Project sponsors may raise capital with the assistance of a crowdfunding intermediary. After a Project Sponsor has been assessed as investment ready, it can complete a Project Sponsor Prospectus; this document constitutes the information that project sponsors are obligated to provide to potential crowdinvestors during a crowdfunding operation that occurs in compliance with the ACfA Label Framework.
Upon completion, the project sponsor can then proceed with a crowdfunding campaign. This is where the project sponsor’s marketing, advertising and communication activities are conducted in order to achieve their crowdfunding goal. Regulatory framework
The African Crowdfunding Association provides you access to a network of crowdfunding intermediaries that comply with our Charter of Good Conduct. These intermediaries have committed to upholding good governance and transparency of their operations. In this way, ACfA helps you identify credible local partners for your fundraising campaigns. Members
Any person, business or organisation is eligible to raise funds through crowdfunding, provided that they comply with the requirements for the particular type of crowdfunding that they wish to undertake.
Project sponsors with limited networks, and a limited social media and online presence may find it difficult to raise capital using crowdfunding. An uncertain regulatory environment in some countries may pose a risk to both crowdfunding intermediaries and project sponsors. Project sponsors may find it onerous to manage a large group of investors without appropriate tools and governance processes.
For SMEs access to traditional financing such as bank loans and venture capital remains severely constrained. SMEs and startups are perceived as more risky compared to established large institutions and businesses for lending. Additionally, SMEs struggle to meet institutional due diligence, KYC and collateral requirements for lending. The administrative process and cost of acquiring a traditional bank loan may delay the entrepreneur or business’ access to securing or raising capital.
With crowdfunding, a project sponsor can structure their campaign as either an equity-based or debt-based investment campaign. In addition to this they have the option of raising mezzanine finance, a hybrid of debt and equity financing. Crowdfunding campaigns also require adequate preparation such as share structures, repayment agreements etc, but offer broader and faster access to capital with crowdinvestors. Decision periods can be much faster than banks (48hrs in some cases) .
Both options require preparation, and the best financing option will depend on financing needs, meeting the eligibility requirements, the phase of the business and sometimes the product or service on offer.
A project sponsor that uses the services of registered crowdfunding intermediaries that hold the ACfA Label can structure its investments with equity and debt security options, mezzanine financing options as well as working capital options as set out in Chapter 3 of the ACfA Label Framework. Types of investment include: common shares, preference shares, redeemable equity, SAFE (simple agreement for future equity) notes, SME minibonds, loans, revenue-based agreements and convertible loans.
These vehicles are simple, low-cost structures that may be used to group many crowdinvestors into a vehicle that counts as one shareholder on the shareholder register of the project sponsor, and represents the interests of the crowdinvestors. Crowdinvestment vehicles may be used for a single crowdfunding operation, or for multiple investments. In the latter case the vehicle becomes a shareholder in more than one project sponsor.