Complex Made Simple

The GCC is emulating global crowdfunding success if only for lack of funding options

The region is burgeoning into a decent environment for crowdfunding or P2P lending

The minimum paid-up capital for companies in Saudi to practice debt crowdfunding activity is $1.33 million GCC Banks had $2.3 trn in assets end 2019, yet their lending to SMEs were less than 5% of total loans. Uswitch revealed how some of the world’s leading brands found their initial success through crowdfunding

If you need money for a fantastic startup idea, your chances of getting funding in this region are low.

Get it by telling your friends, who then tell their friends and basically go the crowdfunding route to eventually attract the attention of investors who can then witness the market’s positive reaction to the Eureka moment in action.   

The region is burgeoning into a decent environment for crowdfunding or P2P lending.

Crowdfunding regulation in the region

Lebanon, the Dubai International Financial Centre (DIFC), Bahrain, and Abu Dhabi Global Market (ADGM) have introduced crowdfunding regulations.

The laws include a focus on disclosure of risks, pre and post-funding due diligence of the entities raising funds, the creation of an optional exit facility to give investors the ability to sell their participation to other investors on the same platform, and more.

The Saudi Central Bank (SAMA) has announced the issuance of rules for practicing debt crowdfunding activities in support of organizing modern financing activities and attracting a new segment of investors, reported the Saudi Press Agency (SPA).

SAMA said that the minimum paid-up capital for companies to practice debt crowdfunding activity was $1.33 million.

Exclusive: Crowdfund the dream home everyone said you can’t afford

Read: Equity Crowdfunding platform Eureeca facilitates $1.3 million in series A funding for Udrive

Conditions leading to P2P lending

Data collected by Cambridge Centre for Alternative Finance (CCAF) reveals that crowdfunding has raised $305 billion worldwide in 2020. This development is even more significant for MENA SMEs, who, according to the World Economic Forum, garner only 7% of total bank loans, the lowest in the world.  

Banks in the GCC had $2.3 trillion in assets at the end of 2019, yet their lending to SMEs represented less than 5% of total loans.  

SMEs contribute nearly 60% of the UAE’s GDP, estimated to grow to 70% by 2021.

Therefore, crowdfunding can help bridge this staggering credit gap, especially that the P2P industry has grown by 17% yearly.

Regional players

Crowdfunding platforms are proving to be good alternatives in the Middle East region.

Top regional P2P players include:

1-Beehive is the first crowdfunding FinTech in the UAE and is regulated by DFSA. Back in March 2019, Beehive secured $4 million as part of a Series B funding round, bringing the total raised to $15.5 mn since launch. 

Beehive successfully facilitated the funding of over $100 million to more than 450 business funding requests and registered more than 10,000 international retail and institutional investors.

2-Eureeca is an equity crowdfunding startup with offices in Dubai. 

Eureeca enables members of its investor network to buy shares in growth-oriented businesses while providing operational businesses with crucial access to capital.

3-Ziina, a Dubai-based fintech, landed $850,000 in a pre-seed round and launched its social peer-to-peer (P2P) app.

The app allows bank account holders to send and receive money “as easily as sending a text message.”

4-HBR

Humming Crowd Realty (HBR) is a UAE-based investment holdings company that uses real estate crowdfunding to give investors insider access to pre-vetted real estate investments for as little as AED1,000 ($272.5). Each real estate investment is tied to a real estate company that deals with the hassles of sanitary, tenants, and maintenance.

5-Smart Crowd is a financially regulated digital investment platform in MENA with $600,000 in seed funding. 

For as low as $1,362, Smart Crowd allows investing in homes and makes money by charging a structuring fee based on the value of the property. 

6-Zoomaal is a crowdfunding platform supporting the region’s creatives, and community good-doers.

It encourages Arab entrepreneurs and creatives, including artists, filmmakers, and authors, to submit their project pitches for funding by supporters from all around the world.  

Now famous global startups that turned early on to crowdfunding

As part of their Crowdfunding Index, Uswitch revealed how some of the world’s leading brands found their initial success through the use of crowdfunding platforms that helped fund 6 million projects in the past year.

Here are 6 of those

LuggageHero 

Now offering storage options in more than 40 major cities across Europe and North America, LuggageHero has racked up over 1,950,000 hours of stored luggage since its launch.  

In Copenhagen, founder Jannik Lawetz was fed up with dragging around his suitcase, so started by putting his idea in the newspaper that caught the eye of investors. Together with Kristian Loekkegaard, they launched LuggageHero. To grow the business further, they launched an equity crowdfunding page on Seedrs in 2019 which has raised over $2.2 million to date. 

Source: Instagram / @luggagehero

Monzo 

The founders of Monzo launched in 2015 a new type of bank that was based solely on an app. By using Crowdcube; the equity crowdfunding platform, Monzo broke the record for the quickest crowdfunding campaign in history with $1.38 mn raised in 96 seconds. 

 The company has since gone on to raise $27.6 mn through crowdfunding pages.

PopSockets 

PopSockets, is now known globally across the world to assist with holding your phone.

The company was founded in 2010 by David Barnett after he’d had enough of his headphone wires getting tangled. 

David stuck two buttons to the back of his phone and later created 60 prototypes before launching the campaign on Kickstarter in 2012. He raised over $18 mn since launch and is still one of the best-selling products on Amazon. 

Source: Instagram / @fashi_oncell

Oculus VR

At just 20 years old, Palmer Luckey developed the idea of virtual reality as a headset that was better than what was already on the market but inexpensive for gamers. 

The entrepreneur launched a crowdfunding project on the creative platform Kickstarter and raised over $2.3 mn with 9,500 backers. 

Gaining awareness through Kickstarter later allowed the company to be bought out by Facebook in 2014, making it the multi-billion-dollar company it is today. 

Source: Instagram / @gaymer.couple

Bragi Wireless Earphones

Taking the audio world by storm, in 2014 Nikolaj Hviid created wireless earphones that could do it all – The Dash. 

Starting the concept in 2013, Nikolaj developed wireless earphones that allowed you to listen to music, monitor your heart rate, and even use Amazon Alexa. He raised $263,000  in his first 48 hours of a Kickstarter crowdfunding campaign.  

 Source: Instagram / @anitpillai

Peloton Exercise Bikes

Mixing cycling with the studio experience, founder John Foley developed the Peloton Exercise bike in 2012. Peloton found its success via Kickstarter in 2013. Raising $312,000 on the platform, it became one of the most sought-after brands by investors. 

Source: Instagram / @bjoern.becker78

Uswitch’s top tips for a successful crowdfunding campaign:

  1. Ask for the right amount of money 
  2. Know who your target audience is (who is going to buy it?)
  3. Offer investors rewards that will keep them interested
  4. Be realistic with your target
  5. Factor in costs
  6. Check out the competition