Crowdfunding as an alternative source of business financing

An innovative business idea or a creative project can get financing from crowdfunding - when usually a large number of people invests small amounts of money, which leads to the target amount needed for the realisation of a business plan.

Crowdfunding campaigns for entrepreneurs and businesses are mostly about the implementation of a concrete activity, buying processing machines or tools for work, or something else that represents a core change and speeds up the development of a business, contributes to lowering prices or making the products available on larger markets, explains Vladica Jovanović, expert for social organising, crowdfunding and socially responsible and sustainable initiatives and businesses.

As a part of the project “Economic empowerment of women – Building better”, implemented by UN Women and Foundation 787, with the financial support of the United Kingdom government, Vladica spoke about crowdfunding as an alternative way of financing on a workshop organised for 15 BiH women entrepreneurs within the programme BizUp.

Vladica Jovanović

She explains there are four types of crowdfunding: donations, as a non-profit and often humanitarian; rewards or a model where those who give money are rewarded with a “perk”/a present; and investment and loan crowdfunding which did not take place in the region so far due to specific legal demands that are required, and that do not exist here.

„The easiest practice is to organise non-profit campaigns because people understand this very well and it is the easiest way for them to give money. People feel good if they give money to something like that. Another thing is the rewards crowdfunding, because people love to support good things, but they find it hard to do it unless, aside of supporting something, don’t get something in return, which will help rationalise their financial contribution,” Jovanović says.

A successful campaign

Some of the successful crowdfunding campaigns in Bosnia and Herzegovina were rewards campaigns, organised despite the fact that the renowned platforms, like Indiegogo and Kickstarter, are not available in our country. Those who decide to use these platforms for crowdfunding have to look for a mediator, someone who has a bank account in a country where it is possible to use the platform, who will then transfer them the money.

This is exactly what the 27-year-old Ružica Ivanović did with her team gathered around Gea Heal, the Herzegovina-based business producing herbal cosmetics.

„It is a bit more complicated that it seems at first. The very essence of a crowdfunding campaign is to make a pitch of your idea or some kind of a short description, a video, photographs, and to present it on one of the crowdfunding platforms. I think this is honestly the best way to gather funds because people invest in your idea directly. You set your own parameters, you make your own budget exactly as it suits your idea and I think that crowdfunding is really a great way of collecting money, especially for an emerging business.”

Gea Heal herbal cosmetics 

With a bank account from Bosnia and Herzegovina it is not possible to use Indiegogo and Kickstarter platforms, but Ružica and her colleagues found an alternative. With the help of  i-platform, an initiative which supports and encourages development of Bosnia and Herzegovina through BiH connections with the diaspora in Switzerland, implemented  the campaign through Wemakeit. The Gea Heal campaign in 2020 raised around 7.000 franks which allowed them to register the business, open their space and buy a distiller for essential oils.

„Now we make products which are similar to old traditional balms and we use ingredients from the region of Herzegovina,” says Ružica, who is a fine arts graduate and nature lover. „The main idea of Gea Heal is to produce essential oils.”

Ružica notes that it takes a team of people to create and implement a crowdfunding campaign and that theirs included persons in charge of marketing, video, photographs and written materials, persons tasked with administration, as well as those who prepare the “perks” and lead the production. She emphasises the importance of good preparation.  

„One of the things that crowdfunding requires is a big team of people who work on preparation. The preparation itself is as hard as the campaign itself, so I would recommend crowdfunding to everyone who have a strong will and a clear idea in their head, and to people who are persistent,” Ružica says. „We were preparing for 2,5 months and the campaign lasted for a month.”

Planning the funds

There are more than 300 different crowdfunding platforms in Europe for different types of campaigns, Vladica says, adding that that it is possible to use one’s own website for such a campaign, especially if it has an integrated payment system. She explains that, for the planning funds which will be gathered during a campaign, it is important to calculate in all the costs. For example, buying a machine for work, but also the costs of import if the product is from outside of country, taxes, the costs of making the perks and a percentage for the mediator if the campaign is hosted on a foreign platform.  

„If the money from crowdfunding campaign counts as revenue – do you pay a tax? If you are a private person, then you have to communicate that during the campaign so people will trust you. There can also be some taxes in that case. One has to think about all that and calculate everything in,” she says. “There is a lot of administrative work behind a crowdfunding campaign as well as expenses, besides the net amount needed.”

She adds that the most common mistakes are a wrong estimate of time and effort needed for a crowdfunding campaign and an assumption that everything can be done by one person. She thinks that it takes at least three persons for a campaign – one to lead the campaign and be its face, another to prepare and implement communications for social networks and someone to do logistics and administration.

Crowdfunding is not only for those who are just starting off, but for those who already have a business, and need support for meaningful development. This is how the 24-year-old Emina Kapetanović, co-founder and CEO of Motus Health, plans to start a crowdfunding campaign and seek financial support for her start-up to certify a mobile phone application for the rehabilitation and socialisation of stroke patients as a medical device.

After her father suffered a stroke at the end of 2019 and her family was left without directions and knowledge about how to take care of him, this IT student from Mostar was thinking about possible solutions. With an idea for an app that would help her father rehabilitate and socialise with such a health condition, together with a team she won a regional innovation competition and later got support through other competitions and programmes as well. Her idea got the attention of an investor from Germany where she plans to move soon to work on the development of her business idea.

Emina Kapetanović

„At first it seemed to us that it is simple to make crowdfunding campaign, that you make an account on some crowdfunding platform and that’s it. However, it is completely different. There should be videography, which is very expensive, marketing and all the logistical parts of the application,” Emina says, adding that the months-long preparations are almost complete and that they plan to start the campaign in April.

This article was made possible within the project “Women Economic Empowerment in Bosnia and Herzegovina – Rebuilding Better” which is implemented by UN Women in BiH with financial support of United Kingdom government.