Royalties Crowfunding, a financial solution to enable SMEs to accelerate their recovery.

Royalties Crowfunding, a financial solution to enable SMEs to accelerate their recovery.

Crowdfunding solutions to help SMEs facing an economic and liquidity crisis

*Crowdfunding solutions can help SMEs with their cashflow needs in the light of the economic and liquidity crisis, according to Dhitoimaraini Foundi, Co-Founder and CEO of Olive Crowd, which hosted a webinar on 19 May focusing on how crowdfunding can increase resilience at a time of crisis, and how it can provide an alternative method of funding for SMEs. * Introducing the topic, Osman Badat, Co-Founder and Chief Investment Officer of Olive Crowd, explained that crowdfunding is a fundraising tool which operates via an internet platform and which allows all contributors to collectively choose to finance identified projects directly and in a traceable manner.

Mr Badat highlighted that crowdfunding offers a number of benefits to the entrepreneur or SME receiving the funds, which include access to finance within 60 days and being able to supplement their own funds, without having to provide a guarantee, and being able to take advantage of advice from the investors. From the investor’s standpoint, Mr Badat highlighted that the benefits would include reliability (with the SMEs being rigorously selected), diversification, access to non-quoted companies and the opportunity to become an active investor, sharing experience with the entrepreneur. The overall concept is one of “collaborative entrepreneurship”, according to Olive Crowd.

In terms of the types of solutions, Dhitoimaraini Foundi explained that Olive Crowd is currently offering two solutions to support SMEs with strong prospects for growth. The first solution, equity crowdfunding, allows individuals to invest via the internet in the capital of SMEs or start-ups and to become a shareholder, which would give the investor the right to vote and to receive dividends. Under the second solution, named royalties crowdfunding, an investor invests in a company and receives in return a percentage of the turnover achieved by the business every quarter over a period of 5 years. In this case, the investor does not become a shareholder in the company, but just has the right to receive payments, so the entrepreneur keeps all the control of the company. The rate of remuneration for the investor is fixed to repay between 1.5 and 2 times the contribution of the investor over 5 years, Mr Foundi added.

With regard to the conditions, Osman Badat highlighted that the investment is not guaranteed as it is an investment in capital, and that an Independent Financial Adviser would need to be engaged to ensure that the company is functioning well, in terms of accountancy and finance, which would give comfort to the investors.

When it comes to matching the entrepreneurs and the investors via Olive Crowd’s electronic platform, Osman Badat explained that investors will go through KYC (‘Know Your Customer’) processes before having the right to register on the platform, and those bringing the projects must pay a non-reimbursable entry fee. He further added that the platform was intended to boost impact investment and sustainable projects that could help the Mauritian economy. Once a project is on the platform, investors can see it and decide which to invest in, and a number of thresholds would apply. Once an entrepreneur’s project is listed on the platform then there would be 60 days to achieve 80% of the targeted funds, and if this is not achieved then the campaign would be stopped. While the marketing of the project would be led by the entrepreneur, Dhitomaraini Foundi underlined that it would be supported by Olive Crowd’s marketing and advice programme to help make it work, so it would be a collaborative effort leveraging the networks available on all sides. It was also clarified that the investor does not invest directly in the company but in a holding which is managed by Olive Crowd, which then takes a fee if the project goes ahead, and that there are also some indirect costs.

For the time being, only projects based in Mauritius will be eligible to be funded on the Olive Crowd electronic platform, according to Dhitoimaraini Foundi, however the organisation will be seeking a derogation in order to fund projects in other countries. Olive Crowd is also planning to undertake a series of roadshows once the current lockdown in Mauritius ends.

By Samantha Seewoosurrun -May 20, 2020