Small businesses in the UAE are getting a head start, thanks to online crowd investing sites which raise much-needed cash to help their brand’s profile
He is the picture of elegance, dressed in a crisp white shirt and sharp suit complete with a white silk pocket-handkerchief.
The stylish male model is the current face of the Dubai-based brand Monsieur Fox, whose online range includes cufflinks inset with rubies, ties and tie clips.
This men’s accessories brand is part of the UAE’s burgeoning fashion industry and also one of the first local fashion firms to seek funding in a way that is relatively new to the Middle East: crowd investing.
Monsieur Fox aims to raise $164,063 to grow its business by a deadline of September 8th via crowd investing website Eureeca.com. In return, its financial backers will get a slice of equity in the firm.
Adrian Azodi, Monsieur Fox’s creative director and co-founder, says crowd investment offers entrepreneurs a much-needed alternative to traditional bank loans.
“When you look to crowd investing there is much more opportunity to reach out to people who become evangelists of your brand,” he explains.
Simply put, crowd investing is a business deal where investors are buying a slice of company equity. It is distinct from crowdfunding where donors pledge financial support for mostly creative projects, often with no expectation of a financial return.
Eureeca’s British co-founder Chris Thomas, who is based in Dubai, says: “When we created Eureeca.com our focus was really to allow the non-tech businesses and bricks and mortar businesses the ability to raise money. They are good businesses and are stable but they totally fall beneath the radar of traditional funding routes.”
So how does crowd investing work? First, small to medium-sized enterprises (SMEs) approach Eureeca.com with their business plan and financial projections together with a funding proposal. Acceptance onto the site is by no means guaranteed. Of the 500 business applicants it has received since its June 2013 launch, Eureeca has listed funding proposals for just 20.
Each firm’s 90-day fundraising drive on Eureeca is accompanied by a promotional video, an explanation of their fundraising goals and the percentage of company equity for sale. Their aim is to catch the eye of the website’s 5,000 registered potential investors who are based as far afield as Japan, Canada and Switzerland.
Interested investors can even ask the entrepreneurs questions online. The average Eureeca investor pledges $4,500 a time although investments can be much higher or lower.
The range of firms seeking funding via Eureeca is diverse. Monsieur Fox has rubbed shoulders on the site with funding proposals for a car maintenance and repair app and a beauty products brand.
Now more fashion firms from the region are set to follow in Monsieur Fox’s footsteps by growing their business via crowd investing. A collaboration between Eureeca and Fashion Forward, the UAE’s bi-annual fashion week-style event, will introduce more up and coming design talent to the crowd investing concept.
The aim is for more entrepreneurs championed by Fashion Forward to receive Eureeca’s support and advice in launching their funding campaigns online.
“We hope to help a lot of fashion designers to develop their business and raise some growth capital,” Thomas says.
Women’s accessories firm Poupée Couture was the Middle East’s first fashion brand to successfully seek crowd investment via Eureeca. It raised more than $112,800 via the site in January this year, well in excess of its $70,000 target.
Whether it is for fashion or for food brands, Thomas is convinced crowd investing is the future for young firms that require a cash injection to move forward.
“This is going to become mainstream,” he says. “It will be the air that we breathe. Every business will raise its money this way because it works. As long as you have support and people who believe in you, there’s enough money on the ground to fund you.”
For investors, crowd investing is an opportunity to diversify beyond property and stock markets into the previously difficult to access SME sector. It gives a feeling of personal involvement with small, growing businesses and the possibility of a healthy return as they expand and are possibly sold in the future.
On the downside, this is generally a longer-term investment. Although it might yield some annual dividends, crowd investing generally involves tying up funds for several years before making any profit. And of course, not all small businesses turn a large profit or even survive.
From the entrepreneur’s perspective, the crowd investing process can be a helpful means of raising their brand’s profile and forging useful links with influential players both in the UAE and further afield.
Some firms even exceed their original funding targets and decide to accept more investment in return for more equity. Businesses that do not hit their funding targets within 90 days get nothing; their potential investors do not part with any money. In these cases, Eureeca waives its usual fee (7.25 per cent of total crowd investment raised) and charges only its standard $250 compliance check fee.
For Azodi, the benefits of crowd investing go beyond its potential to raise money to expand his business.
“It lends some industry approval as well,” he says. “When people realise you are either promoted by Fashion Forward or people like Eureeca.com they say you have been vetted. We have found people turn their heads when they see we are in this for the long haul.”