Business News
Crowd Funding: How to Prepare an Effective Pitch (Final Part)
On April 11, 2012, a young engineer named Eric Migicovsky posted a project request for $100,000 development funds from “the crowd” for his Pebble prototype, a Bluetooth smartwatch that wirelessly connects with Android and iPhone smartphones to display email, calendar alerts, social media updates and caller ID. It also plays music, runs apps like GPS, and of course, tells time.
By May 18, Migicovsky had reeled in an astonishing $10.2 million from nearly 70,000 backers. The first $1 million was amassed in only 28 hours! The donation model, exchange perks and product rewards – not company equity – for contributions to the project were simple. In this case, depending on the amount donated by any member of the “crowd”, backers would receive one or more Pebble watches before market release, adding up to thousands of presold products.
“We stayed in touch with our backers as much as we possibly could,” Migicovsky said in a video at the 2012 LeWeb, Europe’s largest technology conference. “We’ve posted 11 or 12 updates about each new product feature, responded to enquries almost immediately and we asked backers to vote on a fourth color for the Pebble, after white, red and black, on Twitter and Instagram; that way carrying them along through every step of the prefunding process.”
Overnight Sensations actually Take Years
Of course, the Pebble quickly became legendary, proving that not only does crowdfunding work but it can generate some serious money, if you understand what you are doing.
Nonetheless, Migicovsky’s success was years in the making. As far back as 2008 in college, he developed a smartwatch called InPulse, which synced with BlackBerry devices. In 2011, while working at a prestigious startup incubator, he burned through about $375,000 of angel investors’ money by developing cooler features and manufacturing a lot of InPulse devices which failed to sell. At the time people were already moving on from BlackBerry devices and required smartwatches that paired with Android and iPhone handsets.
With lessons learned from his previous startup, he developed the Pebble. But, the Silicon Valley Venture Capitalists who had been keeping tabs on the Pebble’s progress walked away, leaving him without access to capital. They didn’t see enough consumer demand (note how wrong VCs can be).
Crowdfunding was Migicovsky’s last resort, and this was after he had already marketed a working product that generated buzz (InPulse). Even with the $10 million crowdsourced funds, the release of his invention was fraught with iOS glitches and manufacturing delays, serving as a lesson to anyone who assumes that crowdfunding automatically smoothens all rough patches.
Working the Options
The worst mistake you can make is thinking that it would be easy. You have to create a campaign. Anytime you raise money, it is real hard work and requires the development of channels for engaging with your target customer community, because crowdfunded investments cannot go forward unless projects are fully funded at whatever financial target the entrepreneur sets. So set realistic goals and stick to them.
The prefunding part is the opportune time to explore what works as you:
- formulate your plan (need one? talk to us at [email protected])
- identify funding communities that are empathic with your idea
- develop a narrative and video, and
- perhaps fund a project yourself to experience the process.
Shaping the Pitch
Crowdfunding reverses the usual entrepreneurial process by designing and building a product before seeking investment. It provides market validation and identifies people who actually want to buy your product.
You still need a convincing business plan. But with a funding pitch, you should not so much seek to impress spreadsheet types as to seek to truly engage potential investors.
Here are more tried-and-true tips from crowdfunding projects that worked:
- Figure out exactly how much funding you really need to raise then ask for a little more.
- Settle down and create your social networking platform, along with a business plan, long before you post your request (most crowdfunding will come from fans and followers on social media, as well as from friends and family).
- Develop an engaging story ([email protected] can help you with this). Personality, voice and storyline count; humor is optional, but it better be very good! Tell your story directly and share your personal passion for the business, its vision, mission and values.
- Choose your reward(s) carefully. Until the SEC releases any proper investor regulation(s), your only crowdfunding choice is donation-based, so spell out exactly what perk(s) contributors will receive. Be specific about timing, as well as delivery options and delivery. Offer rewards in different investment categories, as it is likely that most of your funding will come from there.
- Keep your pitch as concise as possible. Make your video short, clear, and authentic, with a call to action. The optimal length for pitch videos is three minutes.
- Keep in touch with all, and we mean ALL your backers, and consistently expand your social network. It is hard but critical work.
- Spell precise investor ‘exit’ terms clearly and be unequivocal about it. (If all goes south; do they get their investment monies back? How, when and where? If all goes well and their investment value appreciates, how can they liquidate or cash in, etc).
- And finally, be prepared for a very critical financial review or audit. Do not shy away from it, but rather welcome it and keep your opinions to yourself. Listen, learn and grow.
Crowdfunding is built around strong personal relationships. It is an extremely difficult but very possible phenomenon…you just need to think through it, or simply ask us at [email protected] to help you set one up.
About the Author
Whenever he is up nights, Brain Essien faffs around the internet gathering material for detective novels he is not sure he’ll ever publish. He likes to play investment and brand strategist in the mornings and website architect/builder in the afternoons. On weekends he likes to throw on a few apparels and gadgets and go bounce people out of their own parties if they become a handful. Besides that, he loves reading detective novels, building muscle, daredevil racing, video games, shadow chess and cooking.
Financial Services
How foreign exchange risks and others affect the Nigerian pension industry
A report has analysed risks militating against the Pension industry in Nigeria.
Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various risks, such as the volatility in the foreign exchange and other factors.
However, these risks have harsh consequences on the retirement income of contributors. For example, in Nigeria, whilst the pension assets in the last decade have grown by 21% annually, the growth in the value of assets when converted to USD, has been about 11% over the same period.
READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties
This is according to a recent report released on Pension Sector Forum by ARM Pension, with the theme “Pension Assets Risk Management in the Face of Uncertainties”
All other things being equal, the findings revealed that the Defined Contribution Pension scheme assets on a 10- year time frame, grew faster than Defined Benefits (CAGR 8.4% pa vs 4.8% pa). Increased member coverage and higher contributions were probable factors responsible for the growth. In addition, most retirees might not have enough funds to maintain a decent standard of living, as retirement risk has been transferred to them.
Other risks outlined in the summit include; interest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others.
READ: Is Zenith Bank thriving on the strength of sound financial indices?
With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources.
The report also stated that the total pension contributions received in the industry from 2017- 2019, was almost equally split between the private and public sectors at the end of Q3 2019.
Explore Economic and Financial Data on the Nairametrics Research Website
Way Forward
In mitigating the risks inherent in the Nigerian pension industry, experts at the summit called for increased collaboration among stakeholders, engagement with all regulators, increased advocacy for corporate governance, increased awareness, and sensitization of contributors by stakeholders among others as viable options going forward.
Key Highlights
- As of June 2020, only 11.3% of the Nigerian labour force had opened retirement savings accounts (RSAs), while pension assets stand at less than 10% of GDP.
- The total number of funds under management currently stands at N11.1 trillion.
- There are currently over 9.04 million subscribers and 32 operators.
READ: Why May was bad for your Pension funds
To view the report, click to download HERE
Financial Services
Nigerian fintech companies raised $600 million in five years – McKinsey Report
McKinsey report has revealed that Nigeria’s fintech companies have raised over $600 million in funding in the last six years.
In a space of five years, Nigeria’s fintech companies have raised over $600 million in funding, attracting 25% ($122 million) of the $491.6 million raised by African tech startups in 2019 alone – second only to Kenya, which attracted $149 million. The period under review is 2014- 2019.
This information is contained in a recently published report by McKinsey titled “Harnessing Nigeria’s Fintech Potential.” The report highlighted the combination of youthful demographic, increasing smartphone penetration, and concerted efforts to driving financial inclusion as factors that interplay to produce conducive and thriving enabler or platform for the fintech firms in Nigeria.
READ: BOOM: CBN issues new circular that could force banks to lend to nearly everyone.
The report outlined some of the feedback against fintech companies ranging from poor user experience, underwhelming value-added from using some of the financial products, low returns on savings, and limited access to investment opportunities.
The report also showed that Nigerian fintech companies are primarily focused on payments and consumer lending, having allotted an aggregate of 39% on payments to consumers, SMEs, and corporate FSP, and an additional 25% to consumer lending. The breakdown is depicted below.
READ: This is where PSB, CBN got it all wrong
Source: McKinsey report, 2020.
READ: Banks Vs Fintechs – Who should be Afraid? (Part Two)
On the driving factors behind the increasing choice of payment and consumer lending as an area of concentration by fintech companies, a part of the report read thus;
“The factors driving growth in each of these segments vary. Payment-focused solutions have surged over the past two years, spurred in part, by the central bank’s financial inclusion drive and favorable regulatory policies, including revised Know Your Customer (KYC) requirements for lower-tier accounts and incentives, to accelerate development of agent networks across the country. Paga, OPay, Cellulant, and Interswitch’s QuickTeller compete with mobile banking applications and bank unstructured supplementary service data (USSD) channels to send and receive transactions and bill payments.
READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties
“Fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily, and utilize smartphones as a distribution channel. For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms, to provide instant, unsecured, short-term loans to individuals. A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Banking fintech solutions have been fast followers here, with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.”
In general, access, convenience, and trust have all played key roles in the increasing use of fintech products. For example, in the last six months, 54% of consumers have reported increased usage of their fintech products
READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with
Why this matters
In line with the National Financial Inclusion goals of 2020, and owing to the fact that despite the remarkable progress recorded by traditional banking institutions, the vast majority of consumers are underserved. Hence, the issue of accessibility especially in remote areas, affordability, and user experience have been a front-burner issue.
The aforementioned issues have created an opening that fintechs have been quick to take advantage of, providing enhanced propositions across the value chain, to address major points in affordable payments, quick loans, and flexible savings and investments among others.
READ: CBN grants licenses to 3 Payment Service Banks
Conclusion
Fintech accounted for only 1.25% of retail banking revenues in 2019, signaling a room for development. Despite recording a growth of fintech investments in Nigeria to the tune of approximately $460 million in 2019, majority of these investments were from external investors. This was only a small fraction (1.27%) of the $36 billion invested in fintech globally.
READ: New report details how Nigerian fintech companies are expanding their business scopes
The report opined that full optimization of fintech companies in Nigeria can stimulate economic activity, by creating a multiplier effect, and can drive progress towards development goals. Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country. The sector can unlock a plethora of economic benefits by driving increased fintech productivity, capital, and labour hours through digitization of financial services.
Business
PenCom recovers N17.51billion from defaulting employers, imposes penalties
N17.51 billion was recovered by PenCom from employers who refused to remit pensions from workers’salaries
The National Pension Commission has recovered N17.51 billion from employers that refused to remit deducted monthly pensions from their workers’ salaries to their Retirement Savings Accounts with the respective Pension Fund Administrators.
This was disclosed by the Commission in its 2020 second quarter report which was released on Friday.
Out of the N17.51 billion, the principal contribution was N8.89 billion, while the penalty imposed on the employers was N8.63 billion.
READ: CBN says 22 banks to restructure over 35,000 loans due to COVID-19
The report read, “Following the issuance of demand notices to some defaulting employers whose outstanding pension contribution liabilities had been established by the recovery agents, 16 of the affected employers remitted the sum of N261.33 million representing principal contribution of N152.79million and penalty of N108.54million during the quarter. This brought the total recoveries made from inception as at June 30, 2020 to N17.51billion.”
According to the report, one batch of NSITF lump sum payment application totalling N225,442.72 was however received on behalf of five NSITF members during the quarter.
READ: Ngige accuses NSITF management of embezzling N48 billion and awarding fake contracts
It said the application was processed and five members’ contributions were transferred to their bank accounts.
Consequently, it added, the cumulative sum of N2.94billion had been paid into the bank accounts of 36,551 NSITF contributors as lump sum/one off payment from inception to June 30.
For the quarter ended June 30, the commission said it processed monthly pension payments totalling N62.25million in respect of 3,629 NSITF pensioners.
READ: Private Sector drives industry growth, as PenCom remits N7.4bn into RSA
As of June 30, it said the total pension payment to NSITF pensioners amounted to N4.73billion.
The commission added that it reviewed the request for the payment of attributable income to eligible NSITF members and granted a “no objection” for payment of N2.92billion to 165,954 eligible NSITF members whose NSITF contributions were refunded to their RSAs or bank accounts as of December 2018.
READ: Leaked memo: CBN instructs banks to block bank account of 38 companies for “forex abuse”
How foreign exchange risks and others affect the Nigerian pension industry
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