Crowdfunding can help solve Africa’s liquidity issues

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Crowdfunding will solve a real need for African developers and entrepreneurs by fixing the continent’s liquidity problems, according to (CFO) Erik van Eeten, co-founder and chief financial officer (CFO) of new property crowdfunding platform Realty Africa.

Disrupt Africa reported earlier this week on the approaching launch of Realty Africa, the first crowdfunding platform dedicated to property investments in Sub-Saharan Africa.

The platform, which has also launched its own crowdfunding campaign on Indiegogo in a bid to gather the last EUR171,000 (US$184,000) of its needed starting capital, offers investors from all over the world the opportunity to invest in the growth and development of the region and claims it is looking to overcome the often negative perception of investing in Africa by ensuring maximum safety.

van Eeten told Disrupt Africa the startup believed it was solving a real problem by providing an opportunity for property developers and entrepreneurs to access funding in a new manner.

“Africa has a shortage of liquidity and many entrepreneurs have only limited options for sourcing the funds to do their projects. These sources are in general banks or seasoned large scale investors that they are able to interest in their project,” he said.

“We offer a complete new perspective by which all investors globally can see what the developers are doing and can invest with an amount as low as US$1,000, depending on the scale of the project. For the developer this new funding channel is a big deal and will open totally new possibilities for the future.”

He said there was also added value for investors in that they can really participate in the development of Africa.

“For them it is very visible what happens with the money. As a bonus they will receive a very nice return, which will be double digit,” van Eeten said.

Realty Africa, he said, believes crowdfunding and property crowdfunding in particular will be pivotal in creating new growth in many African countries, especially among smaller companies lacking access to the big investors.

The startup is funded by venture capitalists and founder capital, with the additional being sought the through the Indiegogo campaign. Once launched, Realty Africa will look to make revenues on a fee basis if a campaign on the platform is successful.

“After a successful funded project, the property developer will pay a fixed pre-agreed fee to Realty Africa. The fee is based on the scale of the project and risk profile,” he said.

“Realty Africa will not take a part of the profits and will also not provide investment advice to investors. The investors can base their investment decision on the information that is provided on the platform about the project.”

van Eeten said interest in property investment in Africa will be “huge”, for reasons other than a good chance of high returns.

“The excellent thing about investing in property is that the investment is always backed with a solid asset as collateral. So in case a project fails, at least the collateral is there to recover a large amount of the invested funds,” he said.

“In case of an investment in a company, this asset is often lacking which makes this investment on the African continent, in our view, much more risky than investing in property development.”

The startup has closed service contracts with Deloitte and fiduciary servicer fund Imara to provide maximum protection to investors. Deloitte’s due diligence will screen each project before it goes live on the platform, while Imara has assisted in drawing up a legal construction which prevents owners from selling their property.

“Thus we provide maximum protection for investors,” said Van Eeten.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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