This is the second of a series of interviews with top investors from the MENA region, in an attempt to shed light on funding opportunities and entrepreneurs’ resources. Read Part I here.
In mature markets like the US and EU, VCs often operate from a purely profit-driven perspective. However, in MENA where job creation needs are so acute, do VCs see themselves as playing a role beyond being just an investor?
According to Wamda Research Lab’s newest study, Enhancing Access: Assessing the Funding Landscape for MENA’s Startups, roughly 28% of entrepreneurs felt that investors do not provide enough value beyond cash. Conversely, 59% of investors felt that entrepreneurs in the MENA generally lack strategic planning and decision-making skills, while 46% pointed to entrepreneurs not having adequate financial literacy.
What is the best role a VC can play in building the ecosystem beyond its current and potential portfolio companies? We spoke to six top regional funders:
Philip Boignet, VP of investments at the Dubai Silicon Oasis Authority (DSOA)
VC investing only works if it is profit driven. Hence we invest on profit-oriented terms only, without consideration of the potential impact on job creation. Having said that, we know that (pure profit-oriented) investing will lead to job creation as shown in many studies and examples.
The most prominent example in the region is Maktoob/Jabbar and Souq.com (which now employ in excess of 1,000 people). To my knowledge, both investments were done on the basis of generating a return and not jobs.
Issa Aghabi, Head of Investment at twofour54
This depends on the type of VC. Traditional venture capitalists, no matter where they are located in the world, are purely profit driven – and rightfully so. They have a right to their limited partners (LPs) and therefore need to operate as such. In other cases, where the VC does not operate under the standard general partner (GP)/LP approach, they can look at other roles such as industry building and ecosystem development.
Twofour54 operates a strategic Corporate VC and even though returns/profits is a key driver, we also look at ecosystem and industry building as a key for any venture we invest in. I am not sure who else in the region falls under that category, but if we look at the new MEVP fund, they do have support from the Lebanese government and part of their mandate is ecosystem development.
VCs shouldn’t jump on job creation – leave that to governments! Focus on emerging markets with high growth potential, and job creation should happen itself.
Dany Farha, CEO at Dubai’s BECO Capital
Innovative companies that can become monopolistic, make huge profits. That means high wages and high growth, which means continued job creation. This is the best way an investor can help build the ecosystem, by investing in entrepreneurs who through technology and innovation, create new GDP and therefore don’t just disrupt existing players but are accretive in value to the economy.
For example, it is better to be working at Google than it is to start a company that will struggle due to lots of competition, and is not transforming the value proposition to its stakeholders by an order of magnitude.
Ziad Mokhtar, Partner at Egyptian capital fund Ideavelopers
The biggest mistake would be to not be driven by finances as the primary success metric. That would be the biggest disservice we could do for the ecosystem. That said, the entrepreneurs are definitely not as experienced as their counterparts in mature markets. This creates some obligation for us to invest time in increasing awareness and providing mentorship to promising entrepreneurs – sometimes long before making a deal.
Walid Hanna, Managing Partner at the Lebanese Middle East Venture Partners fund (MEVP)
As the VC industry in the region is nascent, our job as pioneers is to make it sustainable. Sustainability requires the generation of profits to our LPs so that they reinvest and encourage other LPs to reinvest. So profitable exits is the number one priority. Now, any growth-oriented company will eventually make money and generate quality and sustainable jobs over the course of the journey. We do not invest in any company based on the promise to create jobs, but our first $10 million fund has created 200 jobs! As investors, we add serious value to our portfolio companies in many different ways, and this translates into knowledge transfer, economic development, and job creation.
Khaled Talhouni, Investment Principal at Wamda Capital
Speaking personally, I think the most appropriate modus operandi for VCs and investors as well as entrepreneurs is to act mostly on the basis of profit maximization, as that is what drives efficiency gains that will make the ecosystem sustainable and ultimately lead to growth and job creation. I personally think that when VCs and other stakeholders in the ecosystem stray away, albeit for altruistic motivations, from profit maximization and a commercial rationale, the result is not, on the whole, positive. If both VC and investors and companies focus on maximizing their returns, I firmly believe that will have the most positive impact on the ecosystem, job creation, and the region as a whole.