The BBC’s Dragon’s Den is one of my favourite TV shows. Although many of the ideas are hare brained, you can see how important it is for a top entrepreneur – like the Dragons – to have gambling streak. It’s fun to fantasise about which of the businesses I’d like investing in, if I had the millions to throw around. Judging from my interview with Aussie Paul Niederer, Crowdfunding is an online version of the Dragon’s Den, but with anyone with a bit of ready able to play the role of investor. The concept is mushrooming in various parts of the world. Time for an African version? – AH
To watch my interview with Paul Niederer on CNBC Africa’s Power Lunch click here.
ALEC HOGG: We’re going onto something completely different now; crowdfunding. It’s an effort – collectively – by individuals to network and pool their money usually via the Internet to support efforts initiated by other people or organisations. Crowdfunding is used in a wide variety of activities; primarily though, starting up young companies. Joining us to chat about this is Paul Niederer who is Chief Executive of ASSOB and an experienced fellow in this field, Paul. Reading through your bio you’ve been at it for about as long as anybody else has been at it and you’ve personally been involved in something like 80 companies. How much money have you been involved in raising for them?
PAUL NIEDERER: Well, we’ve raised around $130 million so far.
ALEC HOGG: It’s such a new thing. Take us through the basics of crowdfunding. From the outside it sounds like you have a company, you let a lot of people get together on the Internet and give money to start-ups.
PAUL NIEDERER: Yes. Well, in a sort of fundamental way it’s a bit like when you used to go to church and then somebody would pass the plate around and – this month was to build a new roof or something like that – the people who were allied to the church joined together to fund it, and that’s what happens. Somebody comes along to us and says look, ‘we need a $1m to expand this because we want to go overseas’ and so therefore on our platform they congregate or aggregate all the people that are interested in investing. And sometimes it might be Angels and VC’s but often it’s more like the family and friends and family and fans of the business who contribute towards that fund or that amount of money they’re trying to raise.
ALEC HOGG: And what about the structure, the number of shareholders or the shareholding that it requires; how does that work out?
PAUL NIEDERER: Well, you have three types of crowdfunding. We only deal in equity. There’s also reward where people end up getting a watch or whatever is profit, or debt in which a whole lot of people join together to fund somebody, which is the largest-growing one whereby instead of going through a bank you actually join together 20 or 30 people that want to finance a certain person based on their credit rating. But in terms of equity we just use a standard company in Australia. It has to be a public company with three directors, one auditor and it’s not much different than any other company really.
ALEC HOGG: And the returns that shareholders or lenders would receive?
PAUL NIEDERER: Well, that’s the thing with early stage investing. Really, they’re hoping that if they buy a share for ten cents they’ll be able to sell it sometime in the future for twenty. So it’s more about the capital growth. We’ve got a listing on our board that’s been there for a number of years – regularly pays dividends – always in profit. But people aren’t as excited about investing in that because they can’t see as much upside. So it’s often early growth with a good potential of increasing value.
ALEC HOGG: You’re looking for partners in Africa?
PAUL NIEDERER: No, nobody in Africa yet that I’ve noticed but it’s a worldwide trend. What’s happening is that financial transactions can move a lot more efficiently and quicker over the Internet now, also people are wanting to invest in more meaningful things. And so, when you get those two trends together, it’s only a matter of time before it will be the way a lot of this occurs because people, basically, don’t want to go through gatekeepers if they can touch and feel and talk to the people they’re investing in directly rather than going through some sort of gatekeeper. So it’s a trend I think that’s almost unstoppable.
ALEC HOGG: And how do you get involved from both sides? Perhaps you can take us through, what does the entrepreneur do? And on the other hand, if you have a little bit of spare cash and you’d like to take a chance, how do you do so?
PAUL NIEDERER: Well, in theory people like to think that you put your offering up on a platform and people will stream to it, but unfortunately it’s a lot more boring than that. The entrepreneur as a starter; they first of all have to get something that has a great story, a good team behind it and a group of followers. Then they have to get the documentation. It’s not really a prospectus but it’s still like an offering / information / memorandum or something of good substance. And then it’s really attracting people to look at it and that means 1, 2 and 3 degrees outside of the entity and maybe people that are passionate in that particular niche. So if you were really passionate about underwater electricity generation then you’d make sure that people around the world who were really enthused about that would come to see your offering. And after a while, from what we’ve found, out of every 200 that download the offer document, around ten of them will come through and invest.
