Evolving An Industry: Sam Quawasmi And Chris Thomas, Co-Founders And Co-CEOs, Eureeca
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When reviewing a pitch deck, investors look for signs of the growth potential and longevity of a business. Hardly can entrepreneurs present better proof of this- or show that their product has a stable marketplace full of current and prospective clients than having 87 of them invest US$400,000 in the business in just six hours. Eureeca, a Dubai-based equity crowdfunding enterprise, has achieved this twice, raising the same amount from their own platform.
The first self-funding campaign was completed after 12 days of being online in 2016. The latest one was initiated as part of the Eureeca team’s efforts to raise $5 million in a Series A funding round from institutional investors across the globe, and reached its target over the course of just one afternoon. “When we embarked on this self-funding campaign, it was actually quite refreshing to see that there was more demand than we had anticipated,” says Sam Quawasmi, co-founder and co-CEO of Eureeca. “Those were an interesting six hours in the office for all of us, to witness how many investments came through. Never had we anticipated that it would take us just six hours to reach the funding target- we thought it would probably be 12 days, like last time.”
Sam Quawasmi and Chris Thomas, seasoned entrepreneurs and former investment bankers, launched Eureeca in Dubai in 2013 as an accessible digital platform connecting growth-oriented private businesses with investors -ranging from angel investors to strategic institutional investors- globally. With the model being a disruption of the way people invest and businesses raise capital, the co-founders soon found themselves in a legal grey area, having to assist regulators around the world to catch up with the changing market conditions.
The direct result of these efforts is that Eureeca is today the first equity crowdfunding platform that is multi-regulated. It first got regulated by the UK Financial Conduct Authority in 2015, which was followed by a license from the Securities Commission Malaysia the same year. Then in 2016, Eureeca got the license from the Dubai Financial Services Authority, and that was soon followed with one from the Netherlands Authority for the Financial Markets.
Being actively involved in fostering robust fintech ecosystems in several countries, Quawasmi notes, helped them gain trust of potential investors worldwide. The platform currently lists close to 15,000 investors from 42 different countries. In addition of not being charged commissions, Chris Thomas, co-founder and co-CEO of Eureeca, explains that their main benefit is enjoying a steady deal flow of vetted equity investment opportunities in which they can invest by simply crediting their account via credit card or bank transfer from their phone.
“It is about access,” Thomas says. “Whether you are a large or small investor, you simply do not have access to a decent enough deal flow globally. With Eureeca, it is easy to go on the platform, and see the deals from around the world that suit you. But, further than that, investors can be assured that, when a deal is going through the Eureeca platform, we have done the compliance checks, we have done the background checks, and so on, which is important because it ensures that the investor is protected throughout the journey."
"If you are investing offline, you don’t know whether you are getting the best deal or might not know how to navigate the term sheet, but what Eureeca does is make the process a lot more compliant, a lot more secure, and frankly, it is much easier. But, larger investors have the right to negotiate additional rights. It is totally fair and proper, and entrepreneurs understand it, that for example, if I’m investing $100,000 or $1 million, I should be able to do that. The platform itself allows larger investors to have offline discussions in order to determine a deal that suits them best.”
On the other side of the spectrum, out of approximately 2,800 applicants, only 50 businesses -representing only 2%- have got passed by Eureeca’s due diligence process and have got listed on the platform. If not able to reach their funding target within 90 days, the entrepreneurs are refunded the application fee costs which, Quawasmi explains, are much lower than the industry average. “There is an application fee, or a listing fee if you like, which is $1,500,” he reveals. “It is nowhere near to what you would pay for on the exchange. If you are to get listed on the SME market on Nasdaq Dubai as a growth company, you are looking at somewhere between $30,000 to $50,000. We charge just a small portion of that.” Similarly, the investors participating in a failed funding round are reimbursed.
To date, 20 businesses have successfully closed their funding round on the platform, for which Eureeca charges a success fee of 7.25% of the funding amount. “Our success of 40% is about the double of what the industry average is globally, which is between 12% and 18% of deals getting funded,” says Thomas. “The businesses who didn’t get funded either lifted up their valuation too high or didn’t manage to mobilize their network. A very important part of equity crowdfunding is the ability of the entrepreneur to shout out loudly to their customers, their followers, the people who know and love their product and have an emotional connection to it. Our job is to help them convert that emotional connection into a financial investment. The larger your network is, the readier you are as an entrepreneur to be proud of the fact that you are raising money, and to mobilize it to really shout loudly, the more likely you are to raise that cash.”
In addition, Thomas warns entrepreneurs not to be idle. “When people think of the crowd, they think of little guys who are investing $10 or $100, the novice investors, but actually the crowd can be 10 people putting $100,000 each,” he says. “So, platforms like Eureeca give the entrepreneur access to that type of market. They are still going to do the same job offline, they will be knocking on doors, speaking to investors, going to pitch events, but doing it online as well makes the process much more efficient, transparent and easier. It is best described by one of our entrepreneurs who got funded, who said that fundraising was a full-time job, but Eureeca made it a part-time job. This is an important point- entrepreneurs should not think of this as an alternative way of raising money, as they will still have the same conversations, but they will be doing it via an online system.”
And the Eureeca team takes pride in a number of their success stories. Homes or Houses, a UK-based real estate business, set the record for the largest equity crowdfunding raise on Eureeca, raising $611,000 in less than 30 days. This included a $200,000 investment from a UAE-based institutional investment firm. Similarly, Roula, previously Poupee Couture, a Dubai-based fashion brand, secured 165% of its funding target, but also generated great PR coverage and attracted a strategic investor who helped with market expansion.
However, it was Search in MENA, a Dubai-based B2B online marketplace, that made headlines when it became the first business on the Eureeca platform to provide their crowd investors with an exit- only a year after closing a $140,000 investment round on Eureeca in 2014, the participating shareholders exited with 150% profits on their investment through a share buyback. “We are proud of the fact that we are about to have our second exit,” states Thomas, not being able to reveal more details about this deal at the time of the interview. “The first exit we did provided about 150% ROI. If you invested $10,000, you were offered $25,000, and it was up to you to decide whether to accept it or reinvest it on the platform. That was a very strong and quick return for those investors, in just 13 months. I would say that that was an unusual return, and investors cannot expect to get that return from every business they invest in.”
The 17-strong Eureeca team is now focusing their marketing and communications efforts on Thailand, Indonesia, Bahrain, and Saudi Arabia, as Quawasmi explains geographical expansion tops their agenda at the moment. In addition, following phase one of its development which included raising funds ranging from $50,000 to $250,000, Eureeca has entered phase two, raising from $250,000 to $1 million, while phase three will start in 2018 enabling them to raise funds of up to $5 million on the platform. “It is clear that it is a success when you see a Dutch investor investing in a Dubai-based business, and a Malaysian investor investing in a Dutch business, which we have seen this year; that’s when you know that what you’re doing is right,” says Quawasmi.
“These cross-continent and cross-border transactions really are a validation of what we are trying to do. Our strategy is that we are not focused on revenue right now but on geographical expansion. We are pre-known in some markets since our strategy is a light touch strategy, meaning to get our flag in the sand, to have the ecosystem know and understand that we exist there, but not to be fully entrenched yet. Therefore, our Series A is very important because we will move from that light touch strategy to being fully entrenched in some markets."
"You cannot market or do any kind of advertising for the platform if you are not regulated, so getting the regulatory approval in those markets will catalyze the business and make it a truly global business. For us, getting into as many markets as we can, getting our flag in the sand, and getting the licenses there is to be winning this race globally, and we know how to do it. We are already fast at it.”
Globally, the equity crowdfunding industry is expected to be worth more than $93 billion by 2025, according to the World Bank. Despite regulation currently being the most important factor determining the spread of equity crowdfunding, Quawasmi is confident that we are about to witness a dynamic era for this industry. “The term crowdfunding is somewhat misleading, but what we actually do on the platform are mini IPOs,” he concludes.
“If we are following any route to market in terms of the business model, we are following the investment banking business model. So, in the future, once we cross the $1 million to $5 million raises, and have 500,000 subscribers on the platform from all of these different markets, I wouldn’t be surprised that we would be conducting IPOs on the platform subject to regulatory approvals, of course. And why? Because we brought it to your phone. Why would flydubai do it through an investment bank, where investors need to queue at Emirates NBD to fill out forms, or correspond via fax?"
"We digitized the whole process. Yes, we are small right now, but as the industry evolves, we will follow the investment banking business model, and frankly, it will disrupt the industry, slowly. I’m not saying that investment banking will not exist, but the smaller ones will start feeling that the world is moving into the digital space, and that equity crowdfunding platforms and peer-to-peer platforms have started to eat into that lunch.”