Financing for start up companies and SMEs can be a challenge as innovators look to develop and then scale their businesses/ideas quickly in a fast-moving disruptive marketplace like the Middle East. Innovative financial solutions can help and Venture Capital (VC) and Private Equity (PE) are two of the options to consider.
For MBA students, VC and PE are of increasing interest, as more MBA students are undertaking their MBA programme to test their existing business plans, or use the programme to help them embark on a more entrepreneurial career path.
Of course, financing is a critical step in the process of starting a new business and the ability to understand what VC investors and PE houses are looking for in a startup investment is critical, as is the ability to speak, present and persuade/sell the idea of the startup to prospective investors who are looking for investment opportunities. And they are very highly selective about what they will invest their money in.
VC and PE are often clustered together but there are important differences.
PE is generally a means of taking a business from where it is currently, to where the owners want it to be; and in the process, the business owners can also de-risk and take some of their own money out of the company; it is important for entrepreneurs to be able to capitalise on some of the value they have created in the early years of building their business and PE presents a way of doing this.
In contrast, VC is more about startup companies and early-stage investments and a VC investor typically may invest money where others will not. However - and this is a big but - the VC must like your idea and you, the team behind it.
Today, many MBA students want to be entrepreneurs and learning how to address an audience, pitch a business idea to a VC or angel investor in a way which is clearly understandable and attractive to investors, is a fundamental skill required. This means knowing who VCs are and what they are looking for. They will probably have a finance background and use other experts to evaluate a business investment opportunity; they are very well connected and networked.
One basic but key element of seeking VC investments is for a business to make itself visible to these potential investors. This can simply mean setting up the business in a cluster environment such as those in the UAE, which make it easy for VCs to search and find, then select a young business. It’s a fact that entrepreneurs tend to cluster together in industry groups centred on a geographic area, such as Silicon Valley – this could just as easily be Dubai Silicon Oasis.
The Middle East regional economy is ripe for increasing Venture Capital and Private Equity activity as digital transformation and the growing startup culture creates rapid transformation, digital disruption and new business opportunities.