The secret sauce for running a successful crowd investment campaign
Will 2014 be the year of crowd investment? Yes, if startups like
SearchinMENA
have anything to say about it. The B2B marketplace, founded by
Syrian entrepreneur Salim Akil, has just raised $140,000 USD, the
largest round yet to be secured through
Eureeca, the region’s crowd investment platform.
Now, Akil is considering the launch of another campaign, to
capitalize on his momentum and raise part of the next $400,000 USD
he’ll need to build the platform into the AliBaba of the Middle East (Akil
recently secured a meeting with AliBaba that he says “went very
well”). If he can succeed, persuading friends, family, and
investors he’s never met to continue investing, SearchinMENA.com
will become the largest of a new set of startups proving the
viability of crowd investment in the Middle East.
A year ago, when crowd investment first emerged in the Arab world,
buoyed by its support in the US, the concept
seemed controversial. Would potential angel investors
understand the risk? Would startups benefit from giving equity away
to a group of strangers? Would crowd investment survive government
regulation? Questions swirled about the concept’s potential
efficacy.
Today, thanks to the success of SearchinMENA, Jordan’s
Harir.com, Dubai-based startup Nabbesh,
and Jordan’s
Foodlve hitting 91%, Eureeca is becoming a go-to quick solution
for startups hoping to bridge the gap until they can secure
institutional investment.
Nabbesh, a skills exchange community led by Loulou Khazen and Rima
Al-Sheikh, used the platform mostly for exposure and buzz, reaching
its modest goal of $100,000 USD within 12 days, while also raising
money from institutional investors. Harir.com, a design and home
goods flash sales site, raised $50,000 USD in 8 days. The Eureeca
campaign was “mostly just to get exposure and to get the funds to
get us to the next stage,” says founder Mousa Ayoubi.
For these startups, it could seem like easy money, as typically,
investors are silent, meaning they aren’t represented by a board
seat and don’t have direct input into company decisions (although
each startup can design a different model on Eureeca). This seems
to be a bargain that angel investors are ready to make in exchange
for the privilege of getting into the startup arena.
Yet quick success isn’t a guarantee. Raising $50,000 USD on the
platform might not be rocket science, but Eureeca has a distinct
formula for success. Flout the rules, and you may find it difficult
to raise even the smallest amount. But learn the game, and you
might gain access to investors from around the globe eager to find
new opportunities.
A look at the three campaigns reveals what it takes to raise
money on Eureeca:
1. Have an extensive personal network of potential
investors.
If you don’t already have a network of potential funders to reach
out to, you might as well not launch a crowd investment
campaign.
Eureeca’s team members are the first to admit that preparation is
essential for success on the platform. And, as it turns out,
success is all about framing. If you appear to have momentum, that
momentum will grow. So it’s essential to secure the first
difficult, “early adopter” investments from an immediate network of
friends and family.
“We advise SMEs and entrepreneurs to not expect to launch on
Eureeca and [have] investment to start flooding in,” says Sam
Quawasmi, Eureeca’s cofounder and managing director. “You have to
tap into the first and second levels of your own network of
friends, family, and clients, who will typically form 30-40% of
your funding target.”
It’s only then that a startup starts to look attractive to
unrelated investors, he explains. “It’s like looking at two
restaurants, one that’s decent-looking and packed with people, or
one that’s beautiful but empty. Which one will you go for? The one
that’s busy.”
Akil affirms this reality. “The overwhelming majority of the
investment came from friends, and friends of family,” he says,
estimating that 26% of his investors were friends, 26% were friends
of friends or friends of family, 41% were investors who found out
about SearchinMENA online, and 6% were clients. A full 35% were
from the UAE, and 35% from Saudi Arabia, and 38% total were of
Syrian nationality, and thus part of Akil’s extended network.
What's important for startups to keep in mind is that they should
be prepared for investors from outside their personal networks-
while there may be more of them- to give smaller amounts. The
maximum individual investment SearchinMENA received was $40,000
USD, with a minimum of $100, and an average of $4,300 USD,
indicating few large tickets.
Lest entrepreneurs discount the effect of Eureeca on hitting that
first milestone, however, Akil notes that Eureeca played a crucial
role, by making the campaign visible and building trust. “It helped
me convince my friends to invest, by creating a good structure,” he
says.
2. Choose an attainable amount
Because overfunded campaigns can continue raising capital, there’s
little downside to choosing a small amount on Eureeca. Yet if a
startup chooses an amount that’s too large, it risks not meeting
its goal and receiving nothing. This asymmetrical setup means that
startups should aim low, even if it could look unambitious to run a
campaign for $50,000 or $100,000 USD during a scaling phase.
The more startups can guarantee that they’ll reach their target,
by speaking to at least some investors
ahead of time, as Nabbesh did, the better their chance of
success.
3. Hustle
Raising money, no matter how you do it, requires a large PR
campaign.
“Talk to anybody and everybody,” says Akil, “because those people
will start talking and will talk to others.”
Successful crowdfunders on platforms like Zoomaal, Kickstarter,
and Indiegogo
attest to the same philosophy.
Akil also advises entrepreneurs to focus on social media. In
general, “a lot of people were interested [in investing] around
$5,000 USD, and we attracted them through social media,” he
relays.
Although this tactic is crucial from the beginning, it’s
especially relevant at later stages. After hitting the 60-70%
threshold, Quawasmi says, startups might begin attracting investors
from other countries and even other continents. SearchinMENA, he
points out, attracted investors from Brazil, Germany, and India in
its final stages (and its campaign was extended for a month because
Akil was in talks with those investors, he says).
Harir.com is also still finding investors inquiring about the
platform, especially from Saudi and the UAE, says Ayoubi. Once it
closes the campaign, it will look to spend the capital on “customer
acquisition, working capital, and enlarging our team.”
The future of crowd investment
Given these initial successes, Eureeca is set to grow dramatically
this year, as accelerator graduates and other early stage startups
look for ways to keep growing steadily in the absence of immediate
VC interest.
The only threats to its platform are the risks of regulation, or a
potential deal gone bad. To minimize that risk, Eureeca conducts
due diligence and background checks on each investor who funds a
proposal, so that “when a proposal is funded, both parties would
have passed the due diligence and KYC checks.”
Although regulators may decide to step in and limit its activities,
Eureeca, which is registered offshore, is continually in talks to
encourage regulation of the sector, says Quawasmi. The hope is that
regulators will see the value in the vehicle. “We are creating
jobs,” he points out. “90% of hires happen after someone gets
funded.”
You may also be interested in:
- Eureeca, the first global crowdinvesting platform, exits beta, focuses on the Middle East
- Crowdinvestment takes off with a bang in the Middle East: Nabbesh raises $30,000 in 24 hours on Eureeca
- Can SearchinMENA.com raise the funds it needs to build an Alibaba for the Middle East?
- What Mashrou' Leila's crowdfunding success means for the Arab music scene
- 6 tips for successfully crowdfunding your creative project