In a debate in 2016 Walid Mansour was keen to shed the image of VCs as “cigar smoking fat cats”.
“We have investors that we need to answer to,” he told the audience.
As such, when you have multiple ‘bosses’ you have to be extra vigilant about keeping them happy. One of the ways in which to do that is to be able to spot when a failure might be on the horizon.
Mansour’s firm, Middle East Venture Partners (MEVP), goes small on their investments, typically $100,000 to $200,000, but that hasn’t protected them from making mistakes on their investments.
“Early on in our cycle we had some cases where we funded projects that did not succeed,” said managing partner Walid Mansour. “Companies have to have clear KPIs and road maps and if they deliver on those then we keep funding them.”
Mansour said that of their 15 portfolio companies less than 10 percent of investments can be filed under total failure.
With over 15 years in the investment business Mansour knows that a successful investment is largely about experience but failure is also part. “You can reduce that risk [of failure] but that doesn’t mean it won’t happen. You have to expect a lot of busts.”
Go for the right market. In the early days  we had the idea to invest in a chat app. Maybe a year or two after Whatsapp became visible, because we thought there was an opportunity on Android to do so. The product market fit wasn’t right. It wasn’t received the way we thought it would be. But we still retained a good relationship with the founder so he stayed working with us on different projects.
Know your data. You need the capacity to treat your data well, or derive lessons from it. How you use your customer data or product market data is important. You can do research on your prospective market but it’s theoretical. When you have teams that are at post launch phase, unable to read the data for what it is, then you have an issue. It’s a sign of potential failure. One can step in [as VC] and help in order to avoid the failure.
Learn the warning signs. If the team is burning too much money with no real updates on their KPIs, or [not] keeping up with their business plan, that is a sign it might fail. If you’re unable to prove the product has organic traction in a vertical, then you’re selling the wrong product to the wrong people - it will fail. There could be shenanigans in accounting, or there is a lack of clarity about what the business does, but those are exceptions.
Don’t get emotional. I think that as an investor we try our best to not be too attached. It’s more of the founder’s baby though, and usually people don’t abandon their babies in the street.
Avoid career switchers. Someone who is leaving behind Career A to launch a business in Career B, a whole new industry, is something to avoid. If you know nothing about the travel industry and want to build a competitor to Kayak, chances are we will not invest with you.
Pay attention to the economics. If you’re thinking of investing in a growth company it would be a mistake to not look at the economics of if for a relatively long period, see whether the economics of the business are stable. Try to imagine the business two to three years down the line, potential scenarios, and then if you’re comfortable, go for it. This is especially if you’re writing big cheques.
Don’t invest in hyper competitive markets. People might tell you they have a value proposition and it’s for a competitive market. Now, unless that value proposition is extraordinary and out of this world, it is going to be marginal and won’t work in such a market. Work out the difference between this and real disruption. Right now I wouldn’t invest in ecommerce, in the region the market is becoming hyper competitive. That competition drives costs of acquisition up, which pushes prices down, which break the economics of any business.
You can't predict the future. We're all human beings after all and despite looking out for the warning signs you're never going to know, 100 percent, what might occur for a business.
A turnaround is possible. If you step in early enough, restructure and find capital, then you could potentially save a company, or at least save your investment. Pinpay is an example of a turnaround. A lot is about dropping what doesn’t work and focusing on something else.
Don’t repeat your mistakes. You will always make new mistakes. Just don’t repeat them.
Feature image via Pexels.com