Regional angel investors on the prowl, but are ICOs replacing them?
The region is blossoming thanks to an abundance of new, tech-savvy entrepreneurs with great ideas.
Angel investors aware of this are coming together, creating funding coalitions and mechanism to tap onto the emergence of these start-ups, for mutually beneficial ends.
It’s a vibrant market, but technology is a double edge sword.
But could blockchain entrepreneurs looking at initial coin offerings (ICOs) for funding one day dwarf angel investors or venture capitalists (VCs) and make them redundant?
Money has wings
Forbes ME recently wrote that a group of angel investors in emerging markets have come together late October to launch the Falcon Network, eying deals in startups in Dubai, Kuala Lumpur, Lahore and beyond,
A statement from the group said its 40 members have committed to investing a minimum of $50,000 each within the next two years and will consider proposals under $500,000.
“The Falcon Network joins other angel investor groups eying opportunities in the Middle East and North Africa, such as Egypt’s Cairo Angels, Dubai’s Womena and Bahrain’s Tenmou,” said Forbes.
The Global Entrepreneurship Index (GEI), created by the London-based Global Entrepreneurship and Development Institute, and which measures the overall entrepreneurial ecosystem in 137 countries including all 22 Arab states, states that the UAE’s entrepreneurial strengths are networking, an ability to develop new products and to integrate new technologies, reports Zawya.
A real hub of entrepreneurship is being built in the UAE, says US-based angel investor and advisor to high-growth start-ups Assia Grazioli-Venier, partner and co-founder of Muse Capital, an early-stage investment fund that focuses on consumer-facing technologies, from FinTech to health care and entertainment, as reported by The National.
“There is a lot of positive, high-rise investment activity happening in the Middle East, especially in Dubai,” she says. “We are slowly seeing the rise of a real hub in the UAE.”
Forbes ME has unveiled 2018’s most successful startups, investors and changemakers shaping the Middle East’s business landscape.
Image Courtesy of Forbes ME
Its October issue features three lists: Top 100 Startups in the Middle East; The 50 most active investors; and 12 Up and Coming Companies.
The top 12 list has companies that have proven to have sustainable business models, raised significant amounts of capital and delivered growth to their investors.
Khuloud Al Omian, editor-in-chief of Forbes Middle East said, “The Middle East is becoming a stronger community for both angel investors and venture capitalists. With this progress, many startups are showing significant growth, with a substantial number of businesses maturing the entrepreneurial ecosystem in the region.”
The UAE is considered a hub to convert ideas into innovation.
The ICO model
Since 2017, ICOs have delivered over 3.5 times more capital for Blockchain-based startups than traditional VC rounds, according to appinventiv.
The site says there are usually 5 ways through which an entrepreneur can raise funds for their business ideas:
5-Small Business Administration Loans
“The venture capitalist fund type is the one that has been topping the scale of prestige since the past many years. VCs are the most difficult to achieve,” said the site.
There are a number of reasons that have contributed to keeping the demand for VC funding intact. Some of the most dominating ones are:
0 With VC Funding you get the experience of Venture Capitalists.
0 Venture capitalists help expand your network to a number that is extremely difficult to achieve on your own.
0 They have a better chance at higher sales rates, employee growth, R&D investment, and overall survival rates.
“While these are the three dominant reasons that have been keeping the demand for VC funding high among investors, the funding type on a high growth trajectory has been seeing a slight downfall between 2017 and 2018. And the reason behind this slight downfall is ICO,” said appinventiv.
Traditional VC rounds raising around $1.3 billion are now getting outcast by ICOs with Blockchain centered startups’ funding rounds, in the last 14 – 16 months, raising more than $4.5 billion.
Reasons Behind ICOs
When compared to VC funding, which requires entrepreneurs to have a set of validating financial and market response records, ICOs have low fundraising benchmarks.
Unlike VC Funding, ICOs are not dependent on any specific geographical location. For an entrepreneur who has raised an ICO in the U.S., the option of inviting investors from even UAE is present.
Most ICO rounds last for a duration of 30 days and almost all entrepreneurs are able to get their expected funds in this timeframe.
While these pro-ICO reasons are inclined towards the benefits that entrepreneurs of small and medium enterprises can garner, there are two reasons that have made ICO favorable for the investors, equally.
Finally here a quick comparative analysis between the two funding types.