Smart money is good money [Opinion]

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Recently I was involved in a debate: startups versus venture capital. One particular moment between Fetchr cofounder Joy Ajlouny and myself got everybody talking. Wamda has posted some footage here. If you haven’t seen it, go watch it.

“I work 18-hour days, I’m lucky if I get two hours of sleep a night, I have to continually raise money, and build a company, and hire talent. To babysit the VCs, guys, I don’t have the time,” said Ajlouny at the STEP 2016 Conference in Dubai.

“Well don’t take our money then if you’re bothered by our questions,” was my response.

Ajlouny is absolutely right that founders, not investors, are best placed to build their companies and any distractions destroy value for both. But when smart money asks the right questions at the right time, everyone can benefit.

‘Smart money’ is funding that comes with expertise or assistance.

So-called ‘dumb money’ comes with no assistance at all or, even worse, with strings attached. Our portfolio partners Pinpay, Anghami and Fadel Partners are all reaping the benefits of choosing smart money.

Let’s start with Pinpay, a mobile bill payment company, which we’ve been with since 2009. Today it has 60,000 enrolled users in Lebanon with Bank Audi, Bank Med and Fransabank, and has just booked its largest deal yet – a partnership with Egyptian payment pioneer Fawry. There’s more to come.

Smart money is good money. (Image via Widewallpapers.net)

But three years ago, this scenario was a long way off. Pinpay was facing bankruptcy. It delivered a limited set of transactions that no longer offered a clear growth path. Pinpay urgently needed a restructure to survive.

Middle East Venture Partners managing partner Walid Hanna took over as interim CEO. We stabilised the company, paid its dues and refunded it. We found a new chief technology officer and revamped the platform from scratch.

With a new business plan in place, MEVP then brought in chief executive Omar Bader to execute the strategy. He has done a magnificent job.

Pinpay’s story shows how smart money can help a company reclaim its future. But VCs have the strike the right balance between offering counsel to founders when they need it and letting them do their job when they don’t. And when you consider that some startups have an unfavourable view of VCs before they even sign, it’s easy to see how the relationship can get complicated.

Elie Habib, cofounder of music streaming service Anghami, had a dim view of smart money by the time I met him. The VCs basically said they wouldn’t hand over any money until he’d paid for hugely expensive music licensing deals – a perfect Catch-22. MEVP said yes and once we did, Anghami took off very quickly.

An outsider looking in might think Anghami just needed money, not smart money. While we don’t want to take anything away from Elie and Eddy Maroun, who built Anghami in every way, smart money played more than a passive role in their success.

Anghami didn’t have a CFO or CMO when they came to us. We lent our resources to get their financial house in order and helped recruit a marketing boss. We also placed one of our team members with the CEO to assist with strategy. Anghami’s deals with Choueiri Group, MBC, Pepsi, Mobily and Virgin Megastore Saudi were all either instigated, or assisted, by smart money. 

With their financials, c-level management and deal book strengthened, Anghami were a much more confident company heading into their next round of fundraising, which our team was also intimately involved with.

Habib told me recently that they really needed it. “Because we were really small guys pitching a big room of people worth hundreds of millions. We were telling them we could do something you could not do. Having smart money on board really helped.”

Tarek Fadel didn’t need that kind of help when we first approached him with a Series A offer. Fadel Partners had a flourishing intellectual property and royalty management business self-funded by their Oracle-product consulting business. They weren’t going to run into some of the same headaches pitching to VCs as Anghami.

Fadel has a US presence, so an American VC presentation tour was an option, that would bring with it US connections. But it would also eat through three to six months. They chose to take a local firm and saved the time. But Fadel has told me he’s been “pleasantly surprised” by our US connections.

We introduced Fadel to Lebnet, a Silicon Valley community for Lebanese-Americans, which opened up paths for partnerships with technology firms like Adobe and Salesforce.com partner Apptus. It also got them speaking engagements to increase Fadel’s visibility.

Partnerships are also opening up with Thomson Reuters’s IP and science division, and Fadel’s expansion into Europe, particularly London, is also being enhanced.

“One of the nice things about MEVP is they’ve put together a nice, well rounded investment committee,” Fadel shared with me the other day. ”People from all different walks of life within the technology sector. Both operations as well as ex-investors.”

Knowing when, and indeed how, to help a start up and when to get out of their way is the art of smart money, and sometimes we get it wrong. But we have to keep asking those questions, because when we get it right it leads to a better outcome for everybody.

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