Transcript Dubai SME Template
Getting Business Finance
- Getting Started: Incubation, Investors (Angel) and the Role of Government
Alexandar Williams, Director or Strategy & Policy
Output (economic growth)
Moving Forward - The New Economic Imperative
“Better” path → Productivity Need to move to new growth path “New” path → Innovation
Moving Forward: a different economic development path From “Bigger” to “Better”
Dubai’s current situation in key sectors, e.g.
• Real estate Reaching optimal scale “More” path → More labor and capital • Decreasing returns for each additional unit of labor and capital • Increasing macroeconomic challenges (demographics, environment, infrastructure) → Rising cost of growth Reaching minimum scale Inputs (Labor and capital) 2
Vision, Mission, Roles & Core Initiatives
Incubation, Idea Lab, Entrepreneur Capability Development, YEC Dubai SME 100, Gov. Proc. Prog., YBL Vision
Dubai as a Global Center for Innovative SMEs
Groom
Corporate Governance, Access to SME Financing, Ease of Doing Business , IP
Advocate Seed
Mission Roles
Foster the development of a flourishing entrepreneurial culture and a competitive SMEs sector to support Dubai’s economic development
Entrepreneurship & Entrepreneur Development SME Sector and SME Firm Development (Groom Dubai’s Top SMEs)
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Ideation and Incubation The Dubai SME process
The life cycle of Entrepreneurship Development, Firm Creation and Funding Stages
$ Understanding the process of firm creation and exit view
Expansion/scaling
- high growth - head count - multiple cycles - market acceptance
Idea/Concept & Discovery
-Bright idea - Experimental - Research - Business Plan -Proof of Concept
Seed
-Legal entity - Founders=mgt team - Minimal/Zero revenue -Slow growth - evolving market acceptance - customer tests & acquisition -Validation of product/services
Start-Up
-Support functions - Administration - Marketing -Revenue growth -Broadening customer base
Pre-IPO
- viable - Market interest - Heading to IPO or M&A
TIME
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$ Understanding the Needs at each stage
3 Start-Up
-Recruitment - business development - Market access - business model iteration - IP validation - customer acquisition system
4 Expansion/Scaling
- international market support & access - branding - diversification strategies - training - fund raising - financial governance - technology licensing
1 Idea/Concept & Discovery
-Prototyping/POC - Project Management - Premises/Incubation - Mgt training - IP support /advisories
2 Seed
-Corporate & secretarial - financial -First hires -PR & networking -Business development - Potential IP valuation - customer acquisition -Commercialization support
TIME Varying levels of government enablement (direct & indirect)
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The Enterprise Development Financing Process
Stage in Cycle Type of Funding R & D Proof of Concept Start-up Seed Early Growth First Round Accelerating Growth Second Round Sustaining Growth Maturity Growth Development Capital Replacement Capital/MBO/MBI/ Development Capital Source of Funding Public Sector (e.g., matching funds) Founder, Family, Friends Business Angels Corporate Venturing Venture Capital Funds Public listing/IPO (source: WIPO)
SME Investment – Risk Continuum
Angel market addresses the investment gap between love money and serious money
High Founder, friends & family Business Angels
Level of Investment Risks Assumed by Investo r
Venture Capitalists Corporate VC Equity Markets Low Seed Start-up Early Growth Commercial Banks Established (source: WIPO)
The Enterprise Risk Financing Schema
Efforts made by financiers Risk Innovation Seed Capital Funds and Public Funding Idea Start up Private Investors and Business Angels Cash flow Commercial & Savings Banks Time Corporate Fund & Venture Capital Growth Maturity Transfer
Angel Investing
Who are business angels?
Individuals who invest their own monies locally into unquoted companies, usually at their seed to start-up phase. Besides cash, they also make available their experience, know-how and networks of contacts. It is not cheap money, charity or grant. A return on investment is expected at some future point. Key role is to bridge idea to a formal business organization. Define the products and business model. Well rounded expertise (experienced entrepreneur –turned BA). Is part of the team.
What are business angel networks/clubs
“organizations” who bring business angels in contact with quality deal flow
National federations and associations
Umbrella Organizations at national or regional level for the networks, enabling exchange of good practice and supporting professional standards (e.g., EBAN) 14
Importance of Angel Investing
Primary source of risk capital and support for start-ups in a number of countries. It is frequently overlooked as angel investors are often not visible. Primary drivers of a flourishing start-up/entrepreneurial ecosystem Angel investment is a powerful source of financing for high growth potential start-ups. Angel investors tend to be less sensitive to market cycles than venture capitalists
What is the Entrepreneur looking for in Angel Investors?
Money to start, grow idea into a business Expertise and advice on execution Experience in a particular domain knowledge (finance, investment, Industry verticals – Digital Media, F & B, Logistics) Contacts and networks with other resources such as financiers, consultants, buyers, procurement executives, suppliers, key talents Time and Commitment to develop the entrepreneur, the team and business Credibility and trust to see the business develop
What the angel investor is looking for in the entrepreneur?
Passion, ambition, industriousness, self-discipline, decisiveness, self-confidence, and tenacity of the entrepreneur and his team Domain knowledge, numeracy, understanding of risks (to de-risk the business), sense of urgency, and a belief in Kaizen (continuous improvement) “Chemistry” with the team yet maintaining a “tough love” relationship Preference for start-ups with mentors & advisors (culture of openness and listening to external views) An executable idea, backed by a sensible & solid business plan
Entrepreneurial Finance Lab Psychometrics
EFL utilizes a proprietary psychometric application process that incorporates an entrepreneur’s attitude and outlook, ability, business acumen and character to identify high-potential, credit worthy entrepreneurs.
Intelligence Risk Ethics & Character Business Skills Attitudes & Beliefs
Some Challenges for BAs in ME
Lack of good data & information on the activity Lack of awareness & understanding of BA concept Still risk – averse culture, but gradually changing Many wealthy individuals prefer to invest in art, real state etc.
Financial sustainability of BAs (some co-funding/matching funds from government required) Up-to-date and enforceable company and share ownership laws on transfers, exits, etc. Lack of a strong university-private sector- government linkage, low R & D commercialization experience
Still Nascent but will evolve gradually Need to highlight more success stories
Role of Government- Foster a Conducive Environment SUPPLY Bringing more investors DEMAND Quality deal flow MARKET Impact and sustainability Educating investors about opportunities in the SME space Investment readiness of start –ups/ SMEs (incl. sector specific) Support sustainable and professional BANs Co-investment/matching funds Investor readiness capability development Set up mentorship platforms and programmes Teach entrepreneurship and access to finance very early on in schools Case studies with relevant Angel Stakeholders Operate incubators and Tech Parks; open R & D labs to entrepreneurs to test products Co-organize with private sector a platform for deal flow connection Co-organize Local BA/VC forums Ensure rules and regulations support the investment and exit process
SME Financing in the Dubai / UAE Context
Demand Side Factors (disincentives for borrowing) Supply Side Factors (Disincentives for lending)
No Tax Benefit of debts Psychological factors Information available about the industries Quality of financial information Trading focus need of finance Start Ups & SMEs
Be Bankable
Banks & Costs of information verification Short planning horizon Speed of getting finance Asset light businesses
Legal Framework Underlying Structural Factors Information Infrastructure Auditing Environment Skip-Risk Nature of Economy
Preferred Source of Funds for Business Growth
Sources of Additional Capital in the past Sources of additional capital in future Family & friends 6% Did not need 29% Personal Money 38% Friends & Family 8% Additional Partners 11% Bank Finance 14% Personal Money 25% Additional partners or investors 28% Bank Finance 41%
Be Bankable.org (to be launched in 2015)
Launching a website to enable SMEs prepare themselves for accessing bank finance. Guide SMEs through a step-by-step process to approach banks for finance An SME using BeBankable.ae will be able to prepare a bank finance application and also self-assess readiness for banking SMEs can learn more about banking products, services, processes and documentation to confidently negotiate the best suited financing options Guide SME owners to qualified auditors (Good / Bad Balance Sheet, Auditing Contract, How to select an Auditor)
Be Investable Initiative (to be launched in 2015)
Initiatives /pogrammes to be launched (over next few years)
- Undertake Dubai SME Equity Financing Study (started) - Set up Dubai SME Angel Investor Directory Network/platform - Dubai SME “Accreditation” programme for Dubai – based Angel Investors - Guidelines for angel investors in Dubai/UAE context - “Build your equity story” programme for entrepreneurs - Business Valuation and value drivers programme - Diagnostic tool kit to assess entrepreneur readiness for BA Investing - Case studies of BA in the UAE/Region
Initiatives /pogrammes to be launched
- Conferences/Seminars/Workshops/Roundtables on Angel Investing - Training course on Angel Investing - Mentorship programme - Pitching competitions - Dubai Best Start-Ups 50 List - Dubai Angel Investor Awards Recognition