StartMe: a closer look at SA crowdsourcing
StartMe, a website that lets South African entrepreneurs “crowdsource” funding, operates on a very different model to the popular Kickstarter funding platform.
Founded by Ben Botes and Lourie Nel, StartMe launched its site earlier this year (2012) to offer South African entrepreneurs a place to raise money in many small increments from a group of investors.
This method of raising money is called “crowdfunding”, with users from all over the world allowed to pledge money towards a project, or create their own projects that others can then help fund.
To encourage pledges, project creators typically specify “reward tiers” in addition to the amount of money they would like to raise.
Perks are given to investors according to the scale defined by the entrepreneur’s reward tiers. Rewards can range from an acknowledgement to a physical product.
Projects on Kickstarter only receive their funding (and backers their reward) if it receives enough pledges to make its goal. Kickstarter then takes 5% of all the money that goes to successful projects.
Credit card processing fees to Amazon are also applicable, which Kickstarter says on its website amount to another 3–5% deducted from the amount entrepreneurs raise.
A different model for SA start-ups
StartMe has opted for a different model, however, with pledges collected and given to project creators if at least 50% of the goal amount is raised.
The fee structure at StartMe is different as well, with projects that don’t achieve their goal being charged 9% of the money collected, while projects that hit their target are charged 5%.
Ben Botes
When asked about their choice of model, StartMe co-founder Ben Botes said that in this respect, StartMe’s model is similar to that of one of Kickstarter’s main competitors: Indiegogo.
“Entrepreneurs can choose if their project is listed as one that is flexible,” Botes said. Selecting the “flexible funding” option means a project can take pledges higher than 50%.
The 9% fee applies to projects that raise between 50% (inclusive) and 100% (exclusive) of their goal amount, Botes clarified. This is to encourage entrepreneurs to opt for the 100% goal, Botes said.
There are differences between Indiegogo and StartMe’s models worth noting, however.
Indiegogo’s flexible funding option lets fundraisers keep whatever money is pledged to their campaign. The fee if the goal amount is missed is also 9% on Indiegogo.
Should a campaign make its target, however, Indiegogo charges a 4% fee where StartMe charges 5%.
“There are numerous crowdfunding sites around the world and a whole range of different practices on when the entrepreneur can claim the monies pledged to them,” Botes said.
“Our thinking is that raising at least 50% of your goal amount may well enable you to either start on a smaller scale or enable you to raise the rest of the money from the bank or external investors as you would already have raised 50% of the money needed.”
Similar to Kickstarter, Indiegogo also warns of an additional third-party credit card processing fee. According to the Indiegogo website the fee is a flat 3%. Non-US campaigns are charged an additional $25 wire fee and may also attract currency exchange fees.
StartMe’s isn’t specific about third-party fees, and Botes said that PayFast, the payment processing service StartMe uses, may raise a financial transaction charge.
The PayFast website explains that they charge for receiving money, but not sending money, and also charge for transferring money to a bank account from a PayFast account. EFTs are charged a 2% fee and credit card payments 4.9%. A payout to a bank account costs a flat R8.77 (excl. VAT).
Another difference between StartMe and Indiegogo is that it requires investors to buy “investment credits” to pledge to projects.
Sites like Kickstarter and Indiegogo let users pledge using a credit card. Kickstarter only deducts money if a project is successfully funded, while Indiegogo says that it deducts money immediately.
Should an Indiegogo project not be successfully funded, contributors are sent refunds to their PayPal accounts.
Asked about StartMe’s choice to require the purchase of site credit before users are able to contribute, Botes said that such an approach is used by many crowdfunding sites.
“It provides more security that the money pledged will actually be given to the business,” Botes said.
“The money pledged still only goes to the project creator if the project is successful,” Botes pointed out. “Otherwise the credits are returned to the person who pledged them.”
Accredited crowdfunding platform badge
Accredited
Until recently, StartMe displayed a badge in its footer stating that it is an accredited crowdfunding platform.
The badge has been removed from the site, but Crowdsourcing.org lists StartMe on its page for Crowdfunding Accreditation for Platform Standards (CAPS).
Queried about the accreditation, Botes said that platforms such as theirs need to comply with a range of rigorous standards and requirements in order to be accredited.
“The strong reputation of the industry is obviously in everyone’s interest,” Botes said. “Crowdsoucing.org also provides support and guidance to platforms like ours.”
Kevin Berg Grell, CAPS program director, confirmed StartMe’s accreditation.
Other sites listed on Crowdsourcing.org under “South Africa” (though none of them sport an accreditation badge) include BrandsEye, Hiring Bounty, and SASIX.
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