At the beginning, most start-ups rely on heavily funding, but obtaining it can be difficult. Ryaan Sharif, General Manager at Flat6Labs UAE, speaks to us about it and how SMEs can win investments.
With the steady rise in entrepreneurship in the UAE, it’s possible you’re reading this because you believe you’ve got the next big innovation. A business idea that will blow aside the competition and render you the undisputed leader of your market. Perhaps you do, and perhaps it will. Perhaps you have already done your homework; it is important to find a market gap. And perhaps you have something unique to offer; it is an undeniable bonus if you can create a potentially disruptive solution or service. But a reality all entrepreneurs must come to terms with is that you will not be able to disrupt anything, win anything or get anywhere without a strong entry into the market. You need capital.
The UAE has a well-deserved reputation for being business-friendly. Favourable taxation frameworks and geographical advantages make it an ideal springboard for new businesses. According to an outlook study by Dubai Technology Entrepreneur Campus (Dtec), foreign direct investment in Dubai alone was more than US$3 billion in the first half of 2020. The paper cited a Financial Times report that ranked the Emirates 11th globally and first in the Middle East and North Africa (MENA) for VC funding in 2020 while start-ups in the UAE as a whole raised US$577 million, which was more than half (56%) the VC total for MENA.
Abu Dhabi’s commercial freezones – such as Abu Dhabi Global Market (ADGM), Masdar City and Abu Dhabi Airport Free Zone (ADAFZ) – are certainly a part of this success, as are incubators, accelerators and programmes, such as Flat6Labs, startAD, the Khalifa Fund and Hub71. But government commitments cannot manufacture successful businesses on their own. Indeed, even if you are the world’s most innovative entrepreneur and your business model is built to rival large enterprises, you will not get far without funding.
Funding is what keeps the lights on. You pay workers, creditors, landlords and utility companies with it. You use it to buy equipment and tools and technology. Overheads add up quickly and a lack of funds can prevent growth. Every big company had financial backers and you will need yours. Here is the two-step process that will help you seal the deal.
1. Prepare, prepare, prepare
Build your value narrative from the start. Ensure you can strongly and concisely convey what business value your idea brings. Write it down, being specific but to the point and learn it by heart so that you can recall it at will. A confident telling of your potential, backed by clear visual aids, will help you shine.
You must demonstrate that you understand your operating market — the opportunities and potential pitfalls, the competitors, the regulatory burdens, the customers and more. You must know the size of your potential customer base and be able to explain why they will be interested in your brand.
Try to regularly maintain your financial model so that you can be as precise as possible about what funding you require and when. Having a firm grasp on your costs and regulatory requirements will strengthen your business plan and make you a more attractive prospect in the eyes of a potential investor. Your plan will also look stronger if you build strong bios for your leadership team, as many investment decisions pivot on the funder’s assessment of the combined experience of a business’ founders. It’s important to note that this activity should also include the profiles of business advisors who advise your company in areas that aren’t currently covered by full-time hires.
2. Meet and greet
Get to know your audience before you meet them. You may have done all the preparation on building your narrative and demonstrating your potential, but one of the biggest mistakes entrepreneurs make is pitching to the wrong investors. Just as many seed funders aren’t interested in late-stage businesses, an investor that specialises in Series B firms will be a waste of your time if you are just getting started. Also, make sure that your target is open to investment in your industry. It helps to understand the investor landscape in the GCC before reaching out.
Another thing to understand in tailoring your pitch — after having established that your target is potentially interested in your industry and in companies at your stage of development — is the type of investor to whom you are speaking. For example, high-net-worth individuals (HNWIs) and angels typically have entrepreneurial mindsets and eschew rigid due diligence in favour of a gut instinct about your idea and your team. They may also have lower ROI expectations.
By contrast, VCs, while being known to take an interest in all stages of start-ups, are more detail-oriented and will have a laundry list of questions, so your preparation will certainly be put to the test. Due diligence will be front and centre and you can expect a higher investment ticket than that of an angel investor as well as higher expectations of returns and timelines on those returns.
Family offices — wealth management advisory firms that typically act on behalf of HNWIs — target mid- to late-stage businesses. While historically risk-averse, they have recently started taking on riskier prospects while still focusing mostly on those that complement their current business vertices of investment. Research will be critical to winning a nod from investors like this.
Lights on, open for business
Early-stage funding is a critical milestone. Once secured, your idea can breathe. You can introduce yourself not only to a waiting market but to a range of seed programmes and incubators that, through the backing of the UAE government, offer innovators a chance to bring their vision to life.