confirming this on the PlatformName, including
• Crowdfunding enabled township entrepreneur to purchase bicycles and hire extra
staff for his business expansion
• InternationalCrowdFunder1 is considering hiring more people to handle their
PR after a successful campaign
• A successful campaign would mean LocalCrowdFunder7 continues working on
his TV show, and hire staff to produce a full season
• Crowdfunding helped employee a musician in cape town in
LocalCrowdFunder2’s case
• LocalCrowdFunder7 will employee Xhosa teachers and production staff to
produce educational videos if his campaign is successful
• LocalCrowdFunder10 will be able to hire production staff for more episodes of
her crowdfunded TV show if her campaign is successful.
• LocalCrowdFunder9 would be able to hire additional instructors to spread his
message of educational reform.
• LocalCrowdFunder3 would be able to hire a full time educator for their after
school program if they meet their milestones.
As the data and analysis has shown, local entrepreneurs use crowdfunding for various
reasons including raising financial capital, which for the projects listed above would
enable these entrepreneurs to employ additional people other then themselves to the
95
project or business. This research question has been answered; crowdfunding can clearly
create employment opportunities in South Africa. This is the same view the World Bank
(2013) has expressed. The employment created may be on a small scale as of right now,
but crowdfunding is only just beginning to take off in South Africa.
Sub Question 1:
- Why have so many crowdfunding platforms failed in South Africa?
The findings have shown that mentorship and support plays a pivotal role in ensuring the
success of a crowdfunding campaign. All projects interviewed on PlatformName stated
that mentorship was beneficial to their success. Through a quantitative analysis, the
success rate of the 3 main crowdfunding platforms in South Africa was calculated.
PlatformName had by far the highest success rate, at 78%. PlatformOwner stated that the
mentorship and support accounts for such a high success rate.
No such mentorship, partnership, or support is provided by the other two platforms,

FundFind and StartMe. They also accept any project that applies, something that
PlatformName does not, taking in only 10% of those that apply that are deemed
appropriate for crowdfunding.
This research question has been answered; the reason crowdfunding platforms have failed
in South Africa is two-fold, firstly due to their lack of listed project mentorship and
support. Secondly, there is no screening process in place and every project that applies is
accepted.
The model listed by PlatformName of mentorship, support, and screening ensures it’s
continual success.
Sub Question 2:
- What are the barriers to running a successful crowdfunding campaign in
South Africa, and how can they be overcome?
96
Before discussing what the barriers to a successful campaign was, it is noted that
marketing, financial need, and product validation were the biggest reasons local
entrepreneurs used crowdfunding. Understanding why people crowdfund is the first step
to understanding how to run a successful campaign. A figure of this is shown below.
Why did you decide to use

crowdfunding for your project or
business?
1
PR
1 2
Financial Need
7 8 Marketing
Employment Creation
2
Validation
9
Business Expansion
Figure 28: Reasons for crowdfunding, and number of interviewees that chose each. Original.
The findings show a variety of barriers to running a successful crowdfunding campaign.

They are broken down in the following figure.
97
Figure 29: A breakdown of how many times each barrier was mentioned through all interviews. Original.
Education is seen as the largest barrier to running a successful campaign, followed by

risk and unequal wealth distribution amongst the population. As 78% of campaigns on
PlatformName have been successful, which is larger than FundFind’s 8.3% success rate,
and StartMe’s 40% success. It is also much higher than Kickstarter’s 42% rate, which
operates in a developed market.
It was found that crowdfunding can be used to link diverse, disconnected social networks
together, creating new communities that enable access to new people, relationships, and
sources of capital. It is assumed PlatformName’s model of mentorship, support, network
building, and accelerator partnerships is responsible for this success rate. PlatformOwner
states that this is the case from his experience, and the success rate appears to corroborate
his view.
This research question has been answered, common barriers have been listed, and
PlatformName’s model of support has been identified as a way of overcoming these
barriers.
98
Sub Question 3:
- What role should the government play in enabling crowdfunding in South

Africa?
All entrepreneurs surveyed stated that government should have a role to play, along with
PlatformOwner and the government representative herself. What role it should have
differed, with the most commonly cited answers shown in the figure below.
Government's Role in Crowdfunding
1
4 Social Development
Match Funding
8
Government
Promotion of CF
6
Government support
Cutting red tape
Figure 30: Government’s Role in Crowdfunding subtheme, broken down by the number of interviewees that
listed each role. Original.
99
Match funding was seen as the top role for government to play in crowdfunding. In this
model, the government matches whatever amount of capital has been raised by a
crowdfunding project. PlatformOwner and Government have listed an interest in forming
this sort of partnership. However, which projects are qualified to receive the match
funding, and how it is to be implemented are still ongoing questions.
Promotion of crowdfunding by the government was the second most cited response, after
financial support. In this way, government could assure its people that crowdfunding is
safe, regulated, and backed by the government, easing fears about investing online.
The cutting of red tape by government was also mentioned, with the government being
asked to streamline regulations.
100
SECTION 6: FUTURE RESEARCH DIRECTIONS
There is currently very little, if any, practical research on crowdfunding in emerging

markets. The World Bank’s (2013) report was the first academic piece of literature on
this subject within an emerging market context.
While the researcher found that crowdfunding was indeed responsible for job creation in
South Africa, this was over the short 3-month existence of PlatformName. A future
research report could look into whether successful campaigns on PlatformName that
promise to increase employment, actually do, and by following up with the companies
listed in this report. A long term study could look at success rates of these crowdfunded
businesses, and compare them with the national average for small businesses to see if
there is an inherent advantage to crowdfunding over other forms of capital raising,
including bank loans and equity sell offs.
A different sample group can be used, and the research repeated. Sample populations can
be segregated into categories such as art projects, technology projects, and research can
be conducted into whether one category creates more employment than the other. Once
large quantities of projects and businesses are crowdfunded in South Africa, quantitative
methods can be used. Sample groups can also be split into geolocational categories, such
as township businesses, inner city businesses, and so forth, and the research repeated to
obtain answers on whether where you come from affects your crowdfunding success.
The potential crowdfunding has for emerging markets is massive (World Bank, 2013). It
is just starting to be embraced by the South African population. With many millions more
getting access to Internet and formal banking, the future looks bright for crowdfunding in
South Africa.
101
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104
APPENDIX 1: SIX INTERVIEW QUESTIONS FOR ENTREPRENEURS
1) Why did you decide to go with crowdfunding for your project?
2) Did you have any sort of problems convincing people to pledge money online?
3) Did you look at any other sort of financing before going with crowdfunding?
4) How has the experience been ? Did the mentoring help?
5) Have you had interest from investors now that you’ve successfully crowdfunded?
6) What role should the government have in promoting crowdfunding
105
APPENDIX 2: TABLE OF CODES AND HOW THEY RELATE TO THEMES
All sub-codes assume their parent code theme, unless otherwise specified.
Code Subcode Theme
Alternative Financing Barriers & Accessibility

Grants
Disapora
Bartering
International
Donors
Arts & Creativity Why Crowdfund & How?
Creativity
Arts
Artists
Musicians
Barriers Barriers & Accessibility
Lack of
Philantrophy
Barriers to Capital
Culture of
Entitlement
Disposable income
Ease of use
Education
Internet
Connectivety
Lack of Education
Accessibility
Mindset
No Guidance
Poverty
Risk
Secrecy Concerns
Value
Wealth
distribution
Community Social Networks
Relationships
Linking Social
Networks
Community
106
Expectations
Social Networks
Competition Government
Concerns Barriers & Accessibility
Opportunity Cost
Fraud
Debt
Trust Issues
failure
Concerns of Paying online? Barriers & Accessibility
No Concern of Paying Online
Yes, Concerned with paying online
Criticisms of CF Barriers & Accessibility
Fees
Materializing
Giving
Crowdfunding Advantages
Activating the Social Networks
Crowd
Vetting
Customer
Aquisition
Direct to
Consumer
Crowdfunding Platforms
Kickstarter
Crowdfunding Types Why Crowdfund & How?
Traditional forms of Crowdfunding
Cash
Rewards Based
Funding
Donations based
platform
equity
crowdfunding
Delivery
Did Mentorship help? Planning & Support
No, menorship
didn't help
Yes, mentorship
helped
Entrepreneurship Planning & Support
Financing Barriers & Accessibility
107
Funding Gap Barriers & Accessibility
Further interest from No, no further Why Crowdfund & How?
investors post interest shown from
Campaign? investors
Believes will lead to further investors
Believes it will not lead to further investors
Yes, further interest shown from investors
Government Government
Government in CF
Social
Development
Match
Funding
Government Promotion of CF
government Planning & Support
Red Tape
Innovation Planning & Support
Investment Barriers & Accessibility
minority Barriers & Accessibility
shareholders
JOBS Act Government
Looked at Alternative Funding? Barriers & Accessibility
No, did not consider alternative funding before
CF
Yes, looked at alternative funding before CF
Mobile Money Barriers & Accessibility
Natural Selecton Government
Partners Planning & Support
Accelerators
Planning Planning & Support
Preplanning
Pilot Project
Meeting Targets
Scaling
Platform Competition
StartMe
Potential
Raising more than requested Planning & Support
Reason for Crowdfunding Why Crowdfund & How?
PR
Financial Need
Marketing
108
Needs
Employment
Creation
Validation
business
expansion
creative control
SMEs Government
SME development
Township Business
South Africa
Failed SA CF Planning & Support
Platforms
Strategy
Success Planning & Support
Success Rate
Planning & Support Planning & Support
Initial Help
Envisioning
Creator
Engagement
Mentorship
Project
Acceptance
Sustainability Planning & Support
Would use platform again Why Crowdfund & How?
109
APPENDIX 3: TRANSCRIBED INTERVIEWS
Please contact the researcher at [email protected] for transcriptions of the

interviews.
110
APPENDIX 4: COMPLETE RESEARCH FINDINGS
Finding 1A: There were many barriers to using crowdfunding, both as a project creator
and project donor. Education was found to be the most common barrier associated with
starting a crowdfunding campaign and supporting a campaign, followed by risk and
unequal wealth distribution.
Finding 1B: The majority of Entrepreneurs seeked out alternative, traditional forms of
financing before moving on to crowdfunding.
Finding 1C: Local entrepreneurs are divided over whether the South African public is
weary of donating online.
Finding 2A: Local entrepreneurs want a government role in crowdfunding, with match
funding and financial support being the most popular option, followed by government
promotion of crowdfunding.
Finding 2B: Administration of small amounts of government money for crowdfunding is

not financially viable for the government.
Finding 2C: Government partnerships with local crowdfunding platforms is being

discussed at the moment to get around the problem found in 2B. Support for the idea is
high amongst the majority of interviewees.
Finding 3A: Mentorship and support has helped locally crowdfunded businesses succeed
in reaching their funding targets.
Finding 3B: PlaformName’s innovative model of mentorship and accelerator partnership

is responsible for it’s very high 78% success rate. South African platforms that do not
offer these services have significantly lower success rates than PlatformName.
111
Finding 4A: Social networks can be leveraged to increase the chance of a crowdfunding
project meeting its funding goals, via vetting and direct non-financial support from the
crowd.
Finding 4B: Crowdfunding can be used as a way of linking together disconnected social
networks, and creating new communities that enable access to new people, relationships,
and sources of capital.
Finding 5A: Crowdfunding is locally suitable for a variety of businesses and projects, as
shown by the variety of successful projects on PlatformName.
Finding 5B: Marketing was the top reason for using crowdfunding locally, followed
closely by financial need and market validation.
Finding 5C: A majority of entrepreneurs interviewed stated that they would use
crowdfunding again.
Finding 5D: A majority of entrepreneurs thought that they would garner further
investment interest after a successful crowdfunding campaign.
Finding 5E: Traditional, cash based forms of crowdfunding already exist in Africa, and
have significant traction.
112

Crowdfundings Potential in South Africa

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Crowdfunding’s Potential in South Africa

A research report submitted to The Graduate School of Business, University of Cape

2) I have used the American Psychological Association (APA) convention for

3) This research report is my own work.

5) I acknowledge that copying someone else’s assignment or essay, or part of it, is

Name: Dan Andrei Horga

1.1 Research Area

Already today, crowdfunding is an acceptable source of start-up funding. Kickstarter, a

This is an exploratory research report that attempts to understand why crowdfunding

Local start up companies can be interviewed on their awareness of alternative startup

The knock on effects of employment and GDP growth would be spectacular if

There is no academic literature on crowdfunding in emerging markets, as this is such a

2.2 Background Discussion

2.2.1 Crowdsourcing’s Beginnings

As we can see, crowdsourcing means different things to different people. Estellés-arolas

Semi structured interviews with current South African crowdfunding platforms,

3.1 Research Approach & Strategy

The research methodology employed will be qualitative inductive theory development

Lastly, interviews were conducted on an ad hoc, random basis at the Shapekasi

1. Familiarize yourself with the data

2. Generate initial codes

3. Search for themes

5. Define and name themes

6. Produce the report

4.1 Research Findings, Analysis, & Discussion

4.1.1 Interview Groupings

Table 1: Anonymous interview subjects and their background. Original.

PlatformOwner & PA Owner of a successful Cape Town based online

LocalCrowdFunder8 Artist behind an art installation, launching a

# Interviewee Duratio Location Method Transcribed?

1) Barriers and Accessibility

3) Planning and Support

5) The why and how of crowdfunding

Activating the Crowd Social Networks

4.2.1 Barriers and Accessibility

Mobile Money Barriers

Figure 10: Codes comprising Barriers and Accessibility theme. Original

LocalCrowdFunder1 described not having access to traditional startup capital in South

A Ghanaian participant on the StartUpBus stated that he attempted to crowdfund in

There were only two mentions of minority shareholders as being a barrier.

Figure 11: Breakdown of Alternative Financing subtheme into codes. Original.

PlatformOwner supports this view, when he comments specifically on equity

InternationalCrowdFunder1 believes that a lot of the projects and businesses on

Trust Issues Debt

Figure 15: Concerns sub-theme broken down into codes. Original.

Are people concerned when

They did, however, mention debt as a concern, LocalCrowdFunder9 stating “for my

Natural Selection JOBS Act

Government's Role in Crowdfunding

Cutting red tape

LocalCrowdFunder4 also thought the governments should provide support outside of

Finding 2B: Administration of small amounts of government money for crowdfunding is

Rasing more than

TownshipEntrepreneur3 states how the mentorship was instrumental for running a

Some, like TownshipEntrepreneur3, described the support received from

4.2.3.1 Crowdfunding Success in South Africa and Mentorship

FundFind Success Rate

41% Failed, No Funding

Figure 21: FundFind success rate out of 23 total projects. Original.