Expected since 2018, law 15–18 on crowdfunding is now operational. This follows the publication of the newly passed law in the country’s Official Bulletin (BO). After the adoption of the new law by the two Chambers of Parliament, its entry into force which takes life from this publication, as specified in article 70 of the law.
Morocco’s Minister of Economy Mohamed Benchaaboun
Here Is What You Need To Know
Presented in March 2018 by the country’s Minister of the Economy and Finance, the new law is part of the efforts of authorities in Morocco to strengthen the financial inclusion of young project leaders and support economic and social development.
The bill was approved by the government council in August 2019, then presented to Parliament in December of the same year.
Three types of crowdfunding are permitted under the new law. These are loan, equity and grant crowdfunding.
The law only regulates crowdfunding portals, and goes ahead to state that to be eligible for license to own any crowdfunding portal, the applicant must:
Have themselves a prevention and risk reduction policy to identify the origin and destination of funds.
Request additional information regarding the relevant funds.
Check the banking prohibitions of the various actors.
All activities related to crowdfunding under the new law will be regulated by Morocco’s central Bank, Bank Al-Maghrib.
Nigeria’s Securities and Exchange Commission recently approved a new crowdfunding regulation. Under the new rules, startups are only allowed to raise a maximum of the following amounts within a 12-month period: i) The maximum amount which may be raised by a Medium enterprise shall not exceed N100Million ($260k); ii. The maximum amount which may be raised by a Small enterprise shall not exceed N70Million ($182); iii. The maximum amount which may be raised by a Micro enterprise shall not exceed N50Million ($130k).
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Deya, a Luanda-based tech startup, has raised its first round of over $50 000 in pre-seed funding from a group of local angel investors. The startup will use the funding to develop its platform, extend its current business model with the ultimate effect of improving its sales.
“I am thrilled about the success of this financing round, as it lasted for almost a year until we closed negotiations with investors on this round. This pre-seed financing is important because it will allow us to develop new intellectual property for the platform and expand Deya’s products offer so that its users (individuals and organizations) can get the most value possible, and thus enabling us greater exponential growth,” said Vanda de Oliveira, CEO of Deya.
Team: Morato Custódio, Vanda de Oliveira, Ricardo Figueiredo (from left to right). Source: Deya
According to a statement released by the startup, it has raised around $22 000 for social impact projects since it was founded.
Launched in 2017, claims to be Angola’s first and Portuguese-speaking African countries crowdfunding platform and aims to increase access to financing for social impact causes and entrepreneurs.
“The beauty of crowdfunding is the possibility for individuals, companies, and organizations to be able to raise funds without the intermediation of banks or other traditional financing institutions, and in this potential, we are working to become a reference platform in this sector for sub-Saharan Africa in the next five years. This funding is the first phase to reach this goal,” de Oliveira said.
With a safe and open mechanism and tech-based interface, the platform serves as the middle-man between fundraisers and donors. The startup is currently operating in the donation and reward model, but is working within the organisation to develop an equity model. Implementation of the equity model would enable start-ups and small and medium-sized companies to expand funding through collective financing.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Looking to raise capital for your startup through investment-based crowdfunding in Nigeria? Nigeria ’s Security and Exchange Commission has put in place a new regulation on crowdfunding which will allow businesses and startups in the country to raise money from the public. The practice is similar to what South Africa already has. Intergreatme, a South African startup, as an instance, recently succeeded in raising over R32.7 million ($2.2 million) by simply putting up an online request for funding in return for shares on Uprise.Africa and getting overwhelmed by public contributions.
Crowdfunding
Below is what Nigeria’s new regulation on crowdfunding is all about.
What Categories Of Businesses Can Raise Funds Through Crowdfunding Under The New Rules?
Under the regulation, only MSMEs (Micro, small and medium enterprises, generally referred to as “startups”, for convenience, under this article) registered as a company in Nigeria with a minimum of two years operating track record are eligible to raise funds through a Crowdfunding Portal registered by the Securities and Exchange Commission. However, if the startup has been less than 2 years in operation, but has a strong technical partner who has been in operation for at least 2 years, the startup will qualify. The startup will also qualify if it has a core investor on ground.
However, some startups are prohibited from raising funds through a crowdfunding portal, and they include those with (i) complex structures (that is, a startup without adequate clarity about its ownership or control which make it difficult to immediately ascertain the beneficial owners of the entity) ; (ii) public listed companies and their subsidiaries; (iii ) startups with no specific business plan; (iv) startups that propose to use the funds raised to provide loans or invest in other entities.
Also, if a crowdfunding portal or any of its officers, directors, shareholders or related persons own or control more than 5% of the shares of the fundraising startup, the startup will be barred from raising funds on the portal. However, the funds may still be raised if approval of the SEC is first sought before the startup is granted access to the portal.
Who Regulates The Fundraising Startups, SEC Or The Portal?
Under the rules, SEC does not directly interface with the fundraising startups. Indirectly, SEC vets the fundraising startups’ crowdfunding applications through the submissions made by the crowdfunding portals on behalf of the fundraising startups. This leaves SEC with far-reaching powers to approve or reject. No procedure was, however, stated in the regulation for appeal against rejection.
How Much Can A Startup Raise Through The Crowdfunding Portal?
Startups are only allowed to raise a maximum of the following amounts within a 12-month period: i) The maximum amount which may be raised by a Medium enterprise shall not exceed N100Million ($260k); ii. The maximum amount which may be raised by a Small enterprise shall not exceed N70Million ($182); iii. The maximum amount which may be raised by a Micro enterprise shall not exceed N50Million ($130k).
For startups that run digital platforms that connect investors to specific agricultural or commodities projects for the purpose of sponsoring such projects in exchange for a return (such as FarmCrowdy, the maximum amount they may raise through the portal within a 12-month period is N1bn ($2.6m), which may be increased if the startup obtains approval from SEC.
How Can Startups Crowdfund Under The Regulation?
For startups in Nigeria desiring to raise funds under the crowdfunding regulation, the following steps must be followed:
The startup must fall under the categories of businesses allowed above.
Application for registration as a fundraiser to a crowdfunding portal (similar to Uprise.Africa in South Africa) is then made. A Crowdfunding Portal is a Nigerian company which must maintain capitalization to the tune of N100 million. The portal must also run a website, portal, application, or other similar module that facilitates interaction between fundraisers and the investing public.
Due Diligence is then conducted on the startup by the crowdfunding portal. The due diligence exercise will, cover, among other things, (i) background checks on the startup to ensure fit and properness of their board of directors, officers and controlling shareholder(s); (ii) the business proposition of the startup.
Once the application has been accepted by the Crowdfunding Portal, the startup will then proceed to raise funds from the public, in return for corresponding shares in the business.
However before raising the funds, every fundraising startup shall issue an offering document, which must contain information such as (i) warnings to investors (ii) the name and address of the startup, directors and officers; (iii)holders of more than 5% of the startup’s shares; (iv)description of the business of the startup; (v) principal risks facing the business of the startup; (vi)use of proceeds; (vii) target offering amount (and a deadline to reach the target offering amount); (viii) risk factors; (ix) related party transactions (x) exit options for investors, etc.
The offering document must be published to the investors through the crowfunding portal.
For now, only plain vanilla bonds/debentures, ordinary shares and other investment instruments can be issued in return for the investors’ funds by the startups.
Throughout the fundraising period, startups will be rigorously monitored by the crowdfunding portal.
Accordingly, the monitoring will extend to the conduct of the startups, and the portal is empowered to take action against any misconduct of the startups. The portal will also monitor fundraising startups to ensure that the fundraising limits imposed on the fundraiser are not breached. Furthermore, the portal will monitor investors to ensure that the investment limits imposed on the investors are not breached.
To this effect, the portal is required to file regular reports about the fundraising startups and their conducts throughout the fundraising period with SEC.
What Happens When Investors Invest In A Startup Through The Crowdfunding Portal?
Under the regulation, investors may be allowed to invest in startups hosted on the crowdfunding portal as long as they comply with the investment limits specified by SEC. For now, retail investors may not invest more than 10% of their annual income in a calendar year; and (ii) Sophisticated, High Net worth and Qualified Institutional Investors are not subject to any limits.
While fundraising, it forbidden for a startup to hold a fundraise on different crowdfunding portals at the same time.
At the end of the fundraise, investors will be allowed a period of 48 hours during which they may withdraw their investment.
If there is a big change which will affect the fundraiser, the investors will be given the option to withdraw their investment if they choose to do so within 7 days after they have been properly notified.
Should the investor decide to cancel his/her participation in the fundraise, all funds which may have been debited from or blocked in their account shall be refunded or released within 48 hours of the request to cancel.
However, once the investors have invested, their investment funds become locked in after they have been allotted shares or other investment by the startup. This remains so until after one year, except under some exceptional circumstances such as where the investors transfer their shares to other retail investors, family members, the startup itself, a high net-worth individual or an institutional investor.
In any case, retail investors are entitled to withdraw from the startup or to sell their shares, whenever controlling shareholders transfer control of the startup to third parties within three years from the conclusion of the offer.
How Are Funds Invested Through The Crowdfunding Platform Treated?
Under the new crowdfunding regulation, every crowdfunding portal shall appoint a custodian who shall establish and maintain a separate trust account for each funding round on its platform. The custodian must be a financial institution registered by SEC as a Custodian.
Funds invested will be maintained by the Custodian in a trust account and will only be released to the startups after certain conditions are met.
To begin with, funds raised would only be handed over to the startups if the target amount or the lowest threshold of funds to be raised is met.
Where the lowest threshold is not reached at the end of an offer, the crowdfunding portal shall effect a refund to all investors within 48 hours.
Investors shall have the right to withdraw any offer or agreement to purchase the securities or investments instruments 48 hours after the closing date stated in the startup’s offering documents.
Thereafter, an investor is only able to cancel in the event of a material change to the offering.
Where the funding target is reached, the crowdfunding portal shall make funds available to the startup within 24 hours provided that where the fundraiser is a public startup or a public startup by default, the portal shall require evidence of registration of the securities with the SEC prior to transferring the funds to the fundraiser (where applicable).
Where the amount raised meets the minimum amount but falls short of the target amount, the fundraiser shall provide a revised plan for the proposed use of funds to the investors and the portal, provided that the underlying project(s) to the proposed use of funds can be downscaled and executed independently without negatively impacting operations of the startup.
A crowdfunding portal shall take all reasonable steps and establish measures by which it is able to verify that the proceeds raised from its platform are utilized for the stated purpose.
For an offer to be successfully completed, the minimum amount indicated in the offering document which must be sufficient to accomplish the business objectives of the fundraiser must have been subscribed for.
How Long Does Each Crowdfunding Campaign On The Portal Run?
A funding project will run on a crowdfunding portal for not more than (60 days), although the period may be extended for a further period of not more than 30 days upon such conditions as may be specified by the portal.
As An Investor, How Are Personal Data Treated Under The Rules?
The rules make extensive provisions for the protection of personal data. Among other things, it provides that the crowdfunding portal must ensure security and confidentiality of information collected from investors. They are also required to keep all a copy of all relevant documents used on the portal for a period of at least 7 years. The fundraising startups are, themselves, required to maintain an accurate list and details of all investors after the fundraising.
Are Startups Required To Pay Any Fees Under The Rules?
Yes. Startups fundraising through the crowdfunding portals are required to pay fees only to parties involved in each crowdfunding campaign, such as the crowdfunding portal or the startups’ solicitors or accountants, provided that the total fees paid do not exceed 5% of the total funds raised in each campaign. The startups are totally forbidden from paying directly or indirectly a commission, finders’ fee, referral fees or similar payment to any person in connection with an offering other than to the crowdfunding portal.
What Are The Likely Difficulties A Startup May Face Should It Explore The Crowdfunding Option?
Under the new rules, some of the greatest barriers a startup may face should it explore the crowdfunding options include that:
The extent a startup may go with the publicity of the fundraising is largely limited. The crowdfunding portal and the startup are limited to their websites at all times, and are therefore restricted from posting about any crowdfunding campaign on other platforms, such as the social media. The crowdfunding portal is empowered to vet each marketing material that goes out through the startup. This will limit the capacity of the startup to raise funds quickly.
Compared to other jurisdictions, the largest amount available to a startup, apart from a commodity investment platform, from each crowdfunding campaign in a year is only limited to N100m. In South Africa, startups can raise as much as $2m or more. In the US, companies raising money through regulation crowdfunding can now raise up to $5 million. N100m is only about $260k, depending on the most current exchange rate of the Naira.
Again, the definition of an MSME under SMEDAN only largely worsens the case as most startups substantially lack the capital to meet the requirements of the definition. This situation does not augur well for a society interested in allowing technological innovations to flourish. Nothing stops Nigeria from going ahead to enact a “Startup Act” like Tunisia or Senegal, in this regard.
Furthermore, the process of obtaining a signed acknowledgement on disclosures on investment risks from the investor by the startup is quite unclear and, will to a large extent, deter investors from such investments. A better clarity would have sufficed.
There is no certainty as to the recommended 2-day approval period given by SEC for startups who have submitted their applications for crowfunding. Thus, this gives room for an application to last for ages before it is approved.
Again, SEC requesting to see and approve every crowdfunding application before being listed on crowdfunding platforms amounts to double (or over) regulation, and a huge disincentive to the intermediary portals who apparently look like messengers, and who are required not to charge more than 5% of the total amount of the funds raised, legal or accounting fees included. Why not ask the fundraising startups to submit their applications directly to SEC?
Finally, like always, the regulations around foreign crowdfunding portals remain largely nebulous and open-ended.
NB:
Micro Enterprises in Nigeria are those enterprises whose total assets (excluding land and buildings) are less than Ten Million Naira with a workforce not exceeding ten employees.
Small Enterprises are those enterprises whose total assets (excluding land and building) are above Ten Million Naira but not exceeding One Hundred Million Naira with a total workforce of above ten, but not exceeding forty-nine employees.
Medium Enterprises are those enterprises with total assets excluding land and building) are above Fifty Million Naira, but not exceeding One Billion Naira with a total workforce of between 50 and 199 employees — Source: SMEDAN Nigeria
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Nigeria new regulation crowdfunding Nigeria new regulation crowdfunding Nigeria new regulation crowdfunding Nigeria new regulation crowdfunding
Kiro’o Games, the Cameroonian gaming company that produced the country’s first ever locally made video game, is changing the way crowdfunding is done in Africa. After raising more than $64,000 from 1310 investors in 2015 on the US-based crowdfunding platform, Kickstarter, the company decided to bring it home by building and running its own crowdfunding campaign in Cameroon. Rebuntu, the final product of that effort, to date, has raised more than $850,000, just $150,000 off its funding target of $1 million, even though the funding campaign was started April last year.
Kiro’o Games
And apart from the expected promises of giving investors (each of whom invested at least $500) voting and some management rights, Kiro’o Games’ Rebuntu also offers them the right to resell their shares in the company 3 times the purchase price by 2026 (or 10 times by 2030) alongside receiving accumulated dividends of more than $1200 (on minimum investment sum of $500). The funding model not only offers a strong insight into the alternatives to scarce venture capital in Africa, but also reveals the relative ease of fundraising available to Cameroonian startups.
Why The Rebuntu Crowdfunding Product Is So Significant
Kiro’o Games’ crowdfunding platform Rebuntu is unique in many ways.
First, it marks a new shift in the equity crowdfunding model. And unlike intermediary platforms which could be used by startups to raise funds, Rebuntu has proven that startups can themselves build and run their own crowdfunding campaigns, provided that they comply with existing laws and regulations. This will not only save them the cost of running successful campaigns on intermediary platforms, but will also reduce the time spent interfacing with intermediaries and regulators. A good case in point is raising funds through South Africa’s leading crowdfunding platform Uprise.Africa. To run a successful crowdfunding campaign on the platform, Uprise usually recommends allotting $1600 for campaigns between $189,000 to $315,000; $3200 for campaigns between $315,000 to $630,000; and $5000 for campaigns between $630,000 and above. All fees are exclusive of Value-Added Tax (VAT 15%), including 8% VAT deducted on successful capital raises as well as 2% management fee, 5% Uprise.Africa platform/capital raise fee and 1% charge on the proceeds raised to cover the running costs of Uprise Fund.
Secondly, with self-run crowdfunding platforms, there are usually no time constraints on fundraising. Rebuntu’s $1 million fundraise has been on since April, 2019, with no end in sight until the funding goal is accomplished. Although this may appear slow and daunting, going through intermediaries usually comes with challenges related to time. As an instance, even though fundraisers on Uprise.Africa can set the campaign duration to last between 30 and 90 days, full campaign, by estimates, only run approximately for 6 months, covering campaign preparation, campaign run, shares issues and payout.
Again, the Rebuntu product is highly effective in building investor-company relationship quicker. Unlike intermediaries where the fundraising companies leave a substantial part of the relationship building process to the crowdfunding platforms, self-run platforms such as Rebuntu, takes responsibility for constructing relationships with their prospective investors, an advantage that can yield more investments and returns in the future.
Therefore, even though securing investors may be difficult for less reputable companies, in the face of increasing events of fraudulent practices by investment companies, investors secured through self-run platforms tend to be closer to the company than those secured through intermediaries. Nevertheless, this may still be counterproductive as intermediary crowdfunding platforms tend to be shock absorbers in the event of challenges with public investments. This explains the recent case of Uprise.Africa’s R25m fake pledge scandal in which the R25-million consisted of five pledges made by a Gauteng woman, Nokuthula Jessica Maaga, who was understood to be under investigation by South Africa’s First National Bank (FNB) and the Financial Intelligence Centre (FIC). According to sources, the source of income for the funds was in question. In this scenario, Uprise.Africa, and not Intergreatme, the startup in which the investment was made, was on the front burner, a classic case of intermediary crowdfunding platforms absorbing investment risks on behalf of their portfolio companies.
In any case, self-run crowdfunding platforms, through proper due diligence compliance monitoring and strong legal advisory, can themselves eliminate incidences of risk exposure.
S/N
Name of Startup
Sector
Platform Used For Crowdfunding
Country Location of Startup
Country Location of Crowdfunding Platform
Amount Raised Via Crowdfunding
Additional Remarks
1
Intergreatme
Regtech
Uprise.Africa
South Africa
South Africa
R32.6m ($1.9 million)
*R25-million of the raise returned because the money that investors pledged was suspect.
2
My-iMali
Fintech
Uprise.Africa
South Africa
South Africa
R38,000 ($2600) out of $1.6 million target
*Quickly proceeded to raise funds from Crossfin via traditional VC way, 4 months after launch of crowdfunding campaign.
3
Beerhouse
Uprise.Africa
South Africa
South Africa
R1.08m ($60k) out of R3m target
The R3 million funding for its new Tygervalley branch in Cape Town’s Northern Suburbs
4
Sun Exchange
Blockchain/off-grid
Uprise.Africa
South Africa
South Africa
R4.2m ($252k) out of R7m target.
All R4.2m refunded
5
Lula
Ride-hailing
Uprise.Africa
South Africa
South Africa
R361k ($21.7k) out of R2.5m
*Startup has raised more than $1m before crowdfunding
6
Drifter Brewing Company (Craft Beer)
Brewery
Uprise.Africa
South Africa
South Africa
R3.25m out of R3m target met
7
Eversend
Fintech
Seedrs
Uganda
UK
$1m out of out of $613k target
Top startup funding concluded through crowdfunding in Africa. *Facts not exhaustive
Why It Was Easy For Kiro’o Games To Run Its Own Crowdfunding Campaign In Cameroon
Perhaps Kiro’o Games’ self-run crowdfunding in Cameroon could best be explained from the standpoint of law.
In most countries, it is mostly prohibited for private enterprises to raise funds from the public without authorisation by relevant government agencies. This explains why most companies raising funds from the general public are always public companies.
But, in Cameroon, there is no law or regulation on crowdfunding unlike what is obtainable in Morocco, Algeria and Tunisia. Currently, crowdfunding participants in the country only rely on the body language of the government which tends to support crowdfunding. In January, 2018, for instance, a cabinet council meeting chaired by Yang Philemon, issued a communiqué stating that “the Cameroonian government encourages other financing channels for SMEs, such as leasing or crowdfunding.” A national workshop organized in February 2020 also saw the Cameroonian government affirming its desire to promote crowdfunding.
In any case, the CEMAC Regulation of December 21, 2018 on payment services prohibits any person other than a credit, microfinance or approved payment institution from providing payment services within the CEMAC zone. The regulation also prohibits any person other than an approved investment service provider from dealing on the stock market as it relates with transactions in financial securities. CEMAC means Central African Economic and Monetary Community, a regional body set up to harmonize the regulation of the sectoral policies in member countries in the essential fields prescribed by the Treaty, namely, agriculture, fisheries, industry, trade, tourism, transport and telecommunications, energy and environment, research, teaching and vocational training. Cameroon is its member country.
Notwithstanding all these, it arguable that the particular part of the CEMAC regulation that touches on the public offering of shares only applies between countries and may not necessarily affect crowdfunding in each individual member country, including Cameroon.
“We cannot say that it (crowdfunding) is illegal because what is illegal must clearly be prohibited by law,” Boris Rodrigue Minlo Enguele, a Cameroon-based finance lawyer tells Afrikan Heroes. “That said, there is a sort of regulatory rigidity often noticed when considering texts governing finance in the CEMAC zone, especially as it concerns crowdfunding. The texts tend to state that crowdfunding activities in the CEMAC zone must either be done through public offering or through private placements, something which is regrettable because crowdfunding has its own processes and methods which are fundamentally different from public offering or private placements.”
“However, there is a regulation in gestation on crowdfunding in the CEMAC zone. We look forward to it,” he further says.
This non-legislation on crowdfunding perhaps explains why Cameroon has more than 4 local crowdfunding platforms. According to a recent report by the Bank of Central African States (BEAC), the activity of one of the major project financing platforms in Africa, KIVA, also shows that out of the 348,162 loans identified in September 2017, “Cameroon is the only country represented in the [central African] sub-region with 4,421 projects financed for a total of 1.1 billion FCFA, i.e., 0.74% of the total amount raised on the continent.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Indeed, this could be ground-breaking. No more waiting for years and centuries for startup IPOs to happen. With this new deal, once startups raise funds through equity crowdfunding in South Africa, the startups’ shares automatically become tradable on the floors of South Africa’s Stock Exchange. Money more here!
Here Is How Everything Is Going To Happen
Today, Africa’s first equity crowdfunding, Uprise.Africa, and South African alternative exchange ZAR X have come to an agreement that will see the mini stock exchange list any up-and-coming entities, which have already successfully raised capital via crowdfunding, and freely trade their shares on the open market.
Not only could the arrangement be the funding gap filler that fledgling South African entrepreneurs desperately seek, but it could bring the local capital market to the people.
The partnership also solves the fundamental flaw of all other pre-IPO models, Nel says, namely that once a company has issued the shares they remain fairly illiquid, with investors having their funds tied up until that company looks at going public.
Tabassum Qadir, co-founder, and CEO of Uprise.Africa says they plan to conclude at least three deals a month.
“We are simplifying venture capital through this mutually beneficial partnership for both entrepreneurs and investors,” says Qadir
“It means, when you have a business idea, you can leverage the Uprise.Africa platform to potentially raise capital quickly and ultimately list on a licensed stock exchange, making the shares tradable,” she says.
Etienne Nel, CEO of ZAR X, agrees that equity crowdfunding democratizes start-up financing by enabling entrepreneurs to raise additional capital, but also allows more people to invest in local businesses and in listed equity.
“Furthermore, it gives crowdfunding investors liquidity in their investments, which ultimately drives financial inclusion and job creation,’ he adds.
He says it gives this new generation of investors the same opportunities as high-net individuals and institutional investors, who can afford the investment costs of larger stock exchanges.
Not only are lower minimum investment amounts possible, but certain transaction fees and regulatory costs also don’t apply.
For example, the alternative exchange community is not subject to the Financial Services Conduct Authority (FSCA) protection levy and doesn’t charge for the custody of funds.
“It is also no secret that the ‘incumbent’ is more focused on institutional money that the interests of retail investors,” Nel says.
Equity crowdfunding is gaining much popularity across the globe, and it doesn’t look like it will slow down soon.
The World Bank, for instance, estimates that the global equity crowdfunding sector will be worth more than $93-billion by 2020.
Upraise.Africa is also putting the funding model on the map. It made headlines recently by facilitating a R34-million capital raising exercise for Intergreatme — a business that describes itself as a “platform that provides users with a secure, simple and effective way to share personal information with anyone”.
Qadir says the platform enables the trust to be built between investors and entrepreneurs and in doing so creates a supportive business ecosystem.
“And now crowdfunding investors can trade their holdings on the ZAR X platform,” she says.
“We have cracked the code. We have now derisked the proposal. We give investors the option to exit by allowing them to sell their shares at will. Usually, and in the current format, investors are tied up in an equity crowdfunding investment for between 6–8 years.
“We also aim to disrupt the country’s traditional funding landscape,” she adds, “which is rather limited and restrictive at that.”
As the IPO model certainly remains very viable for certain businesses of size wishing to launch into the public markets, it is not for everyone.
After these stock exchanges, the next biggest stock market in Africa is Mauritius, followed by Tunisia and Namibia.
Business Maverick had reported recently that it is a capital-raising method on the decline, and Nel says that they “are simply seeing more opportunities for investors and founders looking for methods that better fit their needs than what the traditional incumbents are offering”.
“The compliance costs of being listed on the bigger boards are devastating, and private money and smaller enterprises just find some of the disclosure requirements too cumbersome and restrictive,” he adds.
The Financial Sector Conduct Authority,(FSCA), (the South African market conduct regulator of financial institutions that provide financial products and financial services, financial institutions that are licensed in terms of a financial sector law, including banks, insurers, retirement funds and administrators, and market infrastructures) is still in the process of finalising regulations pertaining to crowdfunding, after releasing its draft proposals in mid-2017. The lack of regulation has been cited by some in the sector as the reason why equity crowdfunding has not taken off in South Africa as it has in more advanced economies.
But ZAR X and Uprise.Africa thinks their deal could be the catalyst needed to kick-start it all.
The World Bank believes the potential market for crowdfunding is significant.
It estimates in its report: Crowdfunding’s Potential for the Developing World that there are up to 344 million households in the developing world able to make small crowdfund investments in community businesses.
“These households have an income of at least $10,000 a year, and at least three months of savings or three months savings in equity holdings. Together, they have the ability to deploy up to $96-billion a year by 2025 in crowdfunding investments,’’ the report noted.
South Africa’s ZAR X Is Not As Small As You Think
ZAR X, one of South Africa’s newest stock exchanges, was granted an operational license in 2016 to operate by the Financial Services Board (FSB). ZAR X commenced operations on Monday, 5 September 2016.
Etienne Nel, ZAR X CEO, says the approval signifies a new era in tech-friendly and user-focused share trading. He said:
“ZAR X creates choice and offers corporate South Africa and the public at large a new opportunity to reduce unnecessary red tape, speed up transaction times and open up equity-based wealth creation to sectors of the South African population that for far too long have been largely excluded from full participation in the financial markets.”
ZAR X listings requirements are largely principles-based, enabling the process of a more flexible and efficient listing. ZAR X will initially offer a primary board for conventional company listings, an investment entities board that will cater for structured products and exchange-traded funds, and a ‘restricted market’ for BBBEE shares, Agri shares and other restricted securities which can only be traded within a clearly defined investor base.
Senwes and Senwesbel were the first companies to list on the Exchange commencing trading on Monday, 3 October 2016.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Good day for South African businesses, bad day for their Nigerian counterparts. This is because there are still so many issues surrounding equity crowdfunding in Nigeria. Below, we discuss the legal implications of crowdfunding in Nigeria more intensely.
Crowdfunding sometimes appears the only alternative for start-ups, in the face of stifling interest rates on loans from banks and financial institutions, and lack of funds from family and friends as well as the absence of venture capitalists and angel investors. Crowdfunding is a way of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Here is a quick grasp of reality.
The United States
The United States’ Securities and Exchange Commission has made a lot of rules on Crowdfunding which will enable eligible companies to offer and sell securities through crowdfunding. Thus in the US, all transactions under Regulation Crowdfunding take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal. A company is to raise up to a maximum aggregate amount of $1,070,000 through crowdfunding offerings in a 12-month period. However, there is a limit on the amount individual investors can invest across all crowdfunding offerings in a 12-month period. Securities purchased in a crowdfunding transaction generally cannot be resold for one year.
South Africa.
There is no substantial legislation on crowdfunding in South Africa, except that equity crowdfunding is a form of securities. However, South’s Africa’s first equity crowdfunding platform Uprise.Africa was launched after being told by the Financial Services Board (FSB) that the platform does not fall foul of the Collective Investment Schemes Act, the platform’s founder and COO Patrick Schofield said. Inge Prins, the Chief Marketing Officer Uprise.Africa, had hinted the platform, in one of its numerous success instances, paid out investment funds to a local brewery, Drifter Brewery following a successful campaign that raised R3,889,000 (US$293,000), far exceeding its stated goal by almost R1,000,000.
Understanding How Crowdfunding Works
Crowdfunding refers to raising money from the public (who collectively form the “crowd”) primarily through online forums and social media.
Crowdfunding models include: Donation-based crowdfunding (in which donors are not typically granted anything in return for their donation)
Rewards-based crowdfunding (in which backers contribute funds in exchange for some reward–in many cases the item produced by the campaign)
Equity crowdfunding (Equity crowdfunding refers to raising money from small public investors (who collectively form the “crowd”) primarily through online forums and social media. In exchange for relatively small amounts of cash, investors get a proportionate slice of equity in a business venture).
Debt/lending crowdfunding (in which lenders provide money and expect their loan to be paid back with interest).
Crowdfunding For Private Companies Cannot Work Unless Nigeria’s Companies And Allied Matters Act (Nigeria’s Chief Company Legislation) Is Amended.
The idea of having crowdfunding for companies is that the general public would be allowed to contribute towards the formation of the companies. Now while the public can contribute to an idea, the same is not possible for a company. By section 22(5) of Nigeria’s CAMA, it is impossible for a private company to invite the members of the public to subscribe to its shares. It is also impossible for equity crowdfunding to work because the idea of equity crowdfunding is that the public funds the formation of the company expecting to be repaid their contributions by way of shares in the company.
Again, under Section 22 of CAMA, the maximum number of persons a private company shall have shall not exceed fifty, not including persons who are bona fide in the employment of the company.
Nigeria’s Securities and Exchange Commission and Crowdfunding
The Commission determines governs all company securities in Nigeria. Section 13 of the Investment and Securities Act (the chief Act that regulates securities of companies in Nigeria) empowers the Commission to:
regulate all offers of securities by public companies and entities;
register securities of public companies;
prepare adequate guidelines …necessary for the establishment of securities exchanges and capital trade points.
register and regulate the workings of venture capital funds and collective investments schemes in whatever form;
Consequently, by Section 67(1) of the Act, no person shall make any invitation to the public to acquire or dispose of any securities of a body corporate or to deposit money with anybody corporate for a fixed period or payable at call, whether bearing or not bearing interest unless the body corporate concerned is-(a) a public company, whether quoted or unquoted, and the relevant provisions of Act are duly complied with.
To this effect, the SEC, which was empowered to do so, has gone ahead to give the listing requirements for any company in Nigeria to include that the company must be registered as a public limited company with no restrictions on the transfer of fully paid shares; have a minimum of three (3) years operating track record; have a pre-tax profit from continuing operation of not less than N300million cumulatively for the last three (3) fiscal years and a minimum of N100 million in two (2) of these years. Hence, since equity crowdfunding is ideally a thing for new, mostly private companies limited by shares, there is no way any of them would be able to fulfill the listing requirements, to be able to offer their securities to the public.
The continued ban on equity crowdfunding in Nigeria by SEC, therefore, is not a surprise, even though the Commission said it is looking at the crowdfunding rules in the US and Canada.
The SEC believes that crowdfunding cannot be effective in Nigeria in the meantime because of a lack of rules.
Bottom Line
While equity crowdfunding remains banned in Nigeria, donation and reward-based crowdfunding are however excluded from the SEC’s regulatory remit. This explains why there are a number of donation crowdfunding platforms, and not one for equity crowdfunding. Nigeria’s first equity-based crowdfunding platform, Malaik, launched in 2015 is now down and is up for sale at $3795 on HugeDomains.com, while other donation-based platforms such as Donate-ng.com, and Imeela have since carried on.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Once SmartBlade app is loaded onto the smartphone, it will allow the user to access the camera in the laryngoscope, which in turn allows for video viewing, storage, and transmission. In other words, the app will help users to see videos of their larynxes.
A laryngoscope is an instrument for examining the larynx, or for inserting a tube through it.
The company has been incubated at the Cape Town-based hardware incubator Savant over the past few years and has now become the first recipient of investment from the Savant Venture Fund, launched after the incubator itself raised funds, from the South African SME Fund.
SmartBlade will use the investment, which comes in the form of a convertible note, to take its innovation to market and deliver on the global interest and demand it says it has seen for the device.
“Following the successful launch of the video laryngoscope, the company will look to utilise its smartphone endoscopy expertise to bring associated medical devices to market,” Savant venture fund manager Nick Allen said.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Looking to raise capital for your startup through equity crowdfunding? No loans? Just some hard currency from some money messiahs? That is what South African businesses are turning to now. Intergreatme has recently succeeded in raising over R32.7 million ($2.2 million) by simply putting up an online request for equity funding on Uprise.Africa and getting overwhelmed by public contributions. This was a big moment for the startup looking to help ordinary people get rid of the daily pain associated with submitting forms and documents through an innovative technology platform.
The startup was founded by a team of young South Africans three years ago and is now valued at about R120m. The team envisions a world where personal data can easily and securely be shared among a host of applications. As long as an activity requires a person’s information, Intergreatme sees a market.
How The Startup Scaled The Hurdles and Raised The Funds
Narrating how the startup raised the funds through equity crowdfunding, Intertreatme CEO said in a recent interview:
We had no idea how successful it was going to be. We thought it was going to be like a 60 day campaign of climbing Mount Kilimanjaro. We needed to get 250,000 that day and we hoped to just do some cold calls. I printed out my full contact list on my phone and my whatsapp list, my email list, and we thought it’s going to be a campaign. But we had no idea that the demand was more than that. We thought that we could raise the 24 million and we thought that we were going to procure a common amount ever.
For startups looking to use crowdfunding to raise capital, he says they are not just going to put a pretty video online and hope people come and invest. They need to do the hard job behind the scenes.
‘‘There are billions and trillions of dollars of money waiting to be deployed,’’ he says. ‘‘People get paid money to invest money. But your business fundamentally needs to be right. Your team needs to be right. What you plan to do needs to be right. So do those things right. And then you can just sample your user base. Just run a poll on Facebook or Instagram or Twitter, just saying, ‘‘Hey, if we rank car, would you invest? And if so, how much will you? You’ll get, you will get an answer. I don’t think you need to do a lot of work to get those answers.
On the pattern of investing, he said about 402 people turned up and contributed to the startup through equity crowdfunding.
We had minimum commitment of 1000 rand and a maximum commitment of 5 million. We had about five, five millions. Wow. We had a couple of millions. It was so cool. We didn’t expect it. And it was just people. We started by saying, if you’ve used our technology before and you sure that you had the wow moment, would you like to invest in this? Tick this box, if you want. But ultimately they, they invested in us as people.
Before that, we had a very successful launch party, which I think was key to the fundraising, where we had a private donation from our whatsapp list. This was two weeks before that. And we’ve got about 120 investors there. And then we had about 250 people at our launch party when the startup was first started. We used that time not to sell the technicalities of the business, but to sell out emotional stories as founders to show that it’s normal for us to overcome unrealistic odds.
He said the crowd bought into the human stories and not the technicalities.
‘‘We said it’s normal for us to overcome adversity and challenges, that it doesn’t matter what comes our way. It’s normal for us. We will find a way to succeed. And so people bought into the emotional story. They always say, you shouldn’t invest in a business. You should invest in people. And yeah, basically people bought the founder’s shares, in the founder’s energy, in the founder’s vision. And so literally everyone in that room at the launch party made us the first 27 million. And so we sold apps 27 millions in the first 72 hours and there were just a frenzy of people trying to jump on and grab the last time.
I think if you look inside now, it is 32 million, 409,000 rands. So they’ll have to be some refunds for some people who just came in and about a hundred people came in on the last day, like before three o’clock.
On Why They Choose Uprise.Africa to Raise The Funds
He says Uprise.Africa has direct exposure to all the upsides and downsides of the business
‘‘I didn’t know who they were,’’ he says. ‘‘We made it a conference. I related with its CEO as a founder. She said cool. They have a framework and are licensed to do it. So effectively it’s as good as a payment gateway. So if you’re running an ecommerce business and pay fast or need paypal or visa, mastercard go to them for a widget. They can accept payments, but they’re relying on how good your business is .
One of my favorite little proverbs is if a bird is sitting on a tree on the branch, it’s not worried about the branch snapping. It has faith and confidence is in its wings. Crowd funding is an easy way to take money from the crowd, but there’s a context to it. If we show the analytics of the money we raised, everyone is within one or two steps of our network. And so accountability is really your socially accountable tool to your community and your network. If they believe in you, you’re not going to have a much bigger responsibility to them.’’
He says Uprise.Africa will own a 25% stake in the startup.
‘‘They will also have an independent board member. Uprise.Africa will be representing the crowd and yeah, fix me. But there are voting rights and things. So Uprise.Africa has the stake on behalf of the people who invested in the initiative. I think they manage it for about 12 months or so and then they give it to us. They have also put automated technology in place for the share registers and the certificates and the reporting.’’
On Why More Black Women Invested In The Startup Through The Crowdfunding
‘‘I think maybe it’s because we spent a lot of time with Uber drivers and optimistic ladies and all security guards and receptionists. They used our technology and they’re like, sweet, I can get my license renewed. Daily visits to the management system are amazing. So it is just crazy for us because we actually thought that we were so proud that we managed to get 30% black female ownership. They were like, this company’s plan is going to dilute that potentially down to 22%. We had signed agreements to become level two. And so it was a concern. It was just, again, a miracle from the universe that it actually ended up swinging way better than we could give. I’ve imagined it. So I think that’s the beauty of opening it up to the crowd. If you’re focusing on one or two high net worth individuals, you’re kind of going for a specific target.’’
Other Startups In South Africa Are Also Resorting To Crowdfunding
Crowdfunding is having a moment in SA. BackaBuddy, the funding project used to raise money for service station attendant Nkosikho Mbele, for example, has so far generated over R107 million for various causes.
Uprise.Africa CEO and co-founder Tabassum Qadir say the company is in negotiations with one of the new share trading exchanges to have equity crowdfunding investors trade their holdings on its platform.
‘‘Although crowdfunding has long been used to support start-up ventures, equity crowdfunding is different as it enables people to become direct shareholders in a venture, ’’ Qadir says,
This is in contrast to traditional crowdfunding services that generally only allow contributors to get new products from the ventures they support for free.
To ensure that the interests of investors are protected, Qadir says prospective companies need to be vetted by its investment committee. Once approved by this committee, a designated Uprise.Africa board member will act as an overseer of investors’ interests in the company.
In exchange for about R24 000, Uprise.Africa will conduct due diligence and organize a 90-day ‘campaign’ to build interest in the company.
Qadir says using crowdsourcing to support start-up businesses is widely seen as a way to drive economic development. The World Bank, for instance, estimates that the global equity crowdfunding sector will be worth more than $93 billion by 2020.
Without crowdfunding, prospective investors either have to wait for a company to be listed on the JSE or invest at least R100 000 into a venture equity firm’s portfolio to get a stake in emerging businesses. With equity crowdfunding, however, for as little as R1 000, they could get a stake in a company as it is about to enter a fast-growing stage.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
With a population of close to 60 million people, a housing backlog of more than 2.5 million housing units, representing over 12 million people who are currently without adequate housing, smart startups in the South African Real Estate sector who are quick to innovate are cashing out big time. While other entrepreneurs are yet to know about this, a new wave of real estate entrepreneurs in South Africa is transforming the property industry through spell-binding innovation that have changed the way homes are bought, sold and rented in South Africa. Here is how the game has been changed.
Using Crowdfunding To Grow Real Estate
Real estate crowdfunding has grown exponentially since 2012 and is disrupting the real estate market in terms of raising capital. In 2015, over $34.4 billion was raised by individuals on crowdfunding platforms. While real estate crowdfunding statistics are not that common since it is a fairly new concept, trends show that it will continue growing. A property crowdfunding platform usually offers a diversified portfolio of projects. Projects can be short term projects like residential developments for selling or long term projects such as rental properties or tourist accommodations. Projects can also include full development as well as refurbishment projects or asset finance on existing properties, with the right business case. Through crowdfunding, you can contribute towards the development of any property, no matter how small. Once, developed, you are paid returns on your investment unlike donation-based crowdfunding where you not investing for returns.
The size of projects on the platform also varies from $ 200 000 to several million dollars. The success of the project depends entirely on the business case, the attractiveness of the project, and how the interest of the investor can be captured.
The high flexibility and customization of real estate crowdfunding has made it a popular option for real estate in South Africa. Websites like Realestatecrowdfunding.co.za, Reimag.za and RealtyAfrica.comoffer a wide range of crowdfunding options. In South Africa, these crowdfunding websites are changing how consumers react to commercial real estate and are also supporting new developers to grow.
Using Virtual Property Agents to Grow Real Estate.
Virtual property agents are eliminating physical real estate agents and middlemen, by providing cost-effective and meaningful information about properties. You can get information about potential client, homeowner’s contact details and other deep personal information about them. Online Virtual Agent will also allow you to search valuable company details such as directorships, property ownership, contact details and addresses where companies are involved because the more you know, the more you sell! You can also get past or current ownership data, dwelling sizes, title deeds numbers, attorney files and more! It is the fastest way of finding property sellers and buyers in South Africa. According to Dan Hughes, CEO of Alpha Property Insight explains, “the average agent spends 80% of their business day doing admin and marketing their product, not negotiating and closing deals. (Virtual) Technology allows us to invert that statistic so that 80% of a professional’s time is spent negotiating and closing deals and only 20% is spent on administrative tasks.”
Most of these online Virtual Agents in South Africa are using 3D modeling and VR tools for virtual viewing of the property. This VR tools are already moving beyond pictures to offer 360-degree video in virtual property “tours”. A major advantage here is that VR can facilitate viewings 24 hours a day, 7 days a week, and will permit buyers to view multiple homes efficiently from the comfort of their own home or wherever they may be. This broadens the prospective viewings available to buyers and means that they might just find a home they didn’t initially ask to see. South African companies such as TheVirtualAgent.za, Gumtree.za and Steeple. are already leveraging this Proptech solution.
Using Cloud Computing and Social Media.
Real estate startups in South Africa are changing the style with the use of many digital channels and social media tools. Buyers and sellers now communicate with each other directly without middlemen, bypassing agents. Potential purchasers and sales teams can share a common view of property information as an interactive map, with administrators having access to detailed user analytics highlighting which units or sectors receive the most interest. The digital tools also provide certain functionality and interface, sometimes defining the property sales process from start to finish, and ensuring that every stage of the deal is measurable and available to all parties at any given time, regardless of geographic location. This is not only cost-effective, but provides real-time availability of property information. This has also reduced barriers to entry for newer and smaller companies to enter the real estate tech of South Africa. Companies like REDi, Propdata, are some of the companies leading this cause.
Startups in South Africa are also leveraging the power of technology to make site inspection easier. For instance, Imfuna offers a range of mobile apps for digital inspection by construction inspectors, residential and commercial property inspectors, and rental property inspectors. For example, the Imfuna Construction Inspector’s web and app software for iPhone and Android dramatically enhance the construction site inspection process to give builders technology they can depend on. The Imfuna Construction Inspector can be used to observe and record multiple types of data about a property or building site’s condition, then produce a high-quality, branded PDF construction report that can be shared online.
In all, the real estate industry in South Africa is fast changing and smart startups can leverage this opportunity. Consumers are constantly looking out for cost-effective, easier ways of buying and selling property online.
Here is how one reviewer, captures the experience he had on PropertyFox‘(It is) The new “Uber” of buying and selling Property.I am fortunate to both buy and sell a property through PropertyFox. A remarkably modern way of doing business saving you thousands of rands. I saved almost R135,000 on the sale of my property…’’
South Africans and entrepreneurs elsewhere can leverage these opportunities to explore the fast-revolutionizing real estate business.
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
