Communication key to soothing rocky VC-startup romance
Part of a maturing ecosystem are the growing pains that go along with it.
As startups continue to pop up, so do VC funds, but like any teenager going through puberty, the synergy is just not quite there yet. Such is the state of MENA VCs and startups.
The goal of Endeavor Jordan’s fourth annual Dealmakers event was to elevate the conversation between startups and investors on how to collectively and collaboratively improve the region's small ecosystem.
“Funding remains a key challenge that entrepreneurs face today,” said Rasha Manna, managing director of Endeavor Jordan. “For this reason, we made sure that this year’s program addressed funding issues during the workshops, speeches and panel discussions. Having prominent entrepreneurs come in and give personal accounts of their own journeys was especially beneficial.”
But it was also a treasured opportunity for the big bucks in the region and the new business owners to air their grievances about each other, and their peers.
“MENA is such a harsh region, economically, geographically, and culturally. We tend to think there is not enough success to go around, or that the pie is too small so if you take a piece of it, then it’s somehow coming out of my own slice,” VC Laith Zraikat, senior investment manager at Arzan VC, told Wamda on the summit sidelines.
In a small ecosystem like MENA, it is critical that VCs work together to jointly build up the credibility and strength of the startup scene. Last month, Tamer Azer of Egypt’s A15 investment fund advocated for a VC association to unify investors.
Some ideas expressed in his oped, such as more data sharing, were reiterated by various VCs in Jordan.
“With a relatively small but very rapidly growing startup ecosystem compared to other regions, it’s vital we share knowledge among one another and co-invest, as iMENA Group has done with many regional VCs in various local startups,” said Elias Ibrahim, vice president at venture fund iMENA Group.
Another way investors can support each other is by sharing the success stories of their peers on their social media platforms.
“You will not win something unless everyone wins something,” said Zraikat.
You want me to sign what?
In a conversation between investors and startups throughout the event and on panels, investor terms were at the top of the list of frustrations.
Among entrepreneurs, there was a confessed lack of education around what terms mean practically for their businesses.
“None of us know how these terms affect us. [The term] ‘drag along’, for example. None of us have been dragged along and don’t think many in the region have,” said Khalil Shadid, founder and CEO of Reserveout in a panel discussion on fundraising in the region.
Some startups believed VCs used the terms, as well as delays in signing and delays in transferring funds, as a means of imposing power over the young companies.
“A lot of the terms for investors [in MENA] are about having more control… [At first] I didn’t know any better, I just signed it,” said Mudassir Sheikha, cofounder and managing director of Careem, during his keynote talk at Dealmakers.
Bad or complicated terms become an impediment to smooth funding rounds with other investors in the future. A word of advice from Sheikha to investors: don’t be so petty. Either VCs are going to make large amounts of money, or nothing at all, so arguing and delaying over small increments of funds is just not worth it.
Tamatem CEO Hussam Hammo said honesty and transparency can help save months of back and forth with investors who in the end, don’t deliver.
“Investing in general takes a long time and you don’t get a proper yes or no early on. You can go for months, everyone telling you ‘yea! We’re investing! 100 percent. You’ll have the full amount in two months.’ And then after two, four, six months, nothing is happening. There was never even an internal conversation about it,” said Hammo.
The lack of relevant legal support in the region was also a problem, said Jamalon founder Ala Alsallal. He suggested getting a foreign advisor. Lawyers in Silicon Valley, for example, understand the startup culture and some offer to work for free until the startup gets funded.
“We don’t have lawyers in the region that would accept to work without pay until you get funded and close the round,” said Alsallal. “We see a huge gap between the legal infrastructure in Silicon Valley and the one in the region.”
Mergers and acquisitions
At a private roundtable of around thirty MENA VCs, many agreed that in order to grow and strengthen the ecosystem and disrupt traditional industries, entrepreneurs needed to swallow some pride and join forces with their competitors.
“The market is small, there are enough barriers and you don’t want unnecessary competition,” said Zraikat.
“Like entrepreneurs need some mentorship around the basics of startups and fundraising, now they need mentorship around growing companies. It’s not just about growing your venue, or growing your customers, but it’s about acquiring talent and companies.”
VCs, with their powerful personas in the region, need to encourage competing startups to merge as a condition of their investment. For those startups creating Arabic online video content, for example, merging or one startup acquiring the other, could potentially serve as a real disruption in television and break broadcast company domination in the region.
“There is a culture of sharing knowledge [in Silicon Valley] that we lack in our ecosystem. People genuinely want to help without anything in return,” said Hammo during a panel discussion.
The upside is that Americans and Europeans aren’t yet aware of fully aware opportunities in the region, Hammo said, leaving it an open playing fields for local companies to target, experiment and hopefully scale.
For Jamalon, scaling to other countries means adding talent to their base in Jordan rather than opening up new offices in the GCC, where labor is more expensive.
“Its cost cutting and investors love that,” said Alsallal.
“We criticize the regional ecosystem because we want it to better… We’d like it to be easier for the entrepreneurs that are upcoming in the region.”
Feature image via pexels.com