Middle East start ups have 'blind spot' to managing cash flow, says LMTD boss
By Lubna Hamdan / Arabian Business
Will Hutson, founder of LMTD creative agency said small businesses struggle to get long term funding from banks and investors
One of the biggest challenges for start ups and SMEs in the Middle East is managing cash flow, according to the founder and CEO of full stack creative agency LMTD.
Speaking to Arabian Business, Will Hutson said small businesses in the region find it difficult to attract long-term investment.
“A lot of start ups that I meet with and talk to have a real blind spot when it comes to managing cash flow. They also struggle to get banks and investors on their side in the medium and long term. Short term, there are interesting platforms such as Beehive trying to fill the funding gap,” he said.
“We also have also seen many stimulus packages in the region for SMEs, as well as grands that help in the short term. But in the long run, their hands are tired without liquidity,” he added.
Hutson said regional governments are working with central and regional banks to find solutions that incentivise the market for growth, while preventing losses and downsides. Banks, however, need to provide more support, he said, and overlook the asset lightness of start ups and SMEs.
“They are trying. I just don’t think they figured out the ratio yet. They are trying to push through some proposals but it hasn’t happened yet. Medium term, you need more engagement from central and regional banks.
"They need to understand how SMEs work, and how asset lightness works. A lot of SMEs are asset light. They don’t own a lot of inventory or product, so banks are very sceptical when it comes to lending to them. Banks need to understand and be incentivised to lend in those environments,” he said.
Hutson’s LMTD has worked with brands such as Etihad Aiways, Careem and ADNOC among others, where it focuses on taking emerging regional brands global. The founder, who is also a mentor at Wamda’s Mix’n’Mentor programme, said the Middle East is not building such businesses to be “foreign owned”, but to remain regional and help build the ecosystem. He called for small and medium cap IPOs.
“Longer term, we need exits and liquidity. A lot of people assume that large corporate buyers come from Asia or North America, but I don’t think there is a panacea in those exits. I think regional equity markets need small cap and medium cap IPOs. That is the solution. Japan, UK and Canada are great examples of small cap markets. This will encourage regional development.
"Without that, the majority of those enterprise will go to foreign owners. You’ll have cash for a short while, but we’re not building these businesses to be foreign-owned,” he said.
Hutson said regional ownership is important as Middle East owners will have the best interest for the growth of the entrepreneurial sector.
“Owning these companies is fundamental, because the priorities of foreign owners are different than the priorities of regional owners. For example, foreign ownership in a publicly traded market won’t care about creating jobs. The health of start ups won’t be their priority in the long term. They’ll care about returns,” he said.
Hutson said while foreign acquisitions of regional businesses provide short term cash flow, they lead to having a “competitor in our backyard”, whereas retaining ownership will keep “the dirhams in the room.”
“That way, you’ll cross invest and partner with the government to be able to add more value to the GCC,” he said.