UAE startup Melltoo Marketplace recently closed a seed round of $205,000, led by Turn8, Dubai Silicon Oasis Authority, Womena and angel investor David Pirrie. The company will use the cash to launch its payment and delivery service.
Husband and wife cofounders Morrad Irsane and Sharene Lee launched Melltoo in March of 2014, and told Wamda in September that they were on the hunt for investors. Unlike other listing services like Dubizzle, Melltoo is aimed at people buying and selling smaller items that might otherwise get lost in other listings, like laptop computers, phones and books. The entire transaction is fulfilled through Melltoo’s app, from the posting of the item to payment and delivery.
Growth was slow in the beginning, Lee said, with about “a thousand downloads” after the first week. “Today we’re getting about 700 new users per day.” Since then, their team has grown to 16, and is spread out between the UAE, Tunisia, Algeria, India, Pakistan and France.
Wamda spoke with Irsane and Lee about what they learned in the the process of raising their seed round.
Wamda: Why did you describe the process of raising this round as “long and painful?”
Irsane: You don’t see many excellent business models and execution here in the region. One reason is inexperienced entrepreneurs, another is a lack of funding. How many startups are doing it [executing a good business model] here in the region? It’s a very young ecosystem so the risk is really high. Investors shy away. The investors have a greater chicken and egg problem than we do [as a marketplace]. They don't have good startups so they don't invest. But struggling startups can't become good because they don't have funding.
Lee: The youth of the ecosystem and inexperience of startups…investors are as inexperienced as startups. Investors are risk averse. A startup has no revenue plans but they [investors] want to see revenues. This actually makes sense because investors are aware that money is difficult to raise, so a startup with revenues is more likely to make it until they become big enough to raise the next round of funding.
Irsane: Our first idea was to grow our user base and not be bothered by making money. We soon realized the region is not up for that. They [investors] want to see revenues. So our goal is to reach profitability as quickly as possible. But even when we do, we will need money when we want to scale.
Wamda: You have said that you don’t rely on Google and Facebook for user acquisition. Why is that?
Irsane: We didn’t know the difficulty of getting our product to market [in the beginning]. We said we’ll build an app and everybody will download it and it will just spread virally. Then we realized we need money to advertise. But paid ads are not sustainable. Many startups get money from investors to spend on Google ads. But when they run out of money, they also stop acquiring users.The best thing to do is have a strategy to grow your user base organically.
Lee: We haven’t scaled up our marketing [budget], despite now acquiring 700 users a day from 10-20 downloads in the early days.
Irsane: We have content. We know that content is king. We create two to three pieces of content a week. We tell you how to delete your info [if you’re selling a computer or phone]. We tell you how to clean it [before you list your product]. Then we use an aggressive Google app strategy to acquire users. We reach out a lot to the local community. You have to let go of Google and Facebook ads and think ‘how do I get my users?’ You can use them [Google and Facebook] but try to avoid paying them, because this isn't sustainable as a startup with limited funding.
Wamda: What do you plan to do with the cash you just raised?
Irsane: Our next milestone is to launch our payment and delivery service which allows buyers and seller to complete the entire transaction in-app. It will be very simple and user friendly, just a few clicks. Think of Uber - that’s the feeling you should get.
65 to 75 percent of our business is in the UAE. Our first city is Dubai. We can deliver anywhere in UAE. Our next move is to Riyadh, then to Doha. Our fastest organic growth is in Riyadh.
Wamda: Do you have any advice for other startups looking for a first round?
Irsane: The most important thing is to build a product that solves a problem. Do things, make it happen and everything eventually will follow.