This article is part of our expert content series, in which we will highlight valuable advice from key experts in the regional ecosystem.
What’s holding up investment in the Arab region? Is it the lack of investors ready to take risks or the lack of good startups? “Because we don’t have enough investors, entrepreneurs are forced to deal with investors they don’t get along with,” says angel investor Ranwa Halsa, Deputy CEO and Head of Business Development at ICCCC, a leading provider of turnkey telecom services for mobile operators and system providers in the MENA.
Jordanian Ranwa Halasa, just 29 years old, moved to Beirut a few years ago to study finance at the American University of Beirut before returning back to Jordan. There, she invested in online bookstore Jamalon and became a board member at Madfoo3atCom, an online payment service.
On a daily basis at her principal job, Halasa mentors entrepreneurs, helping them get funding and make good business decisions. Aside from the lack of investors who embrace risk, Halasa also thinks there’s an education problem. Familiarity with, for instance, the term sheet and legal terminology is very important, and is something that many entrepreneurs lack, she says, which leads to disappointed investors.
During a call with Wamda, Halasa talked about investment opportunities in the region and the missing opportunities for investors, and shared some tangible pieces of advice for entrepreneurs seeking funding as well as investors.
Wamda: Generally, how do you advise entrepreneurs who have received or are seeking funding?
Ranwa Halasa: Prior to receiving investment, there are at least two things to keep in mind:
Adopt realistic initial round valuations: The cash you pocket has a certain runway, during which if you fail to meet your goals, you will be looking at a down round. Nobody wants to give away too much equity especially early on, so entrepreneurs should try to find the sweet spot in the middle.
Take the time to understand legal terminologies: Receiving a term sheet is great, but it is just the first step. You need to understand the basic implications of these terms if you want to negotiate effectively. There are plenty of great free resources for this. I find Brad Feld’s blog Ask the VC and Fred Wilson’s blog particularly useful. Also, the book Venture Deals does a great job simplifying investment terms.
After receiving investment, entrepreneurs should keep the following in mind when spending the money:
Bring in a co-founder who complements your skillset: One of the biggest limitations you will be faced with while running a startup is your own mental energy. Having the right co-founder means you juggle fewer roles and have someone to share the anxiety that comes with entrepreneurship.
Don’t take the ‘lean startup’ model too seriously: It’s one thing to have an initial launch and perfect things as you go along. But launching when your website is practically illegible and customer experience is just an afterthought is lazy rather than lean.
Keep open lines of communication with your board and investors. Nobody wants to spend precious time writing investor reports, so establish a template with all your key metrics and work to push it forward on monthly basis. Investors are a lot more likely to understand your challenges and back you when times get tough if they are part of the progress.
Know your unit economics; be data driven. Although this seems obvious, very few entrepreneurs place enough emphasis on knowing their metrics. If your answers to fundamental questions like burn rate/runway/customer acquisition cost etc. are “let me get back to you on this one” investors are likely to run in the opposite direction.
Wamda: What do foreign investors fail to see in the MENA?
RH: The most important component clearly is the presence of committed, passionate, goal-oriented entrepreneurs willing to take risks to disrupt, build, and scale their business. Unlike Brazil, Russia, China and other emerging markets, MENA is still a nascent space and competition is still very scarce. Because the region is not yet overheated, valuations are extremely attractive. There is still unfulfilled demand for basic services like online shopping and payments, and consumer behavior and preferences are also shifting towards these low-cost least headache solutions.
This is reflected in the figures: Between 40-50% of the MENA population are internet users who are projected to spend $15 billion USD in online purchases by 2015. Businesses spend $300 million on online ads today and are expected to spend one billion by 2017. With a population of almost 300 million in the MENA region who all speak the same language, these figures simply CANNOT be ignored. Yes, there is a long list of challenges and risks that are unique to the region, but with proper screening and understanding of the local environment, a lot of these risks can be addressed and attractive returns are possible.
Wamda: What do you advise investors?
RH: Have long exit horizons, not less than five years. Angel investing at the early stage is not just risk capital; it is also patient capital.
Get involved. So many key resources are missing at the startup stage, aside from just capital. Expect to get your hands dirty and contribute time and energy to fill in the holes.
Follow-on funding will likely be needed. A good strategy is to invest only a portion of your average ticket size at the outset, and reinvest in subsequent rounds if the company proves itself. Not only will you be avoiding “wash down” financing, it also says a lot about a startup to have original shareholders reaffirm their support.
Continue to educate yourself. This is a young market and so many opportunities and business models are still being developed. Unless you’re sector specific, if you come across a deal you don’t understand, don’t just dismiss it. You might be missing out on a great opportunity.
Be fair. Trust is the most important currency in a startup. Both you and the entrepreneur are dependent on each other. Don’t try to squeeze in too much equity for a little money when times are tough. Every company will go through good cycles and bad cycles. It is really important to know that you have treated each other fairly.
Lastly, Halasa stressed the importance of investments in order to create more job opportunities. “One in four young people in the MENA labor market are without jobs,” she says, referencing Wamda’s Research Lab report findings. “According to the Center for Venture Research at the University of New Hampshire, private investors in the U.S. created 274,800 jobs, or 4.1 jobs per investment, in 2012.” She also called on the richest countries in the region to contribute to job creation. “Qatar and the UAE are among the top ten richest countries in the world with a staggering per capita gross domestic product of $100,000 USD and $65,000 USD respectively. Both have massive oil and natural gas wealth and disproportionality small populations. Basically, the capital is there but it needs to be mobilized.”
Ranwa Halasa welcomes any question related to investment and support; you may contact her at email@example.com