This is a continuation of last week’s article on creating equity through conglomerates and collaborative measures as an option to be considered over traditional debt sources through crowdfunding.
Before we continue with the subject at hand, I thought it is important to state that the world population has recently reached eight billion people; this means the demand for food will continue to increase, hence the concerns around food security.
This profound reality we find ourselves in calls for more investments in agriculture – and even better, more creative and legal ways of raising funds for agribusinesses and agricultural projects, hence the reason for us to analyse the option of crowdfunding as a means of getting the capital needed for agribusinesses.
Agribusinesses are said to have a low vitality investment and consequently a prospective higher yield. Crowdfunding is defined as the method of financing businesses by pooling small amounts of capital from a group of people with a common goal or interest.
There are two parts to crowdfunding, mainly the general partner (GP) and limited partner (LP). The general partner is the one who makes all the decisions on the operation of the business, while the limited partner simply invests money into the business and collects returns from profits, depending on the terms and conditions set out in the agreement.
Forms of crowedfunding
Equity – an investor agrees to finance the project of which she/he receives an equity interest on the amount of capital invested.
Debt – This is a collection of funds from members, which are then lent out to the business or project at a much more favourable cost of capital.
Reward – This is a form where the investor is rewarded some of the business benefits as defined and agreed to between the parties involved.
Donation – With a donation-based crowdfunding structure an investor provides capital for the project without expecting anything in return for their investments, this could be out of social responsibility or mere goodwill.
These are some of the forms but perhaps not all. More research can be done hereto. Additionally, it is important to however note that T&C applies as per the varying structures. Hence due diligence should be applied at all times. Part three to follow next week.
Disclaimer: Crowdfunding is not to be confused with pyramid schemes.