By Neveen El-Tahri
Neveen El-Tahri, one of Egypt’s leading women entrepreneurs and a member of Young Presidents’ Organisation, outlines seven fundraising-related tips to help you secure continued growth of your business.
Start-ups and SMEs have flourished in recent years around the world and have been recognised as key drivers of job creation and economic development.
They have also become a priority for policymakers in the MENA region who see SMEs as key to solving the region’s economic and social problems through improving competitiveness, raising incomes, and generating employment.
However, data from the World Bank Enterprise Surveys suggest that access to finance for SMEs is more constrained in the MENA than in other emerging regions, with only one in five SMEs having a loan or line of credit. Most notably, financing through debt instruments as well as accessing capital and equity in various forms remain minimal for SMEs.
With a turbulent start of 2016, involving low oil prices and stock market performances, regional governments have focused on providing incentives to kick start the SME and start-up scene.
For example, Egypt’s Central Bank dictated a LE 200 billion (approximately $2.3 billion) credit exposure to SMEs over the next four years at a discounted simple interest rate of 5 percent (average market interest rate is at 12 percent), and clients no longer need to submit three-year financial reports.
As simple as this may sound, banks are actually struggling to re-adjust their credit manuals to implement these new regulations as they are not currently geared to accommodate the smaller sized loans and their collections, which all requires training of their staff.
Lebanese banks have also given a number of venture capital firms between $75 million to $150 million to target start-ups and Series B funding requirements to kick start the entrepreneurial ecosystem.
After working for 35 years in Egypt, primarily within the banking sector and specifically as a provider of credit, I have come to understand some of the reasons why SMEs are perceived as a risk by credit lenders.
Meanwhile, as an entrepreneur and founder of many companies, as well as a member of Young Presidents’ Organisation, a network of global chief executives, I have also learnt how to run, grow and exit businesses. That allowed me to develop first-hand expertise of capital markets and how best to prepare these SMEs to become bankable and investable.
My experience as a member on the board of the first National Entrepreneurial Egyptian public sector bank, the Egyptian Stock Exchange and many other boards in different sectors has also helped me to advise start-ups and SMEs on ways to secure funding and unleash their growth potential.
Here are seven tips that I recommend to those looking for the first round of funding and beyond. While most apply globally, some may be more relevant to start-ups and SMEs in the MENA region:
• It is not the idea that counts, it is the implementation and proof of concept that investors will be ready to support today. The essential proof of concept is that the business must have a ready, paying client.
• Most entrepreneurs are in a hurry and think about exiting before they even start building the business. It is important to commence building as if you are there to stay and when opportunity hits, assess and react accordingly.
• Partnerships are just like a marriage. They need to be based on compatibility and added value.
• Valuation is less critical during the early phase of the company. The concept of Series A fundraising and others that follow needs to incorporate growth that is funded internally as opposed to raising more money and being proud of the valuation while getting diluted.
• With the lack of venture capital and private equity funds that cater to start-ups and SMEs, it is important to explore new funding options rather than rely exclusively on angel funding.
• We are currently witnessing more enterprising women in the MENA region starting to lead companies.
There are great gains for SMEs, and the economy as a whole, to support this trend. Should the work environment be more encouraging to women to commence their own businesses or join SMEs, we can almost double our GDP with this current idle force.
• Embrace the culture change needed to transition from a secure government or corporate job to working for an SME or starting a business. This is what emerging economies need most, and how we can solve the region’s economic and social stability.
About Neveen El Tahri:
Neveen El Tahri is the chairperson of Delta Shield for Investment, which includes Delta Inspire, a start-up incubator, and 138 Pyramids, a venture fund targeting Egyptian start-ups and early stage companies. As the first woman to sit on the board of the Egyptian Stock Exchange and the Egyptian Financial Supervisory Authority, El-Tahri was twice named by The Financial Times as one of the leading businesswomen in the Arab world.