Financing is often the first hurdle for small businesses in the Caribbean. Many of the region’s SMEs fail to make it to market because they can’t access the necessary funds to develop their products. This has led savvy entrepreneurs to turn to alternative means of financial support such as crowdfunding.
Bypassing the banks allows these start-ups to meet the market on their own terms, drawing funds from family, friends and those who believe in their products. More flexible financing also gives business-owners the chance to be more innovative which, in turn, leads to greater creativity, competition and sustainable growth.
A CHALLENGING ENVIRONMENT
A crowdfunded venture is one that seeks small financial contributions from a large group of people. These numerous investors can give equity in the project, in return for a specific reward or simply as a donation. Crowdfunding typically occurs over the internet—bringing the entrepreneur together with prospective donors through an online platform.
According to Samuel Raymond, infoDev Consultant: “Crowdfunding does not require the detailed level of documentation, collateral, cash flow and other rigorous requirements as do banks. There is the added bonus that crowdfunding is an easier, more cost-effective way to test and fine-tune new product ideas. A potentially good product or service idea can be brought to market within a shorter term through a properly managed crowdfunding programme.”
In 2016, the global crowdfunding market reached US$35.2bn, according to an infoDev report, and US$324m of this total was generated in Latin America and the Caribbean. Caribbean businesses, however, have been slow to realise the potential of crowdfunding, with concerns about the trustworthiness of online funding networks, technological challenges and lack of awareness stifling uptake in the region.