The CrowdFund is a project that aims to raise, in R1 000 stakes, money to be invested in promising technology and new media startups in SA. The goal for the initial fund is R1 million. The dynamo behind the idea, which was a hit at South by South West (SxSW) Interactive in Austin, Texas, recently, is Eve Dmochowska.
Ivo Vegter asked her a few questions:
When did you first come up with the idea of the CrowdFund?
A while back. It was around the time of the first GeekRetreat (held north of Johannesburg in June 2009). I "launched" the idea there at one of the Talking Heads sessions, to good feedback.
However, the real catalyst was when I started helping out The Innovation Hub with their initiative to help online startups. I saw the flaws in the system and tried to come up with an innovative and effective way to fix them.
It was launched at the beginning of March this year.
Some people have expressed surprise that such an investment scheme is legal in SA. What did your lawyers say about it? Does your trust not fall under community investment schemes and if so, what are the implications of this?
I am meeting with the lawyers this week, where they will explain this all in greater detail to me. But the concept was researched by a top legal firm (Bowman Gilfillan) and its legality was confirmed. This was one of the reasons it took me a while to launch it. I needed to find the right team to investigate it, and to create a perfect investment vehicle for it.
How will you solicit and select investments?
As soon as the R1 million mark is reached (hopefully today), the site will expand and there will be detailed information posted as to how to apply for funding, what kind of projects we are looking for, more information about our co-working space etc. So that should be a good driver of investments. Word of mouth is big. I have already had a lot of proposals in my inbox.
The real catalyst was when I started helping out The Innovation Hub
Eve Dmochowska, founder, The CrowdFund
The convenient thing about this type of investment is that it will probably be given to someone who is active online, which means that even if they are not part of my (or the board's) direct network, they cannot be more than one or two degrees removed from it. In other words, I really do believe in the "build it, and they will come" mantra here.
What, other than money, will the CrowdFund contribute to these investments?
Plenty, starting with a really funky, cool co-working space which will provide the ecosystem for quick, efficient development. (The space will also be open to non-CrowdFund projects, for a really low fee, so we are hoping to recreate some of the famous San Francisco-like working environments.) Free hosting and bandwidth. Top notch advice from gurus in the industry. Introductions to higher level VC's, both here and in the US. Credibility. A network of programmers and other experts who can contribute greatly to any project.
The really amazing thing is that a large proportion of the investors have made it clear they are only interested in investing if they can contribute in some way, through mentoring, for example. Corporates have indicated that they would like to sponsor (donate) equipment, services, and more. It's a very eager response, all around.
When does the trust cash out of investments, and how?
For now, that's a bit open-ended, and needs to be discussed by the board. My initial instinct was to cash out as soon as possible. But after SxSW, where I spoke to people who drive these kind of initiatives for a living (Like Paul Graham from Ycombinator), I am beginning to think that a fast exit is not the best financial move.
I guess the overriding point is that this is completely new. I have not found any sound examples of it having been done anywhere in the world. So we will learn with the process and adjust accordingly. It's another reason why the investment is only R1 000. People are far more willing to let you experiment with a R1 000 than R100 000.
How is the return on each share calculated?
Those details will be published as soon as the lawyers have finished the paperwork. But basically, each R1 000 buys you a stake and declared profits will be divided equally among the stakeholders. The board does get compensated, but only if there is a positive ROI. There are no expense accounts or administrative fees; all the money goes to the projects directly. I suspect I will have some other initiatives (like events, or money raised from the co working space) that will cover any admin fees.
What profit does the CrowdFund itself (ie you) take?
I can't discuss that yet. I need to get board approval first. But a minor percentage of the profit will be retained by the fund. Neither I nor the board members take any compensation until the fund closes and then only if there is a positive ROI. We're doing it all on risk and for the fun of it. And yes, it will be like a full time job.
What were your initial expectations for raising money? How have they been exceeded?
My expectations were pretty much what I got. I knew that if this was going to work, it would have to work fast. If it was going to take me four or five months to convince people to part with R1 000, then it wouldn't be a model that would work.
But everyone around me thought I was nuts and that I would have to dedicate about five to six months to raising the money, actively. As it is, all the money has been raised without any active drive or work from my side, unless you consider typing 140 characters [on Twitter] to be work.
How did you experience the reception to your idea at SxSW?
I was on a high at SxSW. For starters, I submitted the panel months before I even talked to lawyers about it. It was just a seed of an idea, but it certainly acted as a catalyst to launch (I launched it only a week before I left for SxSW!)
And there are worse places to get positive affirmation for your idea than SxSW. At the end of the day, at the panel and away from it, everyone I spoke to about the CrowdFund loved it, but more importantly they helped me perfect the concept. It was very valuable to speak to people who deal with online startup investments on a daily basis, whom I could ask questions and get not just opinion but answers based on cold, hard experience. Priceless.
You said that it was only at SxSW that you realised you were onto a good wicket. Elaborate?
Well, it's not easy to impress Americans. They've seen it all, they've done it all. To walk into a SxSW environment, and to be congratulated for coming up with the CrowdFund made me realise that this wasn't just a pet project any more. This was the Big Thing.
Also, though, I think that being at SxSW and speaking to people about things other than the CrowdFund made me realise that South Africans are as capable of great things as the Americans. As fabulous as the people were, I didn't meet anyone who had an idea or a project that completely blew me away and made me think "only in the US". Quite the opposite, actually. I quickly realised that it's not skill that is holding us back, but the ecosystem. And the CrowdFund aims to change that, so that's a good thing.
What other projects keep you busy?
Busy? Who, me?
I am the founder of The Buyers Bibles, which is a series of publications comparing all the products in a category, spec for spec, to help consumers make the right buying decision first time. For example: which ADSL is best for you? Good luck trying to figure it out without the Broadband Bible. Ditto for printers, laptops, and so on.
I am also launching, in the next week, a subscription paid-for newsletter aimed at advertising agencies and online brands, educating them about the online landscape, best practices, case studies and more. SA is sorely uneducated in the online space, and I aim to help change that, bit by bit.
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