Abstract
Studying the fundamentals of the financial market implies analyzing investment channels as the critical method of replenishing organizational budget funds. Due to the expansion of digital technologies in the modern business sphere, such a fundraising mechanism as crowdfunding is one of the possible options for accumulating profits through voluntary donations. The purpose of this work is to identify whether crowdfunding can be an alternative investment practice for small businesses. As a target region for analysis, South Africa has been chosen as a country in which the entrepreneurial potential allows for implementing relevant investment programs but which needs to strengthen its technical base and attract new tools to replenish organizational budgets sustainably.
Qualitative research involves collecting data from two categories of participants: small business owners and online donors. By analyzing the questionnaires filled out by the members of the two groups, relevant conclusions will be drawn regarding the prospects for the development of crowdfunding in the country. Conducting a literature review is an appropriate practice to summarize the existing findings from academic sources concerning the target industry and identify research gaps related to the stated topic. Setting the necessary objectives makes it possible to compile a list of questions, and the five-point Likert scale will help participants give the most accurate answers, avoiding subjective bias. The practical value of this study lies in the ability to identify the potential and success determinants for introducing crowdfunding as an alternative investment policy in South African small businesses.
Summary
Small business development is a significant aspect of the economic model of any country in which this economic sector is an area of taxation. At the same time, due to restrictions that are not related to a direct ban on entrepreneurship, for instance, weak purchasing power or a lack of credible investors, small firms find it challenging to ensure sustainable financing. In this regard, companies are forced to look for alternative mechanisms for replenishing the budget, and one of them is crowdfunding. Böckel, Hörisch, and Tenner (2021, p. 434) give the following definition of this term: “the efforts by entrepreneurial individuals and groups – cultural, social, and for-profit – to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries”. As a result, by following such a fundraising strategy for business development, small companies can count on an influx of finance into their budgets.
As a target country to consider where crowdfunding can be an alternative source of fundraising, South Africa will be reviewed. Today, the republic has a stable political and economic regime, preferential taxation, a favorable atmosphere for the development of entrepreneurship, as well as opportunities for the export and import of goods and capital (De Kadt and Larreguy, 2018). Due to the colossal deposits of minerals, the country is attractive to investors. However, given the nationalized nature of business in South Africa, only state-owned enterprises do not experience difficulties with capital inflows, while small firms are forced to develop independently (Makhanya, 2018). The key research problem involves evaluating crowdfunding as a strategy that can help optimize the economic growth models of small South African companies by obtaining unbiased input from stakeholders. According to Chao et al. (2020), along with Nigeria and Kenya, South Africa is among the top African countries in the implementation of crowdfunding opportunities. Nevertheless, the research base for assessing the activities of small businesses is weak because the main focus is on the national economy and large companies, which explains the relevance of the study.
The planned research will be of value both for small business owners in South Africa and for the business field as a whole. The possibilities of capital accumulation through the analysis of the effectiveness of crowdfunding are relevant factors to consider so that to expand the data on this topic. The purpose statement implies assessing the potential benefits of crowdfunding to strengthen the financial backgrounds of South African small businesses.
Problem Statement
An opportunity for small businesses to strengthen their financial background through a crowdfunding strategy is a valuable prospect to explore. This fundraising direction is a modern alternative to donation platforms. Crowdfunding is not related to charitable activities, and its task is to mobilize target communities to help businesses achieve the set objectives. Therefore, given the scarcity of information on the role of this fundraising policy in small firms in South Africa, the evaluation of this tool deserves attention.
Various studies involving crowdfunding in South Africa as a research subject offer information on the dynamics of this fundraising strategy and often focus on specific areas rather than the entire small business industry as a whole. For instance, Adjakou (2021, p. 557) assesses the sustainability of crowdfunding platforms in the country and notes that 55% of those sites that have been initiated over the past years continue to work. Chao et al. (2020) draw attention to the general advantages and difficulties of implementing this fundraising algorithm, but they do not offer individual perspectives for small businesses. In some studies, there is not enough empirical evidence to assess the real implications of the problem on the target business sector, which, in turn, reduces the practical value of the work performed (Elmer, Ward-Kimola, and Burton, 2020; Guy and Cédric, 2022). De Vries (2019) proposes a comprehensive assessment of crowdfunding in South Africa. However, in this study, benchmarking dominates, aiming to compare data from South Africa with other African states rather than delving into a specific financial market.
One of the research gaps is the lack of reliable data regarding the need for South African small businesses in crowdfunding based on the needs of entrepreneurs themselves. For instance, Oosthuizen (2021) performs a detailed assessment of the South African financial market, but the emphasis is on tax policy rather than growth opportunities and implications for small businesses. As a result, despite the breadth of the topic raised, more empirical evidence is needed. The focus of some studies has shifted towards political factors, which hinders a comprehensive evaluation of the economic environment (De Kadt and Larreguy, 2018; Makhanya, 2018). The stated objective of identifying the value of crowdfunding for small businesses in South Africa is not addressed comprehensively, as the topic is broad and involves different criteria and factors to take into account. Individual studies offer detailed assessments of crowdfunding, but their aim is to cover not an individual region but the fundraising system as a whole (Appiah-Otoo et al., 2022; Böckel, Hörisch, and Tenner, 2021). As a result, little unequivocal information regarding the stated issue can be found.
Addressing the lack of empirical data can be conducted through qualitative research. To engage people in lending activities to raise funds, small business leaders should understand the motives that drive donors and the desired outcomes of financial assistance. A qualitative assessment of the problem through stakeholder engagement can help determine which tools and business strategies small firms should promote to count on sustainable financial support in the form of crowdfunding. This could be the reward system that Haasbroek and Ungerer (2020) analyze or social media partnerships that Chukwuere, Gorejena, and Adom (2019) describe as potentially powerful development algorithms. Therefore, direct interaction with the target audience is an essential aspect of research on this topic.
Preliminary Literature Review
Over the past ten years, when crowdfunding as a mass fundraising movement has already gained popularity in many countries, much research has been devoted to its features and implications. One of the works is a study by Fatoki (2014), who analyzes the relevant conditions favorable for the implementation of a crowdfunding strategy in South Africa. Nevertheless, despite the practical significance of the topic, the study is a literature review in which there is no empirical data. In his later study, the author discusses the strategy’s innovative nature, offers a valid basis for evaluating stakeholder views, and engages small businesses (Fatoki, 2015). At the same time, Fatoki (2015) addresses only business owners’ views and does not study the positions of donors on the issue of fundraising. As Simons, Kaiser, and vom Brocke (2019) state, identifying the motivation for financial assistance is essential. Some studies focus on the collaborative nature of crowdfunding, but they only describe financial interest, and there are no additional variables of incentives and motivation (Kgoroeadira, Burke, and van Stel, 2019; Paoloni, Paoloni, and Modaffari, 2019). Therefore, within the framework of the proposed topic, a research gap is observed.
Microfinance initiatives, which are the core of crowdfunding, are evaluated both in academic papers and in extended manuals. For instance, Dresner (2014) offers a long guide in which he mentions, among other things, the use of crowdfunding projects in South Africa but considers purely economic perspectives and ignores social motives and the participation of small businesses. Adhikary and Kutsuna (2016), in turn, offer valid research on the implementation of such a fundraising strategy in small firms, but the scope of their work is limited to Bangladesh. Dziuba (2018) provides a valuable analysis of crowdfunding platforms, but his arguments do not directly affect the target region and are based on general rather than specific features. Although some scholars do a more in-depth analysis of the use cases of such a strategy, their research objectives are comparative rather than analytical (Belleflamme, Lambert, and Schwienbacher, 2013; Yasar, 2021). Particular cases could expand the understanding of local trends, but too little attention to the two-way manifestations of crowdfunding, that is, in relation to both small firms and donors, narrows the practical value of research.
The unpreparedness of local businesses for crowdfunding is one of the frequently mentioned problems. Some authors raise the issue of insufficient technical equipment for small enterprises (Flanigan, 2017; De Beer, 2013). Due to inefficient funding, many small businesses go out of business quickly in South Africa (Eniola and Entebang, 2015; García and Estellés-Arolas, 2015). Many academic sources touch on the topic of crowdfunding in other African countries, such as Nigeria or Rwanda (Aladejebi, 2020; Augustine, 2019; Elkuch, Brunner, and Marxt, 2013). Although, according to some studies, ethnicity is an essential factor in determining the potential success of this fundraising model, more attention is focused on the general rather than specific principles of crowdfunding (Cumming, Meoli, and Vismara, 2021; Pa, 2018). Therefore, the proposed study can expand the understanding of local trends in the context of the sustainability of this form of investment. By using the example of individual industries, some authors explore the prerequisites for stimulating crowdfunding as a common model (Festa et al., 2019; Kim and Hall, 2020). However, such a narrow environment does not allow for assessing the objectivity of introducing this investment model within a particular region.
Identifying the factors driving the development of crowdfunding in South Africa may help fill the current research gap. The role of such investment programs for small businesses will be explored in more detail than in some other studies (Aderemi, Maulida, and Maikabara, 2021; Onyango, 2018). Particular attention will be given to success determinants because, in some studies, the context is general rather than specific (Braund and Schwittay, 2016; Levin, 2015). Some papers offer extensive discussions on the potential for South African crowdfunding, but the data is outdated (Gernego, 2016; Horga, 2013). The study by Younus (2021) is one of the most valuable in terms of relevance and accuracy, given the objectives of the planned study. At the same time, some recent works offer little information on crowdfunding algorithms and focus on outcomes rather than optimization opportunities (Montgomery, Squires, and Syed, 2018; Tiberius and Hauptmeijer, 2021). Thus, the forthcoming study will help address the aforementioned gaps at the scale of a single targeted South African financial market.
Rationale/Significance of the Study
The significance of the planned study is due to several aspects. To assess whether crowdfunding can be an alternative to traditional ways of financing small businesses in South Africa, stakeholder engagement is a more in-depth approach compared to other works in this area. In addition, the use of empirical data for evaluation is an additional factor that increases the credibility and relevance of the findings. As a result, the efforts made will allow for obtaining valid data from interested parties.
The study will complement the current academic base in this field by analyzing the local aspects of a particular selected region. In the public domain, there are few academic works that affect crowdfunding in South Africa, and even fewer that consider this investment algorithm from the perspective of small businesses. The planned study will also highlight clear criteria for the problem to be investigated, particularly the potential success of the crowdfunding application and the positions of stakeholders regarding this practice. Therefore, the current scholarly database will be supplemented with relevant findings based on specific rather than general data.
Finally, the study will contribute to researching the features of crowdfunding as a relatively new direction in the investment area. Working in finance and budget control requires comprehensive knowledge of the various tools modern businesses use to accumulate capital and generate profits. Expanding the research field through a deep assessment of the issue under consideration can help review the features of crowdfunding and provide reliable data regarding the opportunities that such an investment approach brings for small business entrepreneurs in a specific region. While taking into account the aforementioned benefits, the study will complement the existing theoretical base and present real practical ways of applying the concept of crowdfunding.
Primary Research Objective/Purpose Statement
Given the planned qualitative design that implies interacting with involved stakeholders, the primary research objective is to identify the opinions of stakeholders, particularly small business owners and donors, concerning the possibility of applying the principles of crowdfunding as an alternative investment strategy in South Africa. This objective is aimed at determining the interested parties’ views on this method of attracting budgetary funds to assess its relevance to the target market and effectiveness based on the planned volume of financial receipts.
Secondary Research Objectives
In addition to the primary research objective, some secondary ones may be identified, which also relate to the issue in question. By following the set course of work, they will be achieved because they are directly associated with the key task. While taking into account the design of the study and the principles of sampling and data collection, the secondary objectives are as follows:
- To identify differences in the views of business owners and donors on the features of crowdfunding.
- To assess the prospects for implementing an alternative investment strategy based on the data obtained.
- To compare the advantages of crowdfunding with traditional investment models based on the prospects for the development of small businesses in South Africa.
- To make relevant recommendations regarding the possibilities of introducing and optimizing the existing crowdfunding practices.
Sampling Design
Selective sampling will be used as an approach to recruiting participants for the proposed study. The random algorithm is not suitable because to meet the research objectives, those members should be involved who: (1) work in a specific business area; (2) have experience in donating funds online. In particular, small business owners will be presented as one group of participants, and in the second group, those people will be included who confirm their experience of investing in relevant entrepreneurial projects.
As inclusion criteria for business owners, running a private firm for at least three years is an option to apply. This will allow for selecting the participants who have already been working on budgeting and attracting external financial resources. For donors who confirm their online investment experience, age limit (the members of this group must be of legal age) and occupation (stable income) are inclusion criteria. The planned size of the proposed sample is 80-100 people, of which one-half will consist of small business owners, and the other half will be donors.
Data Collection
The proposed qualitative study will use an open-ended questionnaire as the key data collection tool. Relevant documents will be sent to the involved participants by e-mail. The questionnaire will include specific points to which the members of both groups will have to answer by choosing the desired option from five possible ones. The five-point Likert scale will be utilized as a response measurement tool, where possible answers will range from “strongly disagree” to “absolutely agree.” This method of data collection will minimize the subjective bias of the participants and help obtain information related to the key research goals. Subsequently, the responses will be analyzed to form an overall picture and summarize the outcomes based on the set objectives.
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