In the present scenario where the gloom of global economic crisis is yet to be over and banks are tightening their purse strings; alternative fund raising methods like Crowd Funding are picking up fast. It is the method of attracting investment from a crowd of people- each of whom takes a small stake in the business idea by contributing towards an online funding target. In contrast to angel investment where a single (or a few) individual or institution provides majority of investments; Crowd Funding seeds capital from a number of investors. This alternative method of raising capital was 1st popularized in USA by Kickstaretr.com. Crowd funding is not just restricted to the realm of business and can be effectively translated into creative designs and charities. According to Croudsourcing.org, an organization involved in tracking the industry trends, a capital of US $ 1.5 Billion was raised in 2011 through 450 crowd funding platforms worldwide.
Crowd funding has following advantages:
· Can be successfully used for fund raising for multitude purposes such as: businesses, creative projects, product development, disaster reliefs, creative design etc.
· Ensures safety as the process is very transparent and democratic.
· Helps in accessing capital from a wide range of sources.
· Helps in garnering useful feedbacks from the backers.
· Helps turning investors into brand ambassadors.
· Facilitates learning for small investors under the guidance of big and veteran investors.
· Effective usage of internet, social media and online payment technologies help in negation of legal, psychological and logistical challenges for money solicitation.
Along with advantages, crowd funding is not insulated from some potential threats as well. It can expose an innovative idea to a large number of potential copycats. The tax and regulation involved in a crowd funding system can be sometime difficult to work with.
Eureeca is the 1st ever crowd investment platform in the MENA region, which brings together entrepreneurs, investors, business experts under one umbrella. Started by former investment bankers and entrepreneurs, Chris Thomas and Sam Quawasmi, Eureeca is aimed at transforming the SME funding landscape in the region, so far dominated by traditional venture capitalism model. It will help entrepreneurs to source investment from a vast pool of investors, which in return will get equity in the venture. The minimum investment criteria have been kept as USD 100, so that a high degree of involvement and democracy in the system can be realized.
Considered as a very technology and legal heavy system Eureeca.com is being incubated since the last one year. It has get past its beta stage last month in June and will be officially launched in the 1st week of September in Dubai, UAE.
How it Works
Eureeca will work as a step by step simple process. It appears that, the overall system has been tried to make as democratic and transparent as possible. Initial stage requires entrepreneurs to sign up and submit a proper business plan with exact capital required. The plan is reviewed by an application team. The application team will look into how professional and organized the plan is, and once verified it will be carried forward to the third party compliance team. They will conduct a background check up that will include legal and credit history. In the subsequent step, the business plan will be assigned a template in the Eureeca moment website. This is the stage, when the plan goes live in front of public, which includes investors (both big and small time) and business experts. The investors can communicate directly with the entrepreneur, discuss and vote on the plan. Not to mention, share and discuss with other investors.
The proposal remains live for the next three months, in which it is required to raise the desired capital. The window of three months prevents against any overnight decision on part of the investor. Investors can understand the overall plan thoroughly and based on that take a call.
In the overall process Eureeca will get 5 percentages of the transaction amount. This is subject to the investment being materialized completely.
Safeguard of investor’s interest
Crowd funding is associated with the threat of exposing the idea to a large number of potential copy cats. In order to contain the problem, gating system has been introduced in Eureeca. Initially the entrepreneur can show a little information to a large pool of investors and gradually when the trust builds, further information can be shared with the interested few.
Another remarkable feature is, approval of proposal is subject to raise of exact capital required in the original business plan. If it fails to comply that, the plan is rejected. For instance suppose a plan requires an overall funding of USD 500,000 but ends up collecting 450,000 USD, it will not get materialize. The philosophy behind the idea is again about safe guarding investor’s interest. Lack of required capital may not be good for the business and hence jeopardize the investments made by early investors.
The Way Ahead
Presently there are more than 200,000 SMEs in UAE alone, generating up to 46 percentage of GDP and 86 percentage of employment. In spite of playing a vital role in the economy, SMEs are facing various challenges. Biggest of them is lack of funding. Many SMEs with sound ideas are wiped off due to lack of capital. In such a situation a crowd funding platform like Eurrecca, which leverages on the strength of 2.2 billion internet users spread across globe, for funding can become a game changer.
It can provide the necessary capital for many of the brilliant ideas in the MENA region, hence helping the blooming start up culture in the region. Along with entrepreneurs, there is a huge incentive involved for investors as well. They will be exposed to wonderful ideas and get chance to invest in them. Moreover many small investors can be in touch with more experienced bigger investors and business experts, which can be a great learning experience for them. This will further escalate the entrepreneurial atmosphere in the region.