Angel Investment in MENA: What Works, What Could Improve

by x y, March 20, 2012

So you have been incubated for three months and you have built a solid demo. Unfortunately, your burn rates (negative cash flows) are soaring and your startup is quickly running out of runway (viable operation time). It’s time you look for capital injection.

A room with dim blue lighting, a podium and substantial turnout of affluent investors was the scene at Building 4 at the Business Park in Amman last Wednesday evening. What look liked a cocktail party with hors d'oeuvres being served was, in fact, the 4th Oasis500 Angel Network Event, a quarterly gathering that brings together the latest incubated batch of startups at Oasis500 together to pitch to investors. As they strive to raise funding and extend their runway, it all comes down to a 7 minute pitch.

The start-ups that pitched were Shawweet, an online football social media platform, Manzil.me, a one-stop shop that brings together tenants, landlords and 3rd party vendors online; Roznamti, an online social calendar that allows users to share and select events as favorites Tadreesna, an online tutoring portal; Ijazza, a mobile development house Little Thinking Minds, a multimedia company that offers Arabic educational DVDs, audio CDs and books for children under the age of 7.

While this pitch session will simply open conversations about potential future investment, Oasis500 startups typically have found success. With interest rates on deposits fluctuating between 0 and 1%, investors in the audience should have been be enthusiastic about investing in these six promising startups. While the technology & ICT is on the rise in Jordan, it still has plenty of potential to boom. Especially across the Middle East, where other sectors are stifled with red tape and bureaucracy, entrepreneurs in the tech sector need only an innovative mind and an internet connection to create substantial growth.

It’s clear that the angel investment ecosystem has a ways to go when it comes to meeting the need for investment. Venture capital firms in the United States invested a whopping $5.87 billion in 736 U.S.-based companies during the first quarter of 2011 alone. In the past, 10 startups incubated by Oasis500 alone have managed to secure over $8 million. The numbers speak for themselves.

Investors operating in this environment should invest not simply to support sector growth, because also because they need to attract the smartest and brightest of our generation to the field of technology- those who would otherwise opt for other lucrative and guaranteed fields like finance, engineering, and medicine. Proof of the power of this approach is that we have just seen the prestigious US accelerator Y Combinator asking entrepreneurs to apply to their program even without an idea in their application. They have clearly established that what is crucial is attracting talent. Essentially, they are investing solely in talent. The regional entrepreneurial eco-system would do well to follow suit. 

The axiom this model sets forth for investors is straightforward: have a keen eye for talent, find startups that have proven traction (user numbers, conversion rates, revenue, channel partners or exclusivity agreements) and invest.

From the entrepreneur’s perspective,cash is king” is the typical adage when it comes to financing- without it startups are pretty much at a standstill. However, as crucial as it may be, too much of it introduces a lax environment. As the authors Paul Ahlstrom and Nathan Furr of Nail It, then Scale It sum it up, too much capital encourages a startup to prematurely scale – hiring too many people and cranking up the burn rate while making communication channels more complex, just when they need to stay nimble and flexible.

Furthermore, seeking funding can also produce a form of “quasi-validation,” in which founders place more importance on funding and see that as a significant form of validation. In reality customer validation, in the form of continuous revenue, far surpasses any one-time capital injection from an angel-investor. Just raise enough money. What is enough? Only you as a founder can make that informed decision, bearing in mind that more funding sought results in more equity given up.

On the flip side, not sealing a deal may prove to be advantageous. Forcing you to work with constraints brings the best out of founders in terms of innovation, determination and perseverance. Some of the most successful businesses have been bootstrapped. Your enthusiasm should not be hindered. Adopt the Mark Zuckerberg mindset - stay focused and keep shipping.

So, when looking at startups in Jordan. Had it not been for the training, mentorship and incubation provided by Oasis500, this event would not have materialized and proved to be stimulating for both sides of the table, the entrepreneurs as well as investors. Surely, this event is a step in bringing the entrepreneurial ecosystem in Jordan forward.

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Walid Sahawneh is an entrepreneur based in Amman who is working on a startup of his own and has prior experience working in banking at J.P. Morgan in London as well as communication strategy at Young & Rubicam in Jordan. He holds a certificate from the International Institute for Political and Economic Studies at Georgetown as well as a B.A from the University of Nottingham in Finance & Accounting.

 
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