When faced with rejection, entrepreneurs often believe potential investors turned them down due to concerns their ideas were insufficiently scalable or sustainable. Usually, investors’ instincts prove correct, but sometimes they do come to regret their decision not to invest.
In a candid chat with Wamda, Ziad Mokhtar, managing partner at Algebra Ventures, and Tammer Qaddumi, partner at VentureSouq, discussed potential investments they later wished they hadn’t rejected and what led them to say “no”.
Tammer Qaddumi, VentureSouq
“Yes, I’ve regretted not investing in several companies. More than half of deals, you don’t spend too much time on. We looked at certain companies and down the line they did extremely well. We did not follow up at a later stage, for whatever reason. The moment you pass, 99 percent of these companies will look elsewhere for funding.
We did our due diligence and decided not to invest [in certain startups], and these companies did not come back to us for later funding. So, sometimes all this due diligence is not enough. Sometimes, everything boils down to work ethics and a never-stopping attitude. We look at 10-150 deals per quarter. You don't have too much time to get to the true nature of founders. So, you have to make a guess on who has the (necessary) work ethic.
The startups we refused, some of them were too commoditized, too common and already existed in the market. Yet what led them to succeed was the fact that they were better at executing better than anyone else. We thought (a commoditized product) was a negative point, but it turned out to be a positive because it was fulfilling such a basic need.
If you invest one dollar in a company now, (the founders) will come back to you. But if you don’t do that now, they won’t.
Investors can't say yes to every deal to show goodwill, and founders should not take rejection too personally. It should be (the beginnings of a longer-term) relationship, but this doesn’t happen.
It’s hard to say no. You feel awful about turning down a company that’s looking for money. You feel like you owe an explanation. It’s not a fun thing. Entrepreneurs expect some explanation (but) investors feel bad about giving that explanation, haven’t thought it through or would rather not go through this emotional experience.
Investors, if they decide not to invest, they don’t always have a reason. Entrepreneurs, instead of being upset, should think of ways to get more traction, achieve a higher valuation and a better reach. These improvements will tone down the level of ‘no’ and then we will see more transparency.”
Ziad Mokhtar, Algebra Ventures
“Over the last 7-8 years, there were two or three investments that I wish we had invested in. There is no issue in going back and approaching a company again if it remains attractive and, in some cases, didn't survive because it didn't get the proper funding.
Being obsessed with data is definitely essential for building a successful technology startup, no matter where you are. But when investing in early-stage startups, particularly in our region, it can be tricky to rely primarily on metrics and data for the investment decision.
Startups are young companies and they usually only have a few months of performance data. Moreover, this data typically represents the performance of customers who are early adopters and who wouldn't necessarily resemble the greater population the startup needs to attract. A bigger weight goes on assessing the vision and capabilities of the team, the size of the problem they are trying to solve, and the underlying market dynamics.
An exciting startup is one that is entering uncharted territory. Brilliant entrepreneurs are answering questions that haven’t been asked before. That inevitably leads to very unpredictable startup life-cycles, but that's the nature of the beast. That's what creates significant value. As investors, we try to help entrepreneurs identify the questions that will matter most. Their genius is uncovering the answers.”