Crowdfunding in Nigeria: Is It Viable?

If you’re a Nigerian entrepreneur, you’re probably familiar with this cycle - you have an amazing business idea, but when it’s time to fund it, your bank account suddenly screams "insufficient funds". So how do you go about it? Let’s talk about crowdfunding.

Crowdfunding is a fundraising model that has disrupted traditional funding models all around the world and it is no different in Nigeria. Nigerian entrepreneurs are always on the lookout for how to raise funds amongst angel investors, venture capital firms, grants, and government programs, which have been the go-to options over the years. Now, crowdfunding has emerged as an alternative source of funding that some entrepreneurs are taking advantage of to give their business the financial boost it needs.

Is crowdfunding a viable option for Nigerian businesses and can it compete with traditional and more popular fundraising options? This blog post will explore the pros and cons of crowdfunding, its viability, crowdfunding platforms to use, and how to successfully crowdfund for your startup.

What is Crowdfunding?

Simply put, crowdfunding is the practice of raising small amounts of money from a large number of individuals. Nowadays, crowdfunding is done on the Internet and people who contribute to the fundraising efforts are those who have been convinced of the impact that the project or venture will make in the target market or that they’ll earn a substantial return on their investment.

Crowdfunding can be used to raise funds for different purposes like starting a business, funding a creative project, or funding a social project that serves a community.

Currently, the Securities and Exchange Commission (SEC), regulates crowdfunding in the country. This means that raising funds from the public is subject to certain legal and regulatory requirements that must be followed. Every Tom, Dick and Umar is subject to these regulations. The commission sets the rules for the conduct of crowdfunding and has the legal authority to approve or reject crowdfunding campaigns from startups or entrepreneurs.

You can learn more about the rules on crowdfunding set by the SEC here.

To launch a crowdfunding campaign in Nigeria, you need to abide by the following:

• Crowdfunding platforms must be registered with the SEC

• MSMEs (Micro, Small, and Medium Enterprises) eligible for crowdfunding must be incorporated as a company in Nigeria.

• Campaign launch can be done on any approved crowdfunding platform of your choice.

• Upon a successful crowdfunding campaign, you must use the funds according to the terms stated in the approved proposal.

• If the project is not successful and the funding goal is not met, investors may be entitled to a refund, depending on the terms of the campaign communicated beforehand.

Types of Crowdfunding

There are different kinds of crowdfunding that you can adopt depending on what you hope to achieve and what you’re raising the money for.

1. Donation-Based Crowdfunding

This form of crowdfunding is typically used for community initiatives, social impact projects and charity projects. Because it is meant to aid underserved people, it appeals to people’s goodwill, altruism and desire to support a worthy cause.

Such causes or projects that use this model of crowdfunding are healthcare, education, disaster relief and community water projects.

2. Reward-Based Crowdfunding

If you have a creative project or you’re a startup looking for funding and you have something to give in return, then you can use this model. It offers tangible rewards to those who fund it.

3. Equity Crowdfunding

Just like reward-based crowdfunding, this model also offers something in return for funding. It offers investors an ownership stake in a company in exchange for their money.

4. Lending-based/Debt Crowdfunding (Peer-to-Peer Lending)

If you believe your business has the potential to be profitable in a substantial amount of time, then you can use this model to ask people to loan you or your business money and promise repayment with interest at an agreed-upon date. This model can help small and medium-scale enterprises (SMEs) to access capital fairly quickly.

Top Crowdfunding Platforms in Nigeria

Online crowdfunding platforms connect investors (the people interested in funding) with entrepreneurs, startups or project owners. Investors go ahead with funding projects when they believe they can get a good return on their investment.

Wondering where to start? Here are some crowdfunding platforms that you can use in Nigeria:

1. NaijaFund

NaijaFund supports donation-based and reward-based crowdfunding and is used for a wide range of causes/projects ranging from healthcare, education, and charity to passion projects, and business endeavours. It is relatively easy to use and accepts local payment options.

2. Kickstarter and Indiegogo

Kickstarter and Indiegogo are two separate global platforms that can be used for crowdfunding. You can use them to fund your creative campaigns and business ideas. They have helped raise over $1 billion over the years in multiple countries and you can use them to fund your project too. However, be completely sure that the payout methods are suitable for you before going ahead to create a campaign.

3. GoFundMe

This is one of the most popular crowdfunding platforms in the world and it is known for donation-based crowdfunding. You can raise funds for what you care about and get donations from people all around the world. With more than $50 million raised every week, your project could benefit from the goodwill of people who want to help.

4. ThriveAgric

This is an agricultural crowdfunding platform that allows investors to fund agricultural projects and earn returns. With thousands of farmers onboarded around the country, you can benefit as a farmer or an investor.

Other crowdfunding platforms:

• Quickraiz

• Impact Hub

• Donate.ng

• Donate-NG

The Benefits of Crowdfunding in Nigeria

• Helps to raise capital

Startups are able to raise funds without applying for bank loans or giving up too much equity.

• It provides market validation

A successful crowdfunding campaign is proof that there’s demand for your product/service in the market you’re targeting.

• It helps to create brand awareness

Crowdfunding can help generate much needed publicity for your startup.

The Challenges of Crowdfunding in Nigeria

Before you get too excited, here are some struggles that accompany crowdfunding:

• Fraud

When contributing to a project, there is a risk of campaigns that are fraudulent and this means that backers/investors will lose their money on a fake project that probably never existed. Potential investors must carry out thorough research before making contributions.

• Payout difficulties

Some platforms may require foreign bank accounts for withdrawals.

• Marketing costs

To get the word out about your campaign, a significant level of publicity needs to be done on social media and this may incur other costs.

• Legal and regulatory challenges

Compliance with SEC crowdfunding rules may be a struggle for some platforms. Ensure they are compliant before investing or launching a campaign on them.

• Competition

Many crowdfunding campaigns are launched daily and a lot of them may be vying for the same set of investors. It can be difficult to get funding if your campaign doesn’t stand out.

Is Crowdfunding Viable in Nigeria?

Short answer: Yes.

Long answer: The success of your crowdfunding campaign depends on:

• The type of project.

• The target audience.

• The effectiveness of the campaign.

Social impact projects and creative ventures with strong community support, donation and reward-based crowdfunding are more likely to succeed.

For startups seeking significant capital, equity crowdfunding may hold promise in the long term, but requires careful navigation of the regulatory landscape.

How to Run a Successful Crowdfunding Campaign in Nigeria

Want to boost your chances of success? Follow these steps:

1. Choose the right crowdfunding platform to use

2. Explain your project clearly

3. Set a realistic funding goal

4. Create an engaging campaign page to house the captivating story behind your project

5. Use relevant and high-quality images

6. Promote your campaign and engage with your audience online

7. Offer rewards and incentives

8. Be transparent and keep investors updated regularly about your campaign.

Conclusion

Nigerian entrepreneurs can successfully use crowdfunding to raise capital when it is done strategically. Crowdfunding can also be immensely helpful for creating brand awareness, validating a business idea, and building a community.

Crowdfunding is a fundraising model that is worth exploring if all other avenues fall through. However, ensure you do your due diligence while launching your campaign.

Have you ever tried crowdfunding in Nigeria? Share your experiences in the comments.