ADVENT CROWDFUNDING
ADVENT CROWDFUNDING – BASIL SPRINGER COLUMN WHICH APPEARED IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON JULY 29, 2013
“Be strong, and let your heart take courage, all you who wait for the Lord.” – Psalm 31:24
I was recently introduced to the term crowdfunding at an interactive dialogue session on “Smart partnership inclusivity strategies for leveraging technology – Financial Inclusion” in Dar es Salaam, Tanzania. The participant, an African Ambassador resident in Europe, who introduced the concept, advised that it was gathering momentum quickly in Europe and the USA.
On returning to the Caribbean, I learnt of a group which is currently establishing a crowdfunding and crowd sourcing platform in Barbados and I quote from their promotional material: “To cater and be a portal for start-ups and entrepreneurs, especially those in the 15-35 age range… ownership is very important and although some persons may not be entrepreneurial, they should still be given the opportunity to feel as though they have been a part of something positive, progressive and trailblazing. If this can be done by a simple donation or providing of money in exchange for equity in a business, this should be made possible…At present, there are approximately 400 crowd funding sites worldwide. Crowd funding experts purport that only the top four are taken seriously.”
This new crowdfunding and crowd sourcing platform came to light when the group expressed interest in partnering with Bank On Me, a new reality TV show being produced in Barbados, the aim of which is to create awareness on how start-up, spin-out and scale-up enterprises can attract investment in an entertaining format, and ultimately seeks to develop and elevate enterprise development locally and regionally. Bank on Me is produced by Blue Waters Productions and presented in association with Scotiabank.
The concept of crowdfunding was also raised, as a means of alleviating the access to money constraint, last week in Trinidad where I was invited to give an interactive guest lecture on “Growing Pains and Growth Challenges” to a class of MBA students pursuing a course on enterprise development and business growth at the Arthur Lok Jack Graduate School of Business.
The Oxford Dictionary definition of crowdfunding is 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. Musicians, filmmakers, and artists have successfully raised funds and fostered awareness through crowdfunding. Even though I am aware of the practice of raising funds through demand loans from family and friends and have toyed with the idea of capitalising a venture capital company by raising equity from a number of individuals with investment capital to spare, I was not aware of the specific term crowdfunding.
There are many promoters of enterprises in Barbados and Trinidad and Tobago, in particular, with innovative ideas that have been converted into products and services for sale. Many of these start-up, spin-out and scale-up enterprises have been and continue to be turned down by the existing bureaucracy when they seek investment funding. Crowdfunding and crowd sourcing complement the other sources of funding e.g. savings, demand loans from family and friends, grants from local and foreign institutions, equity/angel investors, commercial bank loans/overdraft facilities and benevolent seed/venture capital.
The commercial banks often turn down bankable applications for loan funding from enterprises because the enterprises do not have the required hard collateral. This is reasonable since there is a real risk involved due to the historical business failure rate which may be as high as 90% of businesses failing in the first four years of operation. By the way, the collateral does not decrease the business failure rate it protects the depositors’ money.
CBET’s position is that we must examine the reason why businesses fail at such an alarming rate and have concluded that it is because of a failure to manage the business systems well. These business systems are corporate governance, marketing, operations, HRD and investment finance. If we apply the basic functions of management (planning, organising, staffing, leading and monitoring) to these business systems then there is an enhanced opportunity to reduce the risk of business failure by more diligent management of the business systems.
In the CBET Shepherding Modelâ„¢, the element of shepherding is proposed as the collateral which mitigates the risk of business failure. The concept is called “Shepherding as Collateral”. If commercial banks were to have the courage to adopt this form of collateral which is delivered by the ManOBiz Matrixâ„¢ (a shepherding tool), then not only would the business failure rate be reduced but they would be able to reduce the cost of their risk management function in the future thus rendering themselves more profitable by this cost reduction, by the market expansion caused by economic growth as a result of business success and by increased productivity.
The participants in the crowdfunding concept are exposed as soon as they release their money, albeit small, to the central crowdfund for investment or otherwise. The “Shepherding as Collateral” concept also provides some greater security for the crowdfund investors.
At a recent retreat in Trinidad where I was presenting the ManOBiz Matrixâ„¢, one participant in the feedback session at the end of the retreat opined “deceptively simple!” Another, after undertaking a painstaking interactive dialogue to analyse the 25 cells in the ManOBiz Matrix template remarked: “I now see why businesses fail at such an alarming rate because the average business does not go through the detail that is required by the diligent application of the Matrix to the enterprise”.
If more enterprises adopt the CBET Shepherding Model in its entirety then more enterprises will be successful and we shall reduce the wealth divide and with it some of the social problems which has been exacerbated by it.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET – Columns are archived at www.cbetmodel.org).