Middle East entrepreneurs' struggle for seed financing (page 1 of 2)

Edward Roderick is Co-Chairman of Envestors, a Dubai-based entity which attempts to pave the way for entrepreneurs to succeed by opening doors to liquidity they are so urgently in need of.

Envestors does not do this purely through its network connection with bankers. Networking, or wasta, is important in the Middle Eastern business world but this is no longer enough. "The banks are not lending to anybody at the moment", Roderick tells AMEinfo.com. "Money comes only from high net worth individuals (HNWI)".

Middle East sees thirst for liquidity

Convincing wealthy privates is an uphill struggle. Out of 100 applicants, only a handful will finally get 'angel financing'. But the good news is there is renewed hope for businesses seeking this form of finance.

"There is new optimism in the scene, no doubt about that", says Imad Ghandour, executive director, Private Equity at Gulf Capital in Abu Dhabi. Frederic Sicre, executive director at Dubai's PE giant Abraaj Capital agrees and was recently present at one of the gathering events at Envestors, which was organised by Roderick. "More than 500 HNWIs attended a meeting recently. Half of them were from the GCC. They are all ready to put their money in innovative startups, whether with ideas for the health sector, green- and clean-tech or infrastructure."

Vikas Paprival, partner at KPMG in Dubai observed that Private Equity (PE) firms and 'business angels' are not seeking anymore high growth rates "but quality and sustainability".

"There is a consensus in the PE branch, that the golden times, joined by high leveraged buyouts and excessive growth rates are over", Dr. Nasser Saidi, chief economist at the DIFC authority, observed. Only 19 PE deals were concluded in the Middle East and North Africa (Mena) in 2009, worth $561m. In 2007 there were 69 PE transactions worth $4,63bn.

Start-up companies encouraged to submit better reports

Once the financing is secured, the real work begins for small and medium sized entrepreneurs. Inevitably the banks will jump on the bandwagon, whether by designing corporate accounts or by issuing corporate credit cards. Even the latter have became hard to get, as many Dubai citizens have learned.

An entrepreneur who asks for seed financing or a licence in a free zone must have good standing. This can be proven with a good bank relationship in your home country which has existed for more than three years. Another indicator for a proper business reputation is a clean billing from Emcredit.

Emcredit, which is based and registered in the DIFC, has a database of individuals and companies in the UAE, which includes 5.6 million consumer identification records, payment behaviour information on borrowers and 35% of all mortgage data in the UAE.

The entity has retained its ISO 27001 certification for the second consecutive year, following a detailed audit conducted recently by TUV NORD Middle East. This is the world's highest accreditation for information protection and security, endorsing the quality of the work done by the firm. "Data privacy is of utmost importance in our operations. This recent reaffirmation of our data security rankings is a clear indication of the robustness of our systems and processes, enhancing the confidence of our members," said Ali Ibrahim, managing director, Emcredit.

IFRS deployment encouraged

Another step towards higher credibility is transforming the accounting to an international acceptable standard.