Tapping into a fast-moving global trend, Eureeca.com aims to bring the crowd-funding model to the MENA region’s entrepreneurs and SMEs.
Chris Thomas and Sam Quawasmi are no strangers to the challenges of entrepreneurship. Friends for over 12 years, they come from a background in investment banking and venture capitalism. Chris left his day job at age 26, and has spent the last nine years building up a number of businesses in Dubai. They had always discussed working on a joint venture and played with a few ideas over the years, but never really came across an idea that spoke to them.
Then came the global credit crisis in 2008, and they watched as traditional funding options nearly dried up overnight. Already very much plugged into the world of venture capital, the two men felt inspired by these drastic changes to start something that would help fill this void.“Throughout the process of building businesses and working with entrepreneurs, and angel investors and mentors, we found that the greatest challenge facing businesses these days is access to capital, certainly since 2008, after the credit crisis. We knew then there had to be a better way to raise the funds to get capital flowing back to new businesses,” says Chris Thomas, CEO of Eureeca.
Over the last five years, a number of crowd-funding websites have emerged in the US and UK, generating interest and traffic. Websites such as KickStarter.com quickly became a mechanism for funding various creative projects, most of these being donation-based, where an investor would receive a token of appreciation, such as a voucher or t-shirt, for their financial contribution.
Then came their Eureeca moment, when a proof of concept came into focus. Crowdcube.com, a UK company was able to set up a business funding website and find the right legal structure to do so in that market. At that point, they decided it was the right time to bring this model to the Middle East. As Chris and Sam spent the last year putting their ideas to work, they became even more assured by what was happening around them.
In April of this year, President Barack Obama, signed into law, the Jumpstart Our Business Startups (JOBS Act), which legalised crowd investing as a product. The bi-partisan bill received substantial support, and the Securities and Exchange Commission (SEC) is currently coming up with the legal framework to regulate this new form of investing in that market. As a result, crowdfunding is expected to open up in the US by 2013, and many influential figures in the business community are hailing it as the way forward for SMEs to get much needed access to capital.
After a year of hard work and detail tweaking, Eureeca.com will make its debut in September with ten companies. The startup is seeing a high level of interest from local UAE companies and expects to bring on board about 15 startups and SMEs per month. Essentially, the website will be an online marketplace where entrepreneurs and SMEs are invited to raise funds on the site by going through a three stage process.
The first step will be to simply register and provide basic information about the nature of their business, followed by a detailed pitch, along with financial forecasts and other required information. The final step would take care of the legal aspects, in which compliance agencies would go through a validation process by running credit checks. After completing these steps, the member then gets listed on the site for funding, and at that stage will be allowed to interact with the crowd of entrepreneurs, investors and experts registered on the site. Investors can invest a minimum amount of USD 100, and each listed business has 90 days to raise the funds they require.
Chris describes the platform as very social, tech-heavy and interactive, with tools such as video sharing and webinars. The niche online community aims to open up a new channel for these groups of professionals in the region to communicate and learn from one another. “Technology is not merely a place where you post your business online. We have the ability to create business plans and in house talks and businesses use the social element of our site to get their message out there, peer review, analyse business plans, assess quality of funding pitches, they can like, comment, share or introduce other members to the business itself,” he adds.
Although a wide variety of new businesses will be able to join, Chris is expecting more established SMEs to be the real sweet spot for Eureeca. “Based on our research we expect a majority of business to be ongoing established businesses that are aged one to three years, business that are already successful and making money but can’t get access to capital to get to the next stage,” he says.
Sam Quawasmi, Managing Director of Eureeca stresses the transparent aspect of the site that will make it resonate with entrepreneurs and investors alike. “Right now businesses are using social media to actually advertise the fact that they are selling equity in their business, but there isn’t a process or structure in place for this to take place. We provide that structure, to take place safely with transparency and it gives a lot of investors support and comfort and provides the business a level of comfort as well,” he says.
As an SME, Eureeca faced obstacles in raising capital itself. The company was fortunate enough to persuade and strike agreements with various counterparties on equity basis and used several legal agreements with website designers, to own a share in Eureeca in exhange for service. Sam says that Eureeca’s journey is a great example of how entrepreneurs and SMEs can thrive on budget. “We worked hard to get to this stage, but there’s a wrong perception out there that in order to start a business you need hundreds of thousands of dollars to do so and that’s completely wrong because we’ve proved it otherwise, we were also luckily enough to crowd fund from friends and family and business can do the same.” Eureeca has been in discussions with various government agencies in the UAE and in the region, and its founders say support for the project has been strong in that arena.
For Sam and Chris, the future for crowdfunding and Eureeca looks very bright, as they predict the industry to see exponential growth in the years to come. “There are many ways this can expand, Mark our words, crowd investing will be the de facto mechanism in which new and existing business raise funds globally; it will be a new asset class like stocks and bonds now,” says Chris. In the future, we’d like to find ways that allow investors to exit those investments and create a secondary market on the side where businesses can come back and get future investment rounds on the site and use the site to communicate with their investors. We believe we’re very much plugged into the entrepreneurial ecosystem and with that we are aiming to help businesses grow.”