There is a difference between an investor and a strategic investor. Especially for mid-sized companies, this difference is important. [shutterstock: 204816103, SK Design]
The last decade in the Middle East region has witnessed immense growth and challenges. There are many companies who have exploited the growth wave and grew their business exponentially. At the same time, there are companies that struggled either due to their resistance to change, or due to the economic challenges of the market.
Healthcare, ICT, media and entertainment, logistics, and education are some of the key industries that are on the forefront of innovation.
There are many niche companies that have developed unique products and services to address specific needs of their clients. That’s because they know how to leverage the changing market conditions and rapid shifts in technology. Many of these companies typically fall in the small to mid-market segment.
In most cases, these companies are highly aspirational to accelerate their business multifold in quick succession of time. Despite having the right skill set, innovative and workable ideas, and capabilities, the lack of capital is often a barrier for them.
Given their size and scale, many of the small to mid-sized companies do not get enough visibility among the professional investor circles. Therefore, they often end up securing funding from individual investors or close acquaintances at much higher rates.
Investor vs. Strategic Investor
“The investor ecosystem required for the growth of the mid-segment needs a fair spread of seed and angel investors, private equity players, and venture capitalists. All of these are quite active in the Middle East. However, organizations looking to generate funding need to have a structured approach in identifying and approaching the potential investors,” says Saurabh Verma, Head of ICT and Digital Transformation at Frost and Sullivan.
Verma adds, “The process, though straight forward, does require specialized skill sets for preparing a compelling ‘Information Memorandum’ (IM). Furthermore, businesses need to identify potential investors that are not there just to grab a stake in the organization. They have to be ‘strategic investors’, meaning thay support the long term growth of the organization.”
Financial investment is a key challenge
There are ample opportunities to innovate products and services. However, it does take a significant amount of time and financial investment.
The time taken in developing new products and services is inevitable. It can be partially accelerated through efficient program management process and other additional support. However, the requirement of financial investment is a key challenge for most of the organizations.
There are many examples of organizations building innovative solutions on emerging technologies, such as Internet of Things (IoT), Industrial Internet of Things (IIoT), artificial intelligence, robotics, blockchain, drones, and various other areas.
There are various innovation opportunities in these technology areas in industries like automotive, banking and financial services, retail, etc.
Developing use cases needs specialized skill sets, i.e. human resources with innovative minds and skills. However, those resources are expensive to acquire. This ties back to the same point of the investment capacity of the mid-segment organizations.
That is why it is important to have strategic investors who want to support small innovative businesses in the long term, as opposed to investors who just want to profit from them.