Crowdfunding in Dubai
Recently, I was reading a blog post about border wall between the USA and Mexico and who is going to fund it.
Initially, Donald Trump, during presidential campaign proclaimed that Mexico would build it and give it for free to the people of America. After this idea surprisingly failed, and after the Congress rejected to use taxpayers money for this cause some of Trump’s followers are reaching to well-known crowdfunding sites, such as GoFundMe and some started their own initiatives as FundTheWall.
The blog post made me more interested in crowdfunding matter and I wanted to know more about how crowdfunding began and what the current situation with crowdfunding in Dubai is.
What is Crowdfunding?
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Crowdfunding is a form of crowdsourcing and alternative finance. Source: Wikipedia (https://en.wikipedia.org/wiki/Crowdfunding)
Another definition of crowdfunding with business in focus: raising small amounts of funds from the general public in order to secure capital for your business venture.
Crowdfunding term was created by Michael Sullivan first in 2006 when he launched fundavlog – an online platform to help fund video bloggers. The platform had several innovations with the main being the ability to donate money to video bloggers using fund buttons, just as easily as like or digg something with like or digg buttons on Facebook or Digg respectively.
However, the term crowdfunding entered the mainstream with the start of Kickstarter a couple of years later.
Crowdfunding Before the Internet
Crowdfunding did not start with the inception of the social web that we all know today. Arguably, the roots of the crowdfunding can go far back as to war bonds – debt securities issued by the government in conflict directly to the public in order to finance war efforts, and praenumeration or the early subscription model common in 17th century – offering of the books yet to be published to subscribers at discounted price, thus gaining initial traction and public response before the book was officially published.
In the 18th century, Anglo-Irish cleric and famous writer (Gulliver’s Travels) Jonathan Swift founded the Irish Loan Fund providing loans to the poor of Dublin and thus became “the father of microcredit”.
A couple of centuries later, in 1976 dr. Mohammed Yunus launched a research project in Bangladesh with the goal to tackle poverty by providing microcredit banking opportunities without collateral to the poorest individuals with the goal of self-employment. The program proved successful and had transferred to Grameen Bank which is serving today more than 8 million borrowers, 97% of whom are women.
Crowdfunding in the Internet Era
Starting from the mid-90s the web was richer for instant messaging applications such as AIM (AOL Instant Messenger) and ICQ, therefore allowing web connectivity between people to grow beyond sending emails.
In 1997, British neo-progressive rock band Marillion, short with money for their planned North American tour turned to fans on internet raising $60,000 and pioneered a funding method now mirrored by the leading crowdfunding sites. They subsequently use this method to fund their studio albums.
Other artists followed their example eventually leading to the creation of the ArtistShare in 2003, as the Internet’s first fan-funding (referred to today as “crowdfunding”) platform for creative artists.
In the film industry, the same principle used Mark Tapio Kines, an American director to close financing for his first feature film Foreign Correspondents. In 1999 he raised $125,000 on the Internet from at least 25 fans.
The first successful software crowdfunding pioneer was the Blender Foundation. Ton Rosenthal, Blender’s 3D computer graphics software original creator, in 2002 managed to raise €100,000 through Free Blender campaign, making Blender open source.
Back to microfinance, in 2005 Matt Flannery and Jessica Jackley founded Kiva, international and non-profit organization that allows people to lend money via the Internet to low-income entrepreneurs and students in over 80 countries. This was the first microlending P2P (peer-to-peer) website. The pair was drawn to microfinance and initially inspired by a 2003 lecture given by Grameen Bank’s Muhammad Yunus at Stanford Business School.
With the evolvement of social networks and the acceptance of the fact that our everyday experiences and work could be social, crowdsourcing is getting its momentum. Two most famous crowdsourcing sites till this date, IndieGoGo and Kickstarter were launched in 2008 and 2009 respectively.
Both platforms are following the same principle of funding the idea or project by a large number of people. The difference with the previous examples is the backers are getting only rewards for providing their funds, there is no money included. Since then the things are changed and currently, IndieGoGo is allowing investing in startups through https://equity.indiegogo.com/ equity crowdfunding portal.
After donation-based and rewards-based crowdfunding has seen a significant success among the masses it was just a matter of time when investment in companies will take part. This happened in 2009 when the first equity-based crowdfunding platform for startups GrowVC was launched.
Equity-based crowdfunding or crowd investing is funding startup companies and small businesses in return for equity. Because investors are receiving a share of the company’s ownership (equity) these investments are considered as investments in securities and are part of the capital markets. This, in turn, triggers financial regulation because soliciting investments from the general public is often illegal.
Therefore, this is the reason why many countries still don’t have legislation in place for equity-based crowdfunding.
In UAE, the Dubai Financial Services Authority (DFSA) has launched in 2017 the regulatory framework for loan and investment-based crowdfunding platforms, being the first such framework in the GCC countries. This regulation forms part of the DFSA’s regulatory roadmap to create an innovation-friendly ecosystem, in line with the UAE Government’s National Innovation Strategy.
How Crowdfunding is Helping My Startup?
- Easier and more efficient than traditional forms of investing
- Acts as a marketing tool that builds traction and social proof
- Gaining credibility to your startup and potential early customers
- Minimize risks involved in startup investments
Equity-based Crowdfunding Platforms in Dubai
Beehive is MENA’s first regulated peer to peer (P2P) lending platform. Peer to peer (P2P) lending is a form of crowdfunding and refers to investors providing finance to businesses without the use of a conventional intermediary, such as a bank. P2P lending uses the internet as a platform to reach a crowd of hundreds of potential investors.
There are two choices for startups and SMEs to improve and grow their businesses:
- Business Finance – funding from AED 100k is available on repayment terms from 6-36 months
- Invoice Finance – flexible, short-term finance tailored to quickly improve your cash flow and working capital
Eureeca is the first global equity crowdfunding platform. It enables members of its investor network, who range from casual and angel investors to institutional firms, to buy shares in growth-oriented businesses while providing operational businesses with crucial access to capital.
Eureeca is a multi-regulated platform, having received licensing from the UK Financial Conduct Authority and the Securities Commission Malaysia in 2015, and recently the Netherlands Authority for the Financial Markets. From its offices in London, Kuala Lumpur, and Amsterdam, Eureeca offers high-yield potential investment opportunities from the Middle East, Europe, and Southeast Asia to its 18,000-strong investor network. Businesses raising funds can leverage this network for capital, strategic connections, and expansion into new markets.
The minimum amount SMEs can raise is $250k.
Real estate Crowdfunding
Durise is an online crowdfunding real-estate platform that provides you with access to a range of vetted real estate investment opportunities in one of the fastest growing Middle Eastern markets in the world—Dubai.
Real estate crowdfunding is when a group of individual investors (the crowd) invest money in a real estate property through an online platform and in return receives a share of rental income and proceeds from the sale, in line with the amount they invested, also known as “membership interests”.
The entry ticket for each investment opportunity is $1,000.
SmartCrowd provides the opportunity to buy and sell in real estate, reducing the barriers for low to middle-income individuals who can now build financial assets and generate investment income. The platform caters to all segments of the population.
Minimum investment amount is AED5,000 and the platform is regulated by the Dubai Financial Services Authority (DFSA).
The novelty with SmartCrowd is the promised secondary marketplace feature, which will give you the option to sell or buy existing investments from other investors through the online system.
By the way, the wall from the start of the article should be 3145 kilometers long and it would cost 5 billion dollars to build it.
Did you try any crowdfunding site?
What crowdfunding site did you use for your project and was it successful?
Share your thoughts in the comments below.