Adam Grundey DUBAI — “An investor's always a fool,” said Jahangir Aka, a man who has mentored numerous small businesses over the course of his career, “until it comes good. Business plans never sound logical when you put them in; they just make sense to somebody who gets it. And to everybody else in the world, that looks like a fool.” Those words of the Dubai-based investment executive are especially apt in relation to ‘crowdinvestment', through which startups can raise money by selling stakes to a pool of investors recruited online. Crowdinvestment platforms differ from ‘crowdfunding' sites like Kickstarter, in that they offer investors stakes in businesses rather than products or perks. The concept has been welcomed by both investors and small and medium enterprises (SMEs), as it offers young businesses access to millions of potential investors simply by uploading a video pitch on a crowdinvesting platform. That means an exponential increase in the possibility their pitch will catch the eye of a so-called "fool" who gets their idea. “Crowdinvesting has democratized the process of access to finance, enabling good ideas to surface that may not have been able to thrive otherwise,” said Jordan-based entrepreneur Mousa Ayoubi. Ayoubi and his sister Hanae are the co-founders of harir.com, an online shopping club offering members discounts on design and lifestyle brands. The pair launched a 90-day campaign on Eureeca.com, an offshore crowd-investing platform with a head office in Dubai that launched in May this year. The Harir.com fundraising campaign launched in late October, targeting $50,000; by mid-November, the entrpreneurs had raised more than 150 percent of that target. Harir.com is the kind of success story that Joanne Kubba, head of strategy, partnerships and outreach at Eureeca, hopes will help convince other small-business owners to adopt the crowdinvestment model. Kubba pointed out the difficulties many SMEs have faced in obtaining investment via more traditional means. “Let's be honest… banks aren't lending at the moment,” she said. “You could, if you're at a later stage, target venture capitalists (VCs). However, it's likely you're too early [in your business cycle] for VCs. You could get an angel investor, but they tend to look [to invest] larger amounts. You could approach family and friends, but how do you structure that? How do you put a framework around it?” Aka explained why VCs and angel investors will often not bother with SMEs who are looking for smaller injections of capital. “When you get into the economics of investing, whether it's a $10 million ticket or a $50,000 ticket, the amount of work you need to do is often the same,” he said. “Arguably, the $50,000 guy needs more hand-holding… So you start looking for bigger [investments], because that's where the payout starts coming in.” Most of the small businesses are sitting outside the Gulf, in Lebanon, or Jordan, or Egypt. Traditionally, geography has also been a problem for SMEs: investors often only consider putting money into SMEs in the same country, or even city, as their base. That's a particularly significant problem in the Middle East. “You have a region where the bulk of the investment dollars come from the Gulf,” Kubba said, “but most of the small businesses are sitting outside, in Lebanon, or Jordan, or Egypt.” Crowdinvestment platforms offer potential solutions to these issues. They give SMEs such as Harir.com the chance to raise smaller amounts of capital than the VCs are usually willing to consider, and provide an opportunity to look beyond their immediate vicinity for people who believe in their ideas. Through Eureeca, for example, Harir.com raised investment from London. Not long ago, the idea that a small Jordanian family business could get capital from the UK would have been almost unimaginable. But the world of finance is changing, and rapidly. You might think that more traditional investment institutions would view Eureeca and its clients with suspicion; more as upstarts than as start-ups. Not so, said Kubba. “Being a new space, we were nervous to see how the traditional funding ecosystem would respond. And it's been fantastic,” she said. Kubba explained that some VCs have approached Eureeca to suggest promising clients that the VCs believed were good candidates for online fundraising. “The crowd validates them,” Kubba added, “and then the VCs can look at them.” — Al-Arabiya
