8 min read
Opinions expressed by Entrepreneur contributors are their own.
You’re reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
Plus Venture Capital (+VC) is a newly launched early-stage tech startup fund for the MENA and its diaspora, and it’s being led by two familiar names in the region’s startup ecosystem. Sharif El-Badawi and Hasan Haider, the former Managing Partners of 500 Startups’ MENA fund (500 Falcons) are behind the new US$60 million fund that aims to target 120 investments over the next three years.
At this point, it’s fair to wonder whether now is the right time to start up a new investment venture given the impact of the ongoing COVID-19 pandemic on the region’s economies, but the co-founders’ confidence in their enterprise stems from their thorough knowledge of the ecosystem in which they plan to operate. For instance, according to Haider, the sustainability of a thriving startup ecosystem hinges on several key pillars, such as the availability of talent and funding, accessibility to market and customers, and foundational infrastructure and regulatory frameworks to make doing business easier for small tech startups looking to grow fast- and they are all well in place in the MENA region. “The region has gone through a number of infantile phases over the past 20 years,” ElBadawi adds. “From the occasional tech startup in the UAE or Jordan, such as Bayt and Jeeran, respectively, to a sort of renaissance phase over the past five years. Moreover, within just the past few years, coinciding with the launch of our previous fund and many others, the region has seen the number of investors spike from just a handful in 2015, to over 200 institutional investors investing in the region, with approximately 25% of those investing from the outside in, and that’s not including angel investors.”
Indeed, the MENA is fast emerging as a key startup ecosystem in the global landscape, with several startup exits, such as the acquisition of Careem by Uber in 2019 and the acquisition of Souq by Amazon in 2017, putting the region in the spotlight. It has a positive macro story, the +VC co-founders explain, with a largely young, highly connected market of over 400 million people with a similar culture and language. “We’re now entering the adolescent stage of the investment landscape in the MENA region, whereby dozens of funds are now raising their second or third funds, investment managers are starting to move around and do new things, many have learned from rich past experiences, and founders are succeeding, exiting, failing, and recycling into other startups,” El-Badawi says. “Dozens of new funds are being formed to serve the region, and more institutional limited partners, development funds and family offices are opening up in the space. We’re very bullish at this next stage, particularly coming out of the COVID-19 pandemic with more mainstream awareness of the benefits and adoption of technology.”
In line with that, the COVID-19 pandemic has also put a light on deeper issues affecting the startup investment landscape in the region. “We have seen deal activity slow down significantly since the start of the pandemic, and remain slow until now,” Haider explains. “Investors are reticent to deploy precious capital, and are correctly evaluating startups and their founders more closely on the metrics that matter most, with an overlay of whether the startup’s business model and sector is ‘COVID-19 proof’.” He adds that many startups have shown a V-shaped recovery in their metrics from the moment markets reopened. “Both founders and investors have had to take stock and become more grounded in their strategies,” El-Badawi adds. “For founders, this means going back to fundamentals of building a business, focusing on the bottom line, and not just so-called vanity metrics. Investors have either become bearish, and are holding out for new investments, or trying to spot companies that are and will thrive in a post-COVID world. A return to first principles around cashflow, unit economics, and runway has taken its rightful seat at the center of analysis, and will hopefully leave a lasting mark on founders and investors going forward.”
A better quality of founders who are focused, passionate, and driven has been emerging from the pandemic, Haider confirms. “From a tech ecosystem perspective, we think that the most likely outcome is that the demand for technology solutions across all sectors will be catapulted forward, and acceleration driven by a youthful fervor and acute memory of the losses and lessons learnt in 2020,” he says. “We can only believe this will be positive all around, helping to bring more tenacious founders to the surface, as well as better and more experienced investors and more support from corporations and governments.”
Related: For VCs And Their Portfolios, Team Culture Now Matters More Than Ever Before
Grasping the lessons learnt from the pandemic, such as to always consider founder’s grit and resilience, will lead the +VC co-founders to lean towards founders who are mindful of their bottom line, not just hyper growth. “We’re strong believers that our primary role is to help founders succeed through the provision of our time, our network, and, of course, our money,” El-Badawi adds. “But we also hold high the notion that we are here to serve the founders, to share in their optimism to do something bold, something valuable that will ultimately provide immense value in returns. We also believe that more investing, more frequently, along with heavy dry powder reserves will not only help regional founders start out on the right foot, but maintain a proper trajectory through their Series A rounds.”
El-Badawi also says that they make it a point to seek out and track female founders as a core part of what they do at +VC. “We’re also trying to do our part in nurturing, bringing more female investors into our own team, and otherwise. Also, we expect to continue co-investing with the great female investors in our ecosystem, of which there are several amazing ones. Some of the women-led funds even specifically train new female investors, and solely invest in female founders. I’d say compared to other regions in the world, taking the ecosystem’s age into account, the MENA region is poised to be one of the strongest in terms of gender representation.”
And Haider has numbers to confirm this- over the past five years, 24% of their investments in over 175 companies had at least one female founder. “A number that may be far from the ultimate goal, yet is among the highest in the world,” he notes. “Our own team gender ratio has held pretty steady at 50%, with females representing all levels of seniority. We’re fortunate to work and interact with numerous women-led startups and investors, and believe many venture firms in the region do have females on their investment teams. The region is also home to several female-led venture funds across Jordan, Egypt, Lebanon, Morocco, Kuwait, UAE, KSA ,and so on. In addition, we’ve had a strong history of women-led angel groups, entrepreneur support organizations, governmental departments that all play a part in fostering a healthy entrepreneurial ecosystem.”
Haider and El-Badawi have more than 35 years of combined investing and operating experience. In addition to completing over 200 transactions together, each of the co-founders brings in a specific set of skills. Haider is an entrepreneur and former investment banker who worked in venture capital in Silicon Valley and MENA, and established one of the first angel investment groups in the region, while El-Badawi is a seasoned serial entrepreneur, operator, and investor, with experience of working at high profile internet companies such as Google.
Being complementary in their backgrounds, yet highly relatable to each other’s work history, is the added value they bring to the table, El-Badawi says. “My personal bias as a previous serial entrepreneur and operator is that the best VCs are ones that have been in the founders’ shoes before, and have gone through the ups and downs of building technology companies. These types mostly have engineering and science backgrounds, or marketing and sales backgrounds.
However, venture investing is ultimately a financial service, and therefore, the other type of investor needed is one that comes with the financial or legal perspective and expertise.” Haider adds that, as venture capitalists, they aspire to invest early and often with certitude in the founders and stick to their commitment: to follow global best practices and standards, keeping terms simple and fair, while wiring the investment as fast as possible, and to spend their time and resources post-investment nurturing the companies to their next stage. “We need more investors who believe in the upside, and share in the optimism of the founders they finance, rather than only be riskfocused, trying to get the best deal for themselves in a single transaction. Investors should help protect founder and shareholder interest, not trying to control and take over their companies,” Haider concludes.
Related: Why A Carefully Thought-Out Term Sheet Can Be The Magic Bullet For VC Success