By Sam Quawasmi
Sam Quawasmi, co-founder and managing director of Eureeca.com, sheds light on what the equity crowdfunding platform is about, how it delivers its products to investors, and how it is different from its competitors in the market.
Here is the transcript of the video:
Emmanuel Daniel (ED): Here, speaking with Sam Quawasmi, the co-founder of Eureeca.com, an online crowd −
Sam Quawasmi (SQ): Equity crowdfunding platform.
ED: − equity crowdfunding platform. When you say equity, it means that you actually match investors to take on equity.
SQ: Growing businesses, yeah, to take on equity in growing businesses that are seeking expansion capital. So, we focus on businesses that want to expand and grow. They can't get money from a bank. What they can do is sell a small stake in the business in exchange for shares, in exchange for capital, in order for them to grow and scale.
ED: Okay. So, when you do the match, you also do the paperwork for ownership basically.
ED: Okay. Which countries did you operate? When did you start?
SQ: We launched in Dubai about three years ago. We proved our concept in Dubai, and then we crossed borders in the Middle East in the region. A catalyst happened for us two years ago where we got regulated by the UK's FCA, so we expanded to the UK as a market from the Middle East. And then, after that, we expanded to Southeast Asia via Malaysia, so we got regulated by the Malaysian Securities Commission, as well.
ED: So, when you get regulated, do you get regulated as a platform or as an investment bank, I mean, almost like −
SQ: As a platform, but it is very similar to investment banking, exactly, because what you're doing is you're conducting mini IPOs, so to speak, right?
ED: Yes. So, in all of these markets, you're actually regulated by the Securities Commission?
ED: And do the Securities Commission has a different mechanism by which they recognise you, as opposed to somebody who's a standalone or a boutique house?
SQ: Yeah. I mean, I would say that they would probably be a little bit more – they probably wouldn't be as stringent as they are on a whole investment bank, simply because we are start-ups. But we also – the way they look at us is that we also provide – we solve a funding void, which is essential for any economy.
60 to 70% of the jobs worldwide are created by the SME sector. 90% of any company hiring takes place after the company's been funded. And the number one reason why SMEs fail is lack of access to capital. So, if any economy would like to do something about the unemployment rates in their own respective markets, they basically provide us with a helping hand…
How Eurecca works
ED: Okay. So, how you structure your platform, you bring investors to potential SMEs looking for funding.
ED: You pre-qualify the SMEs?
ED: And you pre-qualify the investors?
SQ: Yeah, we do basic due diligence on the SMEs, so we know that they are growing, expanding, and they've got a company. We do all that due diligence in the background. But we don't basically go out there and say, "These are amazing companies that they're going grow and scale and going to make it to IPO level." That’s what we leave that up to the crowd. It's very democratic in that sense.
ED: Okay, yeah.
SQ: And from the investors' side, yes, we conduct KYC, AML, anti-money laundering checks on all of these investors that invest in the company. So, when both parties come together and the company's been funded, it's been funded by a clean set of investors, and it's got the expansion capital it needs to scale up and grow.
ED: Right. And when you bring the parties together, you bring them together – the first time they meet is online; is that how it goes or −
SQ: Yeah, pretty much.
ED: Okay. And you pre-qualify your investors. Do you then put them online for any investments or any specific one that you – do you actually match them before they go online?
SQ: Investors, no. If they like what they see, they end up investing, and it's very easy, right, because it's done via mobile phone. You can invest using your credit card. It's that simple.
And if you like it, and you want to meet the entrepreneurs, all you have to do is press a button, and then we'll arrange for a meeting to take place offline, as well. So, typically, larger investors who are investing $50,000 to $150,000 tend to want to meet entrepreneurs before they…
ED: Okay. So, how many deals have you done so far? Which countries?
SQ: Yeah, so, over the last three years, as I said, we expanded into multiple countries here in the Middle East. We also expanded to the UK. We just branched out our license into Holland, so we just launched in Holland last quarter. And we proved our concepts there, so we're funding companies in Holland.
ED: How many of these? I mean, how many…
SQ: So, in total, we've listed about 45 companies and funded just under 20 companies on the platform, so we've got a good success rate there, broadly about 50%
ED: All within one place or −
SQ: No, in multiple countries. But understand that 2,600 companies so far over the last years have applied to raise money via the platform, but we've only listed 45. So, that's broadly about half a percent of....
ED: Right, right. So, you are cautious. You do your due diligence. How much of that work is offline? How much of it is manual, and how much of that is −
A sort of “social network” for investors
SQ: Yeah, a lot of it is offline obviously. But when the investors tend to see the deal, they see it online. They see it in a very nice manner, using their mobile phones. They swipe and view the video. They view the funding proposals, the financials.
And if they like what they see, they end up clicking, or they can interact with the entrepreneur, ask questions, and their questions are very transparent there. Everybody can see what these questions are. You can follow entrepreneurs. Entrepreneurs can follow you back. You can follow other investors. So, it's sort of a social network for investors.
ED: Are you a beneficiary of the low interest rate environment that existed in the early years, and now that the Fed’s like raising interest rates, do you think that some of that investment will taper off? And more of your investors, more like private, I mean, individuals rather than institutional, do you see institutions coming to you and say, "Hey, we've got this tranche that I'd like to give to you and see what you can do with it"?
SQ: Yeah, we do that. We see that all the time. But to your question about interest rates, the companies that make it onto Eureeca, they don't get lending anyway from the bank. So, it's not that they manage to get any money from any bank around the world, right? Lending rates to SMEs here in the region is at 4% for any loan book. So, increasing interest rates would not really impact – or decreasing interest rates would not really impact appetite from a new bank to lend to these companies.
But, also, they probably even make it worse because it becomes more expensive for companies to borrow money. So, they end up coming to us to raise money in exchange for giving up some of their equity and getting the expansion capital that they need.
Eurecca aims to be a “new catalyst” for the industry moving forward
ED: So, for the investor, is liquidity an issue? Do they need ability to go in and out as they like?
SQ: Well, that's a very good point. I think, for an investor, this is going to be the new catalyst for the industry in general when we introduce the secondary market. So, it would enable us, if you invested in a company via the platform in Holland or in the UK or even in Malaysia or the Middle East, when can you get out? When is there a liquidity event in order for you to be able to exit the $10,000 that you invested?
This will be a catalyst in the region, and I would hope to introduce it to the market in 2017. When exactly, I wouldn't want to promise and not deliver, but we'll get it to the market in 2017.
ED: Right. But 40-odd sounds like you're still a long way from critical mass, from being profitable. But what's your trigger points?
SQ: It was always, ever since the inception of Eureeca, it was always regulation. So, over the last four years, it's been interacting with multiple regulators from all around the world in order for us to – because we knew commercially that we need the product to be regulated in order for investors to trust the services and the products.
So, it was basically socialising the idea with the regulators as well as the counterparties, such as venture capitalists and government entities, in order for them to adopt it. And it took us a good four years in order for us to do that. As a result, right now, we are the only equity crowdfunding platform in the world that's got four licenses and operates in three different markets, in three different continents.
ED: Right. And who are your backers, and what's the work involved going forward? And didn't peer-to-peer lending, the lending route interest you at all? Why the equity route? Is that because of your background or −
SQ: Yeah, the lending route is interesting, but our focus is equity. That's our specialty. That's our background. We're former investment bankers ourselves as founders, so we know it pretty well. Now, what was your other question? Sorry.
ED: And who are your backers?
SQ: Oh, yeah, our backers are investment bankers that believe that the investment banking model is somewhat broken, and they want to back the new form of investment banking that's about to emerge. And these are…
ED: So, your peers who then go out to set up your own boutique houses, what do you need to do to be different from them because they might say that, okay, you've gone online, but you're actually ending up doing the same thing as we do?
SQ: Yeah, because companies come to us, not just because of the money, expansion capital; they come to us because they want to – they come to us as sort of a loyalty program. Think of it this way. You're from Southeast Asia, are you?
SQ: Yeah, so you've heard of Grab, right?
SQ: So, if you were an investor in Grab, would you ever use Uber again? I don't think so. If you had $10,000 in Grab, you'd promote the product. You would be an ambassador for the product. You'd tell your friends and family to use Grab going forward.
So, companies don't just come to us because of expansion capital, not just for the money. They come to us because they would like to socialise – they would like to −
ED: So, there's that component that does socialisation. So, there’s a lot of,
in a way, it's also highly local then.
ED: Right. So, in having licenses in four markets which are distinctly different −
ED: − you might find that in all of the four markets, your investors are all a certain type, which −
SQ: Well, that's why they come to us. So, for example, companies from the UK reach out to us because in the event they want to expand to Southeast Asia or Dubai, they would raise money from Dubai-based investors that would add value for them on the ground, introduce them to lawyers or whoever it may be in that particular market. So, it works as an expansion play, as well, not just money that comes in…
ED: How many staff do you have at the moment?
SQ: How many?
ED: How many staff, employees?
SQ: We have about 18 now.
ED: How many of them are on the technology side?
SQ: Well, I want to say about five.
ED: Okay. So, it's still early days.
SQ: Yeah, sure, sure, absolutely.
ED: Thank you very much. And so, I guess that you will continue to grow. What are the next steps for you, besides licensing?
SQ: As I was saying in the panel, it's geographical expansion in these three continents in Europe, Middle East, as well as Southeast Asia, and expansion by product. Soon enough, we're going to have some sort of secondary market on the platform that allows you to exit as an investor and multiple other products that we'll be looking at in 2017.
ED: Great. Thank you very much.
SQ: Thank you.