Crowdfunding remains an unused opportunity of local economy – Battle for innovative business lost?

In mid-July, Belgrade-based Mikser started a funding campaign in order to collect the money needed to complete the reconstruction of the abandoned factory in Sarajevo in which the new Mikser House will open on September 8. Most of the amount needed has already been collected, and Mikser has initiated an international crowdfunding campaign at the Indiegogo site in order to collect the remaining EUR 75,000.

As Maja Lalic, Mikser's creative director, says for eKapija, they were inspired to initiate the crowdfunding campaign by Mikser's audience, as well as numerous individuals and organizations that “selflessly offered their help and support” during the five years of Mikser House's activities in Belgrade.

– We looked into similar initiatives and concluded that, given the lack of cultural policies and systemic support to independent projects in culture and creative entrepreneurship, crowdsourcing was the future of the independent scene and might become a basis for a society marked by greater solidarity, but also greater independence from the state – she adds.

The analysis of crowdfunding recently presented by the company Brodoto points to a similar conclusion. Among other things, it says that “although crowdfunding currently plays a role complementary to traditional sources of finance, in the future, it might jeopardize them in the way social media have jeopardized traditional ones”.

What is crowdfunding exactly?

The phrase stands for group financing where a larger number of individuals are asked for monetary support for a project. In turn, unless the money is given as a donation, the supporters (backers) are given an ownership stake in the project, an award for their support (often the very product they are “co-financing”), or a simple repayment. At the same time, they take upon themselves the risk that the product or the service will not be delivered.

The World Bank estimated in 2015 that the crowdfunding market would be worth USD 96 billion by 2020, exceeding the funds invested by angel investors and venture capital. In the USA, for example, more than a fifth of the citizens have already taken part in the crowdfunding campaigns, whereas 3% have also initiated their own projects.

The circumstances in Serbia are very unlike those from across the pond. So far, Brodoto analysts say, only 570 campaigns have been initiated in Serbia, with around USD 650,000 being paid, whereas the percentage of those who supported a campaign in 2016 was the negligible 0.03% of the population.

It is also worth noting that a third of the projects are from the field of arts, and that the film industry has been the most successful. The completion of the film about Vlada Divljan was financed this way, for example, with the majority of the payments being in the form of donations.

Battle for innovative businesses lost?

When it comes to business, this way of collecting funds is nearly non-existent in Serbia. Dusan Uzelac, editor of the Kamatica portal and the director of the company Dubes, explains for eKapija why this is the case. He says that the Serbian laws and regulations practically do not recognize this type of funding.

– What's bad is that this will never happen. That battle has already been lost, as young businesses, primarily in IT and innovative hardware, don't even try to found companies in Serbia. The owners of those companies have the status of tourists in the Serbian budget, and the state is not even aware of that. They work in companies abroad, they earn their salaries there, they pay their taxes there, and here, they only pay for food and accommodation, just like tourists – Uzelac says.

He claims that collecting money for projects from Serbia, while physically possible, is administratively not possible.

– This, however, has not been a problem for a long time now, as a company can be founded with a single click abroad. It can only be a problem for the economy which innovative businesses are leaving – he adds.

The fact that the situation is not good in any way was apparent at the recently held panel dealing with the topic of adopting the Law on Non-banking Financial Institutions, organized by the USAID. Sandra Rodic, the USAID expert for development of the financial market, said on the occasion that it was necessary to adopt relevant regulations in the field of crowdfunding, as well as other fund-raising channels, which had been present globally for a large number of years.

– The conclusion of the USAID study is that the adoption of the Law on Non-banking Financial Institutions would enable the lending of around EUR 870 in microloans within our economy in a period of four years, contributing to the creation of over 100,000 new jobs – she said.

The explanation is simple. Crowdfunding facilitates fund-raising for those whose ideas are too innovative or risky, which is why the doors to traditional investors are most often closed for them. On the other hand, it enables those who have a surplus of money at their disposal to utilize this capital.

This way, individuals assume roles currently played by banks, the state, funds and angel investors. The funds acquired by a business while still in the development stage provide it with more opportunities to overcome initial challenges, which are often the most difficult ones. At the same time, it is also a great platform for testing the feasibility of the idea, as the lack of readiness to invest money in it might be an indication of potential problems.

– Crowdfunding is a great way to test whether a product makes sense. It can happen that the idea, the project, the draft, the prototype are all praised by people around you, but the true test is a customer ready to open their wallet and give money in advance. This is a signal that the product makes sense – explains Dusan Uzelac, who, as he says, plans to test one of his projects this way himself and, he emphasizes, abroad.

One of the most important steps towards spreading the crowdfunding culture in Serbia would be to remain institutional barriers faced by potential crowdfunders or backers. At the same time, it is necessary to raise the trust in the mechanism itself.

As Maja Lalic emphasizes, Mikser received 108 donations from individuals from 16 countries, from the USA to Vietnam, through Indiegogo, and her overall impression is that local people fear paying online.

– We've had a large number of inquests for alternative ways and possibilities of direct payments not registered at Indiegogo – she says and adds that “starting crowdsourcing initiatives and taking part in them is a kind of a responsibility of the independent sector in the 21st century, in which the competent institutions are losing their social roles, to the end of educating the public about the fact that each one of us has the power to participate and that the tangle of hard-to-solve global problems before which we shrug our shoulders consists of a million smaller challenges for individuals or groups of people which can be solved”.

The Brodoto analysis concludes that crowdfunding platforms, combined with social media, can nowadays be used to launch a message quickly to a large number of people. Even more importantly, crowdfunding provides nearly everyone with the opportunity to try their hand in the market and initiate their ideas, regardless of where they are from and which social group they belong to.

Milos Vlahovic