As you know by now, every week we welcome talented bloggers to capture what Threads, the Business of Fashion Accelerator Program is all about. They play a key role in engaging with industry related discussions and get an exclusive insiders look on the program. Our Funding Strategies Module was joined by Lifestyle blogger, Chloe Farley.
On the 5th of March, the Thread’s entrepreneurs attended their next business of fashion class. This week’s class dealt with the important entrepreneurial task of setting up funding strategies and was delivered by none other than Tania Habimana, one of the co-founders of Threads. Tania used her own fundraising and business experience as well as knowledge she has attained through interviewing successful businessmen in the fashion industry in order to inform the content of the class. Funding strategies may be a great way for entrepreneurs to raise capital, however, they do not come without their challenges.
One of the most popular funding strategies utilized by entrepreneurs is referred to as crowdfunding. Crowdfunding is particularly useful to entrepreneurs, particularly with regards to raising capital in order to expand one’s business or to fulfil a business venture. “I was invited to Runway Dubai for a fashion show but I had to pay to showcase. I didn’t have the money. I started crowd fundraising three weeks before the date of the fashion show. It was successful, we raised 5 thousand rands in three weeks,” says Asanda Mali, one of the Threads’ entrepreneurs. Asanda predominantly sourced her investors from Facebook, however crowdfunding involves a lot more than posting on social media.
“You do not have to have products or anything to provide in exchange for the funding” – @taniahabimana on Equity Crowdfunding. #ThreadsbySB
In order to help the entrepreneurs, understand the basics of crowdfunding, Tania went on to explain the two main types that entrepreneurs often utilize. The first is known as equity crowdfunding and refers to when a person or entity invests in your business in exchange for equity. There are several pros to utilizing equity crowd funding. The first is that the investors you attain can act as advisors to your business. “This type of investment (thought investment) is more valuable than cash as you have a successful business person supporting and advising you,” says Tania. Another benefit to equity crowdfunding is that you can attain a large sum of money. And the final benefit is that you do not need collateral. “You do not have to have products or anything to provide in exchange for the funding,” explains Tania.
Despite the numerous benefits equity crowdfunding has for entrepreneurs, there are also some drawbacks. The first is that you will have to give up a portion of the ownership of your company. “In the South Africa climate, this can have a negative effect on your Black Economic Empowerment (BEE) status,” says Tania. Other drawbacks to this type of crowdfunding include the numerous amount of preparation and effort required when planning to pitch to investors, the reality that most crowdfunding platforms charge a monthly or success fee and the fact that it may take a long time to acquire funding.