The landscape for start-up funding has considerably transformed over the past few years as investors increasingly opt for highly feasible business models, industry leaders said at the World Conference on Creative Economy.
They reminded budding entrepreneurs to have a multi-pronged approach when attracting funds.
Start-ups in the creative and cultural sectors of the Middle East are facing a number of challenges developing their ideas into actual businesses. They have evolved over the past years in the sense that they never saw themselves as investors or business owners, but now technology has allowed them to scale their talents and monetise their propositions, the experts said.
“We need to build more sustainable models. The best form of financing is building a business model that allows you to be sustainable and to grow and scale your business,” Najla Al Midfa, chief executive of the Sharjah Entrepreneurship Centre (Sheraa), said at the WCCE at Expo 2020 Dubai on Thursday.
The Middle East's creative and cultural market is expected to witness a growth in economic activity and investment, especially in the UAE after it announced the key points of its national strategy for these industries this week.
The region's media and entertainment market was valued at $30.35 billion in 2020 and is expected to reach $47.01bn by 2026 at a compound annual growth rate of 7.4 per cent during the 2021-2026 period, according to Mordor Intelligence.
Investors today are also looking for more scale and reach, one of the most important factors they seek before committing to support a venture. For start-ups, in particular, subscription models are likely to attract more funding.
“Investors are interested right now in subscription models because that's the mode that brings money every month in the bank. They're really desirable right now compared to the old e-commerce model,” Saeed Al Nofeli, director at Dubai Internet City's in5 incubator, said.
The size of the global subscription or recurring billing management market was estimated at $5.12bn in 2020, projected to hit $5.94bn this year and expected to expand at a CAGR of 16.02 per cent to $10.77bn by 2025, ResearchAndMarkets data shows.
Investor interest in providing funds also varies depending upon which business model a company is based upon.
Leila Hamadeh, chief executive and co-founder of Dubai-based podcast network Finyal Media, said what obviously works in international markets may be difficult to replicate here in the region.
“What we discovered quickly is that fundraising for a creative entity whose business model is based on advertising is a challenge in the region; the advertising market here is undervalued compared to other markets,” she said.
Research from Imarc Group showed that the value of the global advertising market reached $647bn in 2020. It predicts that this will rise to around $875bn by 2026, at a CAGR of 5.2 per cent.
Crowdfunding is a viable option. As of June this year, people have raised more than $34bn worldwide using these platforms, data from Investopedia shows. It ranked Patreon, a US-based membership platform, as the best choice for artists and creatives, having attracted more than 200,000 creators and bringing in about $2bn in funds.
Big Tech companies are also lending a helping hand. In June, Netflix expanded its Hardship Fund to support film and television industries across the Arab world, an extension of its last year's emergency relief fund established along with the Arab Fund for Arts and Culture.
Securing that funding, however, comes with the responsibility of taking the next step of growing the business – which is the main reason funding was sought – eventually trying to sustain it, Mr Al Nofeli said.
“It's really important for start-ups not to celebrate the success of them raising funds, but celebrate that they have actually succeeded in their business models,” he added.
They also cautioned up-and-running businesses not to concentrate on just a single source of income, as any slowdown in this metric without any reliable back-up plan can prove costly, both on the financial and reputational fronts.
“Creative entrepreneurs should not depend on just one stream of income. Funding might not be as easy as opposed to technology or other start-ups,” Manar Al Hinai, co-founder of Sekka magazine, said.
Attracting funds is a fundamental step, but this should not be considered as the most important thing that a start-up can gain because it is just the start of an entrepreneurial journey's long process.
“Fundraising, especially in the technology ecosystem, is such a vanity metric,” Ms Al Midfa said.
“The most valuable thing you can provide to start-ups, at the end of the day, is access to markets or customers. We should help them grow sustainable businesses rather than just connecting them to investors.”