Arzan VC's humble beginnings [Know your VC]

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This is an edited crosspost from Nuwait.

Kuwait’s first venture capital fund Arzan VC is not keen on missing opportunities anywhere.

Since launching in 2013 it’s invested in 15 startups worldwide, from Russian real-estate portal Idinaidi.ru and Kuwait storage startup Boxit, to Silicon Valley’s logistics company Onfleet.

Yet Arzan had a humble beginning - its first startup went bankrupt.

The learning curve

Partner Hasan Zainal, who started the fund, was approached by Kuwait financial services company Arzan Financial Group in 2013 after selling his food and beverage startup Edge Food. They wanted him to launch a ‘talent fund’ for startups, with a budget to invest $50,000-500,000 in interesting prospects.

“They contributed 100 percent in our first fund to build a track record. We will raise our second round end of October but we’re not sure of the closing number [yet],” he told Nuwait.

He started attending events, researching, and surrounded himself with techies: Laith Zraikat, who is the founder of review platform Jeeran, engineer Ahmed Takatkah and Anurag Agarwal.

Hassan Zainal. (Image via Reine Farhat)

They started the investment process with Russian company Idinaidi.ru.

“The founder was decent, we knew them and we thought they can replicate something [like it] in the MENA,” Zainal said.

However, the team and the structure was very corporate-driven and rigid. The startup went bankrupt eventually not because of the execution, but due to the Russian currency crisis that started in 2014 and left the startup helpless.

Zainal admitted that the fund had to pick bad deals in the beginning because they needed a good number of deal flow.

“We started learning. After a year and a half, we invested in Careem.”

Zainal met with Careem cofounder Mudassir Sheikha and the two built a strong business relationship for six months before Arzan took part in Careem’s $60 million Series C investment in 2015.

The fund has also closed its latest investment deal with Dubai-based food startup Lunch:on for an undisclosed amount.

A global approach with a local vision

Despite being headquartered in Kuwait with offices in Dubai, the fund’s vision isn’t focused on the Middle East and North Africa but the founding teams of startups it invests in must either be from the region or willing to target it.

“Onfleet has customers in the region and the founder is Jordanian,” said Zainal. “We’re connecting him to clients in this region. We can’t add value in the Silicon Valley but we can add value in the MENA.”

The region’s VCs are growing, learning

BECO Capital research shows the number of incubators and accelerators in the region almost doubling, reaching 24 active VCs over the past 12 months.

Zainal said now the investment scene was dominated by supply and demand - the VCs were now doing the chasing rather than the other way around.

“The dynamics of this industry will change in time,” he said. “ [For example] we approached Careem.”

The process of sealing a deal would also change, as delays caused by startups not knowing their financials, or VCs not understanding the startups’ dynamics were bound to improve.

“We led [an investment in] Mejury, which was a very different experience for us from co-investing. It took longer than our previous deals, because we were very thorough and had to draw up and negotiate all the terms, which all the other investors in the round followed”.

With Lunch.on, it was very quick because they already had terms from a lead investor, and the company was still very early stage, clarified Zainal who stressed on the fact that the delay is not always from the startup's end.

Both sides are learning, and greater understanding about each other’s needs makes things more efficient.

Feature image: Kuwait city. (Image via Vimeo)

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