Sun, 04 October 2020
Of the many marvels of the technologically connected and globalised world that we live in, the aspect that has fascinated me the most, has been its ability to aggregate. Technology aggregates people, opinions, data and even money. Crowdsourcing is a way that formalises such aggregation i.e. it is way to acquire one-time skills, services, money etc by opening to a larger audience. However, the root of the concept lies in the humble village support system where, when one needed something, you simply channelled your near and dear ones to help you. Only, now, with technology, you can channel those that are far from you and hold your “cause” (not you) dear. Narrow this down to just money related activities and you have crowdfunding - which is a marketplace way to help fund your project, business, or cause. This space has come into its own in the past decade and could emerge even more powerful in a post pandemic world.
Crowdfunding has been a highly effective way to channelise non-profit work. Global web-based aggregators like GoFundMe or Fundly have emerged as powerful channels. Apart from charity work, platforms like Kickstarter help creative projects to come to fruition. Or, on a more business side, platforms like Indiegogo give technology entrepreneurs a chance to find financial support.
Within the GCC as well, crowdfunding is beginning to gain traction. In fact, UAE and Bahrain have both announced formal legislation and guidelines for the sector. Platforms like Smart Crowd which is a platform to crowdfund real estate in the UAE or, Eureeca which allows for small equity investments in the SME space or even platforms like Beehive (which recently entered Bahrain) and is a marketplace where individuals can lend to businesses in return for monthly returns. The scope of products that and services that can be sourced or funded through aggregators is significant. But how does the system really work?
There are two broad revenue sources for these businesses. The first is a success fee i.e. the aggregator or platform to take a percentage of the amount raised. This could be a fixed or flexible model. In the fixed model, if the project is successful and the whole goal is achieved the credit cards of individuals invested or donating are charged. In the flexible model, the project owner gets to keep the money raised irrespective of the total amount or the final goal being achieved. The second revenue source is a listing fee which like how classified work. So, someone who wants to raise funds, lists on a said aggregators’ website, and rents the space.
This whole model is quite a win-win because the people contributing, participate with small amounts of money so usually the risk of losing the funds is not a significant factor. If it is a Beehive type scenario its even safer for the investors or lenders because they even get monthly returns. At the other end, project owners without a close network of friends and family to help, can reach a wider audience, make their case and hope for the best. At a time when physical crowding is taboo, this is one way of harnessing the power of the crowd for progress.
Pria is a strategy consultant and advisor. You can follow Pria using the Instagram handle @businessclues33 or read more of her articles at www.business-clues.com