Crowdfunding, a new source of income for CFOS
The dynamics in the business world have changed and a lot different to what they were a decade ago. Employees today desire more from their day-to-day jobs. It is common for employees to propose projects, close to their aspirations, that could be harmonised into their day-to-day job activities. Employees have become entrepreneurial.
An ACCA report, Culture and Channelling Corporate Behaviour, suggests that employees are loyal to the following three factors: mastery of one’s subject, autonomy and psychological relatedness of their values. The latter is evident in that a lot of employees desire to serve their community by relating they job activities with the needs in society. “The entrepreneurial approach” has found fame in the corridors of business and more and more employees and businesses are enjoying the benefits of this approach. CFOs and team leaders that embrace such practice are however often faced with the challenge of financing these projects.
Crowdfunding has become a new way that SMEs around the globe are financing their projects. Crowdfunding is not only reserved for SMEs, but it can be utilised by CFOs that do not have the budget to finance all the projects that employees desire to engage in.
Crowdfunding is by definition, “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.” This is not a new phenomenon, the only difference is that it is now web-based and the pool for investors is much greater than before when one had to approach individuals they hoped would invest in their cause.
How does crowdfunding work? There are web-based platforms that CFOs can go to or direct their employees to. Indiegogo, Kickstarter, Onevest are some of the well-known ones globally that project creators utilise; in South Africa the phenomenon is still at its young stages, but there are platforms that have been established to cater for this need: startme.co.za, thundafund.co.za, jumpstarter.co.za, fundfind.co.za. Project creators can create a profile typically containing a short video, an introduction to their project, a list of rewards per donation, and some images to elaborate. The idea is to create a compelling message that readers will be drawn towards.
Crowd funding offers a lot of benefits to employees that seek to integrate their passion into their work and also to CFOs that want to avoid some risks associated with funding projects proposed by employees. Forbes presents the following as benefits of crowd funding:
- It provides access to capital
- It hedges risk
- It serves as a marketing tool
- It gives proof of concept
- It allows crowdsourcing of brainstorming
- It introduces prospective loyal customers
- It’s easier than traditional applications
- It’s free PR
- It provides the opportunity of pre-selling
- It is free
Charlotte Chung, senior policy adviser at ACCA investigates the steady growth rate of peer to peer business lending and crowd finance in a report titled Peer to peer and crowd finance – from novelty to maturity. She offers an insight into receivables trading and crowd-funding platforms that promise to significantly disrupt the debt and equity SME financing sectors. While they are still very small by the wider sector’s standards, these platforms are growing at a rate of 3 x per year in the UK – a mature market. For CFOs and other business leaders that are considering crowdfunding as a way to fund employee projects, this report will add to the knowledge they have so far.