Beating the 90%: Strategies for Securing VC and Project Funding

 From my extensive experience as an investment consultant, connecting with numerous fund companies offering project funding, I've observed a critical disparity: While established corporations readily secure recurring funding, a staggering 90% of startups and small-to-medium enterprises (SMEs) struggle to access necessary capital. This isn't due to a lack of viable projects, but rather a profound gap in funding knowledge and preparedness.

The Reality: A Funding Divide

Large, established companies often secure funding before announcing major projects, benefiting from existing relationships and proven track records. However, SMEs and startups face significant hurdles:

·       Lack of Funding Knowledge:

o   Many project owners enter the funding arena with a limited understanding of the process. I've seen that roughly 7 out of 10 project owners struggle with the intricacies of due diligence, financial projections, and the diverse funding options available.

o   This lack of knowledge translates to poorly prepared proposals and an inability to effectively communicate project value.

·       Initial Expense Barriers:

o   Funding companies rightly require initial expenditures for vital processes:

§  Due Diligence: Typically, due diligence costs can range from 1% to 5% of the requested funding, depending on project complexity.

§  Legal Fees: Drafting contracts and agreements can incur costs ranging from $5,000 to $20,000 or more.

§  Feasibility Studies: A comprehensive feasibility study can cost between $10,000 and $50,000, or even higher for large-scale projects.

o   These upfront costs pose a significant barrier, particularly for startups and SMEs operating on tight budgets.

·       Reluctance to Pay:

o   The reluctance to cover these expenses is often rooted in:

§  Misunderstanding: A significant portion, around 60%, of project owners view these expenses as unnecessary, or even suspect them as scams.

§  Financial Constraints: Many SMEs simply lack the necessary capital, with nearly 50% reporting limited cash reserves.

§  Mistrust: A pervasive mistrust exists, with project owners fearing a loss of funds without guaranteed funding, impacting approximately 30% of project owners.

The Impact:

·       For Funding Companies:

o   These initial expenses act as a necessary filter, weeding out unserious or ill-prepared applicants. They need to protect their investment.

·       For Project Owners:

o   Lack of preparation leads to a significantly reduced chance of securing funding, with failure rates reaching upwards of 90% for those who are not prepared.

o   This vulnerability also exposes them to predatory practices.

Key Takeaways:

·       The funding landscape is heavily skewed towards established companies.

·       Education and meticulous preparation are paramount for startups and SMEs.

·       Transparency from funding companies regarding their processes and fees is essential to build trust.

·       Startups must be prepared to invest in themselves before asking for outside investments.

By addressing these critical points, project owners can significantly enhance their chances of securing the funding they need to fuel growth and innovation.

Middle East Venture Capital Funding: Active Investors, Stalled Funding

 The first half of 2024 witnessed a surge in investor interest within the MENA region's venture capital (VC) landscape, with a 33% increase in investor count compared to the same period last year. This reflects a flourishing entrepreneurial environment, particularly in the UAE, Saudi Arabia, and Egypt.
UAE Leads in Deal Volume, Saudi Arabia Tops Funding:

• The UAE led the region in deal volume with 83 transactions, marking an 11% annual rise.

·       UAE:

1.     Total Funding: UAE-based startups secured $353 million in VC funding.

2.     Growth Rate: The UAE experienced a remarkable 222% YoY increase in VC funding.

3.     Promising Areas: E-commerce, logistics, and health tech were among the sectors that received substantial investment.

4.     Investor Landscape: Both local and global investors actively participated in funding rounds, supporting the UAE’s vibrant startup ecosystem.

Saudi Arabia followed closely with 63 deals, though experiencing a slight 3% drop year-over-year.

Saudi Arabia:

1.     Total Funding: Saudi startups raised an impressive $400 million in VC funding.

2.     Growth Rate: This marked a staggering 602% year-on-year growth compared to the previous year.

3.     Key Sectors: The sectors that attracted significant investment included technology, e-commerce, and fintech.

4.     Investor Interest: International and regional investors showed keen interest in Saudi startups, recognizing their potential for growth and innovation.

Egypt saw a 15% decrease in deals compared to H1 2023, with 28 transactions.

Egypt:

·       Total Funding: Egyptian startups collected $4 million in VC funding.

·       Challenges: Unfortunately, this reflected an 86% decrease in YoY VC funding.

·       Factors: Economic instability, regulatory hurdles, and investor caution impacted Egypt’s startup funding landscape.

·       Potential Upside: Despite challenges, Egypt’s tech talent and untapped markets continue to attract interest, and efforts are being made to address funding gaps. 

• Morocco and Bahrain secured $17 million and $14 million in funding respectively, joining the top five alongside the aforementioned leaders.

Funding Dips Despite Investor Growth:

• Despite the rise in investors, total funding for regional startups dipped to $768 million, reflecting a 34% year-on-year decline.
• Interestingly, Saudi Arabia's venture capital market remained consistent with H1 2023, with non-mega deals making up a larger share (68%) compared to the previous year (35%).

Sector Leaders and Top Investors:

• E-commerce emerged as the most well-funded sector, attracting $244 million.
• Fintech, however, dominated in terms of the number of deals completed.
• The Public Investment Fund's Sanabil Investments stood out as the region's most active investor, deploying $57 million in capital.

Looking Ahead: Optimism for the Future

While a slowdown is observed, experts predict an upswing in VC activity during the latter half of 2024. The wider MENA region, including the UAE and Egypt, is expected to experience a particularly strong Q4.

Factors crucial for sustained growth include:

• Political stability
• Interest rate declines to boost market liquidity
• Conferences highlighting MENA's investment potential

The UAE and Saudi Arabia, despite the current slowdown, are well-positioned for continued ecosystem strength. Notably, the UAE's transaction growth is a positive indicator. With its focus on early-stage investment, the region is poised to become a magnet for international companies seeking to establish and expand within MENA.