Eureeca has colonised territory on which few crowdfunders care to tread: global territory.
Access to the biggest market available naturally comes, as one would expect, with nightmarish regulatory burdens. But former investment bankers Sam Quawasmi and Chris Thomas have taken it upon themselves to tackle these hurdles and provide businesses and investors with an equity finance platform that can cross borders in a scalable way.
As a result, Eureeca is the first multi-regulated crowdfunding platform in the world.
The company, which has twice raised $400,000 on its own platform, originally focused on smaller raises for its businesses between $50,000 and $250,000. However, the current Phase 2 stage focuses on companies that are raising between $250,000 to $1 million, with Phase 3 earmarked for $1 million to $5 million raises.
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, including a $200,000 investment from a UAE-based institutional investment firm.
Further afield, Roula, a Dubai-based fashion brand, secured 165 per cent of its funding target, but also generated great PR coverage and attracted a strategic investor who helped with market expansion.
How does one begin to tackle the regulations involved in this sector? What concerns do global investors have about international transactions? And how do you inspire governments to introduce specialist legislation? Here, we speak to Quawasmi about all these issues and more.
How did Eureeca start?
Chris and I quit our full-time jobs about five years ago to start Eureeca. Us being former investment bankers, we knew that the biggest challenge at the time was going to be regulation.
At the start we were engaging with around seven or eight regulators globally, but at the same time trying to build the business. When we looked at our peers in the UK, they focused on UK businesses and UK investors only. We knew that in order for this business to succeed it had to cross borders and it had to be scalable. And for that to happen, we had to work out an operating model that was capable of crossing borders.
“How can you build a platform to allow a Brazilian investor to invest in a German company in a seamless way?”
If we feature, for example, an Australian company on the platform, we can raise money for it; a South African company, we can raise money for it. But enabling that took about a year and half’s worth of effort, time and probably about $700,000 of legal fees, in conjunction with dealing with the regulators.
Eventually we did launch, originally out of Dubai with Dubai-based businesses. And we wanted to prove that we were the first equity crowdfunding platform globally to cross borders, so we crossed into neighbouring countries in the Middle East such as Lebanon, Jordan, Kuwait, Egypt. Then, we got regulated by the UK’s FCA so we’re the first non-UK, equity crowdfunding platform to be regulated by that body.
Correct. Crowdcube had an exemption but Seedrs got a licence. And then [we were] probably about third or fourth in the queue. That was a catalyst for the business because the licence itself was at the time passportable to 22 different jurisdictions around the world. We obtained the licence from Malaysia as Malaysia was more proactive in regulating equity crowdfunding within the South East Asian Market. At this point we’ve got four licences: UK, Holland, Dubai, and Malaysia.
Tackling such regulation globally must be somewhat difficult.
Absolutely. How can you build a platform to allow a Brazilian investor, with regulations that apply to Brazil, to invest in a German company in a seamless way? That’s by far the most challenging part of the business but it’s what also gets us out of bed every morning; these are uncharted territories and nobody has done it before.
Five years ago, none of the regulators wanted to touch it, and it was a challenge because we knew in order for the business to operate and to be commercially viable, investors need to know that you are regulated.
One of the regulators that really wanted to do it was the Lebanese regulator. We helped them write the equity crowdfunding law there and technically speaking, Lebanon was the first country to write an equity crowdfunding framework in the world, but it ended up not being workable for legacy reasons.
The FCA, however, was the one that managed to succeed in coming up with a workable business model where we can operate and operate freely.
If you take a look at the US Securities and Exchange Commission (SEC), they’re way behind the curve when it comes to this kind of thing and the UK is definitely at the forefront of this. With the FCA, financial products are born and then traded before they get regulated but historically the UK has always been quite innovative in getting there quickly, providing the right licences and the right way to conduct business for fintech companies. It’s more innovative than other regulators around the world.
How do businesses on Eureeca generally feel about receiving international investment?
One problem can be intellectual property (IP), especially when they’re early-stage businesses. Some businesses don’t want to share their ideas for IP online for their competitors or other people to see. But we can gate information; you don’t have to share what you don’t want to share, and if somebody can request documents or pieces of information, it’s up to you as an entrepreneur whether you want to release that or not.
We want to have more of an enforced presence in the UK because UK companies are telling us they would like international investors, specifically from Dubai or from Southeast Asia, not only because investors there have the capital but also that they can end up helping them with value-add in Dubai itself when they want to expand there.
We’ve got a number of companies from the UK that raise money via the platform that managed to obtain investors from these countries that actually help them expand to these countries.
How do you expect your crowdfunding competition to respond?
The platforms in the UK, as in Crowdcube and Seedrs, their view is operate in one country, become profitable in that country; and then after that start thinking about crossing borders. Once they cross borders, they start seeing issues, in our opinion, and problems become harder and harder to solve the moment you expand to more challenging markets such as Malaysia and Indonesia.
“The FCA is more innovative than other regulators around the world”
I don’t think these crowdfunders will want the headache [of doing what we do] because the UK itself and other developed markets such as Germany have a good eco-system of strong entrepreneurs and fundable SMEs. And you’ve got schemes in the UK on the investor side such as EIS and SEIS that incentivise the investor to fund these early-stage businesses.
For them to generate revenues out of the UK market, that’s good enough and their boards will be happy with that, in our opinion. For us, it’s getting our flag in the sand in as many markets as we possibly can in the emerging markets, underpinned by Europe; that’s just who we are.
So is investors not being able to raise funds through SEIS a big issue?
One of the greatest reasons why UK equity crowdfunding platforms have tremendous success in the UK is SEIS, that’s for sure. In other markets, the appetite for investing in such an asset class is not as great without such tax incentives.
It just makes pure sense; 60 to 70 per cent of the jobs worldwide are created by the SME sector; 90 per cent of any company hiring takes place after the company has been funded; and the number one reason why start-ups and SMEs fail is lack of access to capital. So if you want to lower unemployment rates in that particular country, you need to solve for that very issue.
If you incentivise investors to come in and invest in these very early-stage businesses, the moment these companies get funded, it makes sense that they’re going to hire more people and when they do they’re going to tax these people and therefore governments reap the rewards.
When you take this further, what countries do you foresee being the most difficult to regulate?
Interestingly, Germany and France were very against it in the beginning. They just didn’t want it; now their position has shifted. I think the position has shifted simply because of Brexit, because they’re trying to promote Frankfurt, for example, to get UK companies and financial institutions to establish there. And they’ve shifted their position with regards to that, but also the market is a lot more mature, it’s a lot more socialised, there are a lot more platforms that are licensed out there so they’re doing it the right way. So those historically were quite difficult markets to enter but now, as I was saying, the wind is in our sails; they’re a lot more open-minded to it than they were before.
Some countries will be saying of others, ‘They did it, why don’t we?’ They’re under pressure, I think, from various government entities to be more innovative, let’s have a bit of an open mind and let’s lower unemployment rates. And that’s one of the routes.