Crowdfunding SMEs for SDGs – and how we do it in Ukraine, Kazakhstan, Moldova, Bosnia and Herzegovina…

The following piece was first published on the AltFinLab blog and was originally published on June 21, 2017.  

Our first 2 years of experience with crowdfunding taught us that the approach is not just a new market place for accessing funds but a tool to build community engagement; not just a PR fad but a powerful outreach and advocacy mechanisms; and not merely a support system for an initiative but an effort to catalyse new business models, technologies and solutions for social issues. Just donating money is like buying a blanket for one person in need; and crowdfunding an SME is like setting up a company that produces affordable blankets to hundreds in need. Re-inventing the business model, building an ecosystem of supporters and ambassadors, and a powerful leapfrog.

This year, our efforts are geared toward seeing to what extent crowdfunding can help small entrepreneurs accessing funding in places where it is prohibitively expensive or difficult in the mainstream finance sector. And our first lab – Ukraine.

Supporting SMEs from war affected areas in Ukraine

UNDP Ukraine Recovery and Peacebuilding Programme has a challenging task – to inspire people from war affected areas who worked all their life in mines and factories to step into the unsure path of entrepreneurship, and make them believe in themselves and their country again. Instead of just providing grants, we wanted also to see how can crowdfunding engage entrepreneurs themselves to build up their community and build transparency in the process of support.

Out of 40+ interested entrepreneurs, we worked with the 12 who had the most interesting ideas and enthused teams to help turn their vision into a crowdfunding campaign. First two campaigns already finished successfully:

• WalQlike is a touristic app to explore the city in creating personalized route and quests;
• Secret Expedition, an educational tabletop scientific game meant to draw more girls and boys into science and engineering;
• Voltyco is affordable cargo electric bike that can travel on a single charge for 120 km with a total load of 150 kg – currently preparing their campaign for Kickstarter;
• Naprintuy fashion patch creates patches for clothes on human rights and tolerance (campaign coming out soon). 

Lessons learned

We are currently in the process of supporting the teams, but some early learnings from the work with entrepreneurs vs. work with the non profit sector:

• Allow time – after finishing crowdfunding education, because of the project deadline there was a pressure to see campaigns out ASAP. Mistake not to be repeated as teams (entrepreneurs) need at least 3 months to build their communities once they know what they want;
• Find champions to start with – for initiating a crowdfunding ecosystem in a country with limited or no crowdfunding experience, quality of early campaigns is extremely important; especially in terms of using social networks, communication skills, English language (if they are about to go to international market) and hardworking dedicated SMEs;
• It is not a sprint but a marathon – don’t put high expectations from first campaigns in a country where culture of giving and supporting is not there. It is all about building the right ecosystem based on trust and it takes time, and it takes a lot of effort in connecting the dots between members of these ecosystem;
• Match the funds – something we planned from the start, we didn’t manage to perform due to project time constraints: supporting successful campaigns with matching additional dollar for every dollar from backers. The Danish Government has set a Fund that gained a lot of interest globally, matching successful platforms. Like this, selection process for companies to be supported is being outsourced to the market; and government gets to leverage public finance.
• Once again, it is a process – that gets initiated every time campaign gets out, and you never know where it is going to take you. Our project Voltyco put a campaign on Indiegogo campaign which brought them investors for a slightly different type of electric bike then they were offering. So they sit together with them, and are now preparing a new product for Kickstarter platform. It is a communication with your customers, to understand their needs and how to find the common ground.

Next steps

Crowdfunding principles are similar (but approach might be different), either it is an SME in a startup stage (early stage, may have just an idea and want to build a prototype); or it is an existing SME developing a new product/service; or even an SME moving into new sector (growth capital). Currently we are working on a number of approaches;

• ​ Soon starting a new Global Crowdfunding Academy in Bosnia and Herzegovina, and supporting 12-15 SMEs with crowdfunding;
• ​In Moldova our project idea is supporting apple producers in a single food-export company, to bring domestic product to foreign markets (as a scale up of previous crowdfunding project which brought apple snacks to schools);
• ​In Kazakhstan – our project has just gone out, support it! https://goo.gl/Y2tWvU 

Equity crowdfunding or crowdlending for SMEs is a new strong push; and we are currently working with KIVA platform to have our first campaigns soon out (and with an interesting new model – to have a direct contract between KIVA and a social entrepreneur; without usual “middle men”, their field partners. Our partner Indiegogo recently started their equity crowdfunding page for investing in startups and growing companies – so far working only for companies registered in USA, but we hope to see it soon abroad!