Nowadays, a lot of projects are springing up in Africa, one of the vast emerging consumer markets, and require working capital to operate, to grow and to compete successfully in sectors with future potential, such as agro-industries, solar energy, housing, finance, mobile phones, gold mining and advertising industries.

Unfortunately, there are very few accredited angel investors and venture capitalists based in African countries. The continent’s banks rarely lend to early-stage entrepreneurs and small businesses. Most international investors hesitate to provide capital to African startups. Anglo-Saxon, Chinese and Arab investment funds focus only on most large corporate entities.

A new financial instrument, with very flexible rules, could strengthen small business growth in Africa and could wind up changing the entrepreneurial landscape for the better. Initially developed in the United States, Crowdfunding allows users to submit projects that have potentially had difficulties receiving traditional funding (from banks, venture capitalists, angel investors…) by raising small amounts of money from a large number of ordinary individuals (Internet users, network of contacts, friends, and small-scale investors).

Its purpose varies, from artists seeking support from fans, to small businesses looking for funding, to technology, to political campaigns, to citizen journalism or organizations dedicated to disaster relief.

Crowdfunding platforms give entrepreneurs new tools to describe their investment opportunity and people to become investors in these opportunities for very little money. There is no legal obligation to hire lawyers or advisors to assist in the fundraising process.

The project initiators disseminate the information using their social networks and encourage many other people sharing the same interests in their networks to do the same.

In addition, crowdfunding is an excellent way for entrepreneurs to test and improve their products/services through these online platforms and it provides a forum of feedback from the internet community. If the projects do not reach its funding goal after time expires, it would mean that the products or services do not meet the public needs, requirements and expectations and some changes need to be made. Finally, one of the advantages of crowdfunding is that project supporters can raise money without giving away any equity.

Kickstarter, one of the pioneers of crowdfunding, has implemented a huge number of successful projects in the United States and has demonstrated convincingly the viability of the concept. Given that the sector exhibits huge growth potential, , an online platform connecting investors and entrepreneurs, is currently undergoing major changes in order to become a true crowdfunding platform for all kind of projects in Africa. One of the Obama Administration’s initiatives, which have been the subject of profound debate in financial and economic circles in the United States, may be of interest to the business landscape in Africa. In November the House of Representatives passed a bipartisan bill, the Entrepreneur Access to Capital Act, which would allow anyone to raise startup capital for their business, up to $10000.00 via the Web (or up to 10% of one’s income, whichever is less) , with a cap for companies at $1 million and provides a Crowdfunding exemption from SEC registration. Donors will be considered as true early-stage investors because they will participate in the company’s capital as partners or shareholders. Under current U.S. law, the sale of equity in private companies is limited to “accredited investors”. The bill that was passed in November provides a Crowdfunding exemption from SEC registration.

The enormous potential remains largely untapped in Africa, with only a fledgling sector in Europe, which is predicted to have one of the brightest futures.

Crowdfunding platform could help more early-stage entrepreneurs launch and develop their business idea in Africa. The representatives of economic authorities should quickly implement a robust legal and regulatory framework in order to promote and encourage crowdfunding on the continent.

The Regional Stock Exchange, which handles transactions for eight States of West Africa (Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo), the Central African Stock Exchange (led jointly by Gabon, the Central African Republic, Chad, Congo-Brazzaville and Equatorial Guinea), the Douala Stock Exchange and the Rwanda Stock Exchange are also the way for businesses to get funding by issuing stocks and bonds. Unfortunately, these financial markets have a very small number of listed companies, have failed to persuade all the identified businesses to go public and are unable to draw the attention of international investment community. The probable merger between the Central African Stock Exchange and the Douala Stock Exchange will not make things any better. Economic fabric is mainly made up of very small enterprises (VSEs) and small and medium-sized enterprises (SMEs) in the majority of French-speaking countries in sub-Saharan Africa. Many of these ventures are not eligible for listing.

The above-mentioned stock exchanges remain essential structures and should coexist with crowdfunding organizations. Its development will depends on a dense network of innovative, successful and highly dynamic SMEs, the improvement of bancarization level, an active campaign to educate business owners about the introduction to the stock exchange, the establishment of a stock market culture, a high savings rate of private households, the existence of online brokerage firms and an administrative and financial autonomy, free of political interference. There is still a very long way to go before they reach the same size as the major international financial centers.

Harley McKenson

Founder of McKenson Invest

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