Crowdfunding tips for an emerging market: How to be ready and what you should know

As SECP (Security and Exchange Commission of Pakistan) plans its next steps and drafts regulations regarding crowdfunding, many local startups from Pakistan have gained immense benefit from global crowdfunding platforms already, and have raised several million dollars in investment in the past few years. 

Pakistan is gradually picking up pace in the startup world by fostering entrepreneurship across the masses and is becoming an extremely lucrative ground for investment for VCs, and private investors. 

MAGNiTT's H1 2020 Pakistan Venture Investment Report found that startups saw $10M invested in H1 2020, a 9% drop in total funding from H1 2019. Despite the impact of COVID-19, the overall number of deals increased by 13% to 17 deals from H1 2019.

Claim your FREE MAGNiTT trial

While all these avenues including banks and angel investors are resourceful ways to get a startup funded, crowdfunding serves as a great platform to gain access to funding, yet, it is underutilized in Pakistan.

Crowdfunding allows the co-funding of startup ventures through hundreds or thousands of prepositioned global investors. Anyone with a startup idea or a non-profit can seek crowdfunding. It opens a pathway with quicker access to investment and is an exciting opportunity to make impactful dreams come to life. It eliminates many barriers to funding and gets a startup idea out there, due to increased outreach, made possible with a good crowdfunding campaign.

Here some interesting insights for why crowdfunding is a great way to raise investment for your startup and why you should also be cautious when pursuing this route.

Discover more than 400 Pakistan-based startups on MAGNiTT

The benefits of pursuing Crowdfunding:

1. Crowdfunding can mean not giving up equity

While several other investment options give you the ability to raise capital your startup requires, they often mean giving up equity or some part of your company in the form of shares or money. Hence, crowdfunding or a reward-based crowdfunding model allows you to retain your company in its full form and prevents you from making a decision such as giving up equity.

2. It helps validate and test your product beforehand

Crowdfunding allows startup owners to validate their product beforehand which gives them time to improve the product before it is shipped thereby reducing the risk of failure significantly. This helps confirm whether or not there is a demand for your product or service and thus reducing a lot of doubt.

3. Tap into markets that are looking for your product

The best part about getting the word out about your product through crowdfunding is getting access to an already engaged community that is looking to support ideas like yours. Given you manage to run a successful campaign, your startup can engage a community that will not only help support your idea but also provides critical feedback that can make your idea stronger.

What you should be cautious of:

1. Building a successful campaign can be a challenge

While statistics show that less than one-third of all crowdfunding campaigns meet their goals, not succeeding with a campaign may also mean some bad press. Building a campaign that will work and help you meet all your investment goals is not easy and may require a significant investment of time and money.

2. Your ideas become “stealable”

Putting your product idea into the world also means making it possible for someone else to copy it. But, protecting it with patents, copyrights or trademarks significantly reduces the risk of mimicking. Furthermore, your execution strategy and the final product build is what defines the value of your startup and truly sets it apart.

3. It will require significant time, effort, and preparation

Even if you arrange professional video making, ads, private PR, or a marketing team, you will have to invest time and energy to develop content that will make the impact you are looking for. Launching a campaign without significant preparation pre-launch increases the risk of a project not working out. Due diligence in running ads, and compiling emails, prior to the launch is a must because there are no magic wands.

As Pakistan’s entrepreneurial grounds develop, initiatives like the National Incubation Centers and supporting organizations such as Teamup and Startup Early continue to pop up across this landscape. Helping young people bring forth exciting solutions to various local challenges, they are helping to grow a much-needed entrepreneurial mindset across the country’s young population of 114M people.

Although crowdfunding is relatively new, the idea has spread globally and the potential for using crowdfunding in a country like Pakistan could be significant for the support of innovation, growth, and jobs. Furthermore, opportunities like these increase the flow of foreign direct investment and also serves as a mechanism for remittance capital to be deployed into high-growth potential companies to further economic expansion.

Reasons such as these and others mentioned above are why startups in Pakistan need to be ready for when crowdfunding becomes legal in the country and to take the market by storm. Register with Startup Early to learn the art of running a successful crowdfunding campaign.

The Digitainment Industry saw a number of sizable investments over the last 5 years, a total of $235M invested across 98 deals from 2015 to 2019. Discover more trends and insights in our 2019 Digitainment Venture Investment Report