Enterprise: chasing the money

The global recession has hit budding entrepreneurs hard, but the human spirit of money-making endeavour can only be held down so long: multifarious, imaginative sources of funding are proliferating all over the world, as Vision discovers

Starting a company has never been easy. But ever since the global financial crisis and severely crimped lending and investment in new ventures, it has been more difficult than ever for entrepreneurs to get funding for their business ideas. So how are inexperienced young business owners breaking out with innovative products and ideas during the current capital drought? They are creating a patchwork of innovative solutions and new startup models that have arisen to fill the void left by traditional funders.

North America offers a large variety of sources where entrepreneurs can access funding. Mature technology hubs in Silicon Valley, Los Angeles, New York, Boston and other cities offer one-on-one mentoring and business incubator programmes that nurture promising new businesses with training, offices, funding and advice. Once a young company is ready to launch, various levels of funding are available, from the small amounts provided by microfinance organisations such as Opportunity Fund all the way up to the large private investors such as venture capital firms.

The equity model allows businesses to access investment from a wider pool of investors, allowing each investor to contribute smaller amounts

Innovative marketplaces that offer peer-to-peer lending and crowdfunding have sprung up in recent years, making it easier for startups to “tap into their personal networks for funding, raise money on the strength of their ideas and business plans and even invite customers to become investors”, says James Mendelsohn, the chief marketing officer of CAN Capital, the largest, non-bank alternative capital provider to small businesses in the US.

With bank lending to small businesses reduced, some alternative lenders are now becoming more prominent, funding startups as soon as they have accounts receivable. CAN Capital is one example of an alternative lender, developing access to smaller-size loans and funding new franchisees and pure-play online businesses, Mendelsohn says.

In Canada, long-time investor and entrepreneurial leader Dean Lindal says his government’s new venture capital programme is attracting immigrant entrepreneurs with a fast-track visa programme. “If you are an entrepreneur anywhere in the world, you can come to Canada to start up your company, provided the panel of VCs and angels likes your model,” says Lindal, former vice president of the global Entrepreneurs’ Organization. “The programme has been well received and I think it will contribute to tremendous job creation,” Lindal says. “Statistics bear out that in North America, the highest percentage of growth companies are coming from immigrants.”

The UAE is working to cultivate a modern entrepreneurial hub, developing policies and strategies with the aim of attracting startups to the region. The Sheikh Mohammed Bin Rashid Establishment for Young Business Leaders (Dubai SME) is the agency of the Department of Economic Development mandated to develop the small and medium enterprise sector, nurturing leadership through entrepreneurial spirit.

Enterprise: chasing the money
Nigerian retailer Jumia, which has received funding from Berlin-based Rocket Internet
 

In December, Dubai SME hosted the World Economic Forum – the first time it has been held in the Middle East – bringing together entrepreneurs, stake-holders, service providers, experts, academics, and politicians, allowing for exchanges of ideas as well as discussions on key topics. For HE Abdul Baset Al Janahi, Chief Executive Officer of Dubai SME, hosting the event reflects the emirate’s objectives in the SME sector.

“Dubai has seen major strides in growing into a modern entrepreneurial hub recently in the spheres of policy and strategy. Integrating fast-evolving economic and financial knowledge into our rich entrepreneurial traditions is essential to the success of our efforts. The World Entrepreneurship Forum is a perfect fit with Dubai SME’s efforts in this direction,” he says.

Universities, startup incubators and angel investors make early-stage funding fairly easy to accomplish in Australia, says Matt Barrie, chief executive at global outsourcing marketplace Freelancer.com, based in Sydney. Entrepreneurs looking for between US$20,000 and US$100,000 can also look to funding from corporate telecommunications giants such as Telstra and Optus, both of which have started seed funds to encourage innovation into new markets, he says.

Later-stage startups looking for funding often rely on US-based private equity and venture capital firms that make investments in Australia. “The ‘valley of death’ is when you need to raise US$1m to US$5m, where there is very little capital available,” Barrie says. “Traditional VC never really got off the ground here. Thankfully, we are seeing some tech entrepreneurs starting to come in and fill that gap.”

In emerging markets, there are fewer entrepreneur-funding mechanisms and fewer successful entrepreneurs who make the transition into angel investors, so early-stage funding is more difficult to obtain, says Eddy Lee, a principal at Fenox Venture Capital, a Silicon Valley-based investor group that funds young technology companies primarily in the US and Asia. But new models are arising, particularly in increasingly innovative countries such as Singapore, which hosts the JFDI Incubator, and Indonesia.

As evidence of progress, Lee points to the US$200m acquisition Singapore-based global television platform viki.com by Rakuten, a Japanese electronic commerce and internet firm, in September 2013. “That sets a precedent that more companies will be growing larger and the funding ecosystem will have to catch up in that region,” Lee says.

Enterprise: chasing the money
Lasse Mäkelä of Invesdor, which hosts crowdfunding events

In the less developed countries, microfinance is much more likely to be the primary option for startup funding, though some companies look overseas for investors. Nigerian online retailer Jumia, has received US$75m in funding, including seed capital from Berlin-based Rocket Internet.

As students that have been educated at entrepreneurial universities in the US and EU return to start businesses in their home countries, Lee says, the culture of entrepreneurship that develops will foster new funding opportunities for startups around the world. Partnerships between business and universities and even changing societal expectations about career choices for children are part of the change that is allowing entrepreneurship to flourish around the world even in the wake of a global financial crisis.