With domestic finance increasingly hard to come by, companies – especially small businesses – have turned their focus outwards, seeking investors from abroad. Some of them have decided that getting investment from the Middle East is the way to go.
Theoretically, sourcing investment from the Middle East is a viable option. The urban legend that the region is awash with cash and that oil barons are lining up to invest excess funds in projects offshore is true – in some cases. If you can find the right person or institution, getting an investor from the Middle East can turn out very well.
The problem is that it’s not nearly as straightforward as it sounds. Here are five pitfalls to avoid.
1. Don’t go shopping for investors online
Now that we’re all globally interconnected via the internet, you might think that you can find a good investor online. After all, you can source pretty much anything else that way these days.
Unfortunately, finding a credible Middle Eastern investor takes more than just jumping on the internet and doing a few searches, for a number of reasons.
Firstly, because of the opaque nature of Middle Eastern commercial culture, credible information is harder to come by than it is in some other markets. Unlike Australia, the US, UK and other established financial centres, details of investors in the Middle East are not usually readily available.
Secondly, because of the lack of mature financial data about providers covering the Middle East, finding reliable data on investors in the region is usually time consuming and often quite risky. In other words, if you only rely on the internet for information, you may spend a lot of time sourcing inaccurate information.
In the best case, shopping for an investor online is likely to turn out to be a frustrating, time-wasting experience. In the worst case, you may find yourself the victim of a fraud.
2. “Investors” can turn out to be fraudsters
Several companies that I know have found this out the hard way. My company specialises in providing consulting services to businesses operating in or dealing with Middle Eastern countries. Over the last year, we have worked with companies who were involved with parties who they believed to be investors in the Middle East. In a number of these cases, our clients had found the “investors” online but had never met them in person. Their initial excitement at finding people who seemed prepared to bankroll start-up projects turned to horror when it became clear that the “investors” in question were frauds. These “investors” were people who, in reality, had nothing to do with the Middle East and were interested in taking money from our clients rather than investing it with them.
Much has been written on the topic of investment fraud scams in the Middle East and there are whole websites and web forums devoted to it. The Dubai Financial Services Authority has even created a page on how to avoid being scammed.
While scammers operate in a variety of ways – some of which are highly sophisticated, there are tell-tale signs which frequently give them away. Typical fraudsters often present themselves as investors from the UAE, Bahrain or Saudi Arabia, sometimes pretending to be members of one of the royal families from the Gulf region. While the real royal families do have money and do invest in projects around the world, they definitely never advertise themselves on the internet or seek expressions of interest via LinkedIn, as my clients found out!
What this all means is that finding a sound investor can be a real challenge. So, how do you do it?
3. Only deal with people you know and trust
The first rule of thumb is that you should always deal with reputable people and preferably people who you know personally and trust. While this seems like quite basic advice, you’d be surprised how many people are prepared to begin working with investors who are almost complete strangers, on the basis of “gut feel”.
4. Don’t rush in
You might also be surprised at the number of people who trustingly meet a potential investor (often online) and decide to work with them immediately. While this approach might work in a Western context, it’s not a sound strategy for the Middle East.
Genuine investors from the Middle East are unlikely to want to jump into a business deal with people whom they hardly know. This is because Middle Eastern cultures are more relationship-based and less transaction-based than Western cultures. Consequently, Middle Easterners take their time getting to know people before deciding that they want to work with them. They don’t just exchange emails and then sign a business deal.
Tip: If an investor who you’ve just stumbled across seems immediately keen to work with you – beware! Real investors from the Middle East tend to take their time getting to know future business partners before they even discuss working together.
5. Don’t be blinded by love
As you would before embarking on any commercial relationship, do your due diligence! Don’t assume that just because you’ve had a couple of great meetings and shared some laughs over a lunch that everything will be rosy. Make sure that you know who you are getting involved with and collect as much information on your potential investor as possible, including their business interests, past and current projects and track record. If you don’t know where to find this information, connect with people who do!
Your state trade representative will be a useful resource as you undertake the due diligence process and you should also check with your contacts and colleagues who may have worked with the investor previously.
Finding an investor in the Middle East is a real possibility, but success requires the same kind of diligence and commitment as any other commercial enterprise.
Cynthia Dearin is managing director of Dearin & Associates, a boutique international market entry consulting firm.