The Saudi take on Nomu - Parallel Market
SMEs in Saudi Arabia are getting more and more attention. However, they are held back by the difficulties of acquiring funding.
The Kingdom has witnessed an increasing activity in programs and initiatives providing an extra source of funding, like Sirb and Musharakah. The latest was from the Saudi stock exchange - Nomu - Parallel Market in February.
The Small and Medium Size Enterprises Authority explained that the Parallel Market created a more flexible platform to exchange Saudi enterprises’ stocks. The Parallel Market will contribute to accelerating the growth of these companies, enhancing their marketing and increasing their market value. It will apparently also help with solving problems related to family succession in family enterprises, because when a company is listed it will be easier to buy and sell shares.
If an investor wants to work within the Parallel Market he has to fulfil particular requirements, including having an investment portfolio of over 10 million Saudi riyals (just over USD$2.6 million).
Wamda talked to some players in the SME world in Saudi and asked them what they thought about the Parallel Market. The views are mixed.
Venture capital – Rakan Alaqeel, cofounder of Inspire Ventures
Alaqeel said being listed in the initial stock market was out of reach because of the tough requirements. However, for example, the Parallel Market made entering a stock market easier by lowering the market value requirement for listing (a minimum market cap of 10 million riyals in comparison to 100 million riyals in the main stock market).
“The opportunities for listing SMEs in the Parallel Market would encourage entrepreneurs to enhance their companies, because they will have bigger chances of entering the stock market. The company should be be listed on Nomu - Parallel Market for at least 2 years, and meet the Main Market requirements. Therefore, have an extra source of income in exchange to stocks.
“This opportunity would also encourage investors to invest more in these companies, not just to exit, because they will end up in the stock market. They also encourage investors by allowing them to invest in a growing company capable of scaling, not just a mature company, which is the case in the main market.
“Investors in the Parallel Market are those seeking to invest in early-stage companies with a lot of room to grow and expand, or those hesitant towards investing in SMEs. When investing in growing company, the investor would need to help it reach the market value for entering the market, which is both a challenge and an incentive.
“Requirements investors must fulfill help them make the right decision based on solid and clear foundation.”
Medium sized enterprise – Mohammed Almolfy, founder and owner of the Arab Media Agency
Almolfy believes that the Parallel Market will have a positive effect on the economy, because it does not require as much capital as the primary market.
“Also, because it contributes to the creation of many market levels, where companies can move from being a limited liability company to a joint stock company in the stock market.
“In addition to that, the requirements of the Parallel Market, will make it easier for SMEs to attract investors because it represents a reliable and legal entity. Companies in the Parallel Market will also have more banking conveniences than limited liability companies because their financial standing will be stronger.”
Startup - Majed Althagaf, cofounder of Ibtikar
Althagaf sees it as a new tool for funding in exchange for equity.
For this cofounder the Parallel Market is an easy way to get funding for startups from one side, and to ensure investors’ rights from the other side. Empowering Gulf citizens to participate in this market is very important to attract foreign funding.
“Entering this market forces the startup to be more organized, since the Parallel Market imposes on the company to present annual audited financial statements. However, everything has its ups and downs.
“A startup must think of the type of funding they want depending on its needs and stage, whether it’s from an angel investor, a partner or exchanging its stocks in the Parallel Market.
“If the startup is looking for an IPO, the Parallel Market prepares it for it. It’s a challenge, but with a clear framework.
“On the other hand, the startup can seek venture capital. But this kind of investment is complicated in Saudi Arabia, because investors prefer not to take big risks. Thus, they will ask for a large share of the company and will not leave it to concentrate on its goals.
“Though It’s not easy for startups to get loans in Saudi Arabia, I believe loans are better for them if they are sure of their product because no one will intervene in their business. And we, at Ibtikar, don’t think of joining the Parallel Market before one year.”