The Importance of a “Strategic Investor” v/s an “Investor”

Attracting strategic investors is key for the growth of the mid-segment companies in the Middle East, notes Frost & Sullivan

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. Leveraging the changing market conditions and rapid shift in technology, there are many niche companies that have developed unique products and services to address specific needs of their clients. 

Healthcare, ICT, professional services, media and entertainment, logistics, transportation, energy and utilities, and education are some of the key industries that are on the forefront of innovation, and there are many niche companies that are offering products and services catering to the very specific needs of these industries. 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, and often end up securing funding from individual investors or close acquaintances, at much higher rates.

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“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, and we have seen enough action in this space in the last few years. However, organizations looking to generate funding need to have a structured approach in identifying and approaching the potential investors,” says Saurabh Verma, Head, ICT and Digital Transformation – MEA, Frost & Sullivan. “The process, though straight forward, does require specialized skill sets for preparing a compelling ‘Information Memorandum’ (IM), and identifying potential investors that are not there just to grab a stake in the organization, but are there as a “strategic investor” and support the long term growth of the organization.” 

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, and 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, transportation, utilities, public services, banking and financial services, retail, etc. Developing use cases needs specialized skill set, i.e. human resources with that innovative mind and skills, and those resources are expensive to acquire; this ties back to the same point of the investment capacity of the mid-segment organizations.

If you are interested in gaining more information on this analysis and speaking with our experts, please  write to Anita Chandhoke at achandhoke@frost.com.