More family businesses to engage with tech and innovation: Techstars’ Jag Singh
Last month, Wamda had the chance to catch up with Jag Singh, managing director of Techstars’ METRO Accelerator for Retail, ahead of Speed@BDD’s fifth Demo Day. METRO Accelerator is a highly selective mentorship program for technology-first startups across the entire value chain of hospitality and retail which invests in companies who offer innovative industry solutions.
An angel investor and startups enthusiast, we discussed with Singh the status of ecommerce in the region, and what is missing to have more of the ‘Amazon-Souq’ success stories, what’s triggering family business to get into the ecommerce action, and what are the rising ecommerce destinations. Singh also advised young entrepreneurs to define a strong culture for their startups, that’s backed on solid teams. He also highlighted the importance of the East as a growth market and as an expansion alternative.
Ecommerce is one of the fastest growing industries in the MENA region, and large companies are becoming more involved with it. How do you assess this business in the region and what does it still need to become even more successful?
What we’re seeing [happen] in the region is actually a standard problem when the big fish is coming in and eating up the little players. But actually what’s underpinning all of that is that you’re seeing an increasing demand [of ecommerce among customers] and they’re [big companies] forecasting a lot more to come. There’s a lot of little players in Bahrain, Dubai, and here [in Lebanon] that have now appeared on the radars of the M&A teams of the larger players, and I think that’s a good thing. But in terms of being able to assess where these companies are, one of the challenges is that it’s such a fragmented market and it’s split around national lines in so many ways. Even though you’ve got two players in Dubai for example, and three in some of the other cities, they don’t necessarily play well with each other. This is giving some of the larger companies reasons to pause primarily down. If you acquire a company, you’re not just acquiring the users and the sales of that company, but you’re also acquiring its culture. What we’re seeing is that lots of these ecommerce companies that started in this region, haven’t necessarily had the time to develop their culture. They don’t really have a brand, and they don’t really have a positioning that could withstand a lot of a huge onslaught of competition. So that’s also giving some of the larger companies reasons to pause.
Do you believe Amazon’s acquisition of Souq.com happened in the right time and with the right amount?
In my opinion, Souq was undervalued when Amazon bought it. I think Amazon bought it for a steal, for a bargain, especially if you compare it [the Souq deal] with Amazon’s acquisition of Whole Foods in the U.S, which was a multibillion dollar acquisition. I think Souq could easily have accomplished a lot more, but at the end of the day, it’s about priorities for both companies. It’s also about where the Souq leadership could go on their own, and how the backing of someone like Amazon could help them grow within the region.
How do you see the race of large family businesses (for instance Al Abbar’s Noon), to launch ecommerce platforms or to become more digitally involved?
I think it’s [the race] definitely going to be sustained, and it might actually grow in the next two or three years. At Techstars, we’re seeing a lot of interest from these large family-run conglomerates to launch corporate innovation programs, to be able to borrow from the DNA of the entrepreneurial world. In my opinion, this is actually a bit of a misnomer, because some of these large companies are actually very entrepreneurial in their nature. There are many [family businesses], and we are talking to quite a few at the moment, and they are all reaching out to us independently because they’ve seen what what we’ve done in the region. Actually, they are at the right stage where they recognize that there may be other opportunities ahead besides running things the way they have been. What we’re also seeing is that as these families grow larger and have multiple layers, hierarchies, and structures, the one thing that they can all agree on is the fact that they want to invest in the future; and the next generation of leaders that’s coming up within these family-run companies are the ones who are driving this forth.
Do you believe technology would be an alternative to the region’s oil dependence? Do you think big investors have taken note, which justifies their interest to fund growing startups?
Absolutely, but it’s not just technology for the sake of technology, it’s also about using technology in their existing portfolios and using technology to enhance their existing businesses. We’re seeing an interest in companies that are not just in the oil business but actually in energy, metals and minerals, and construction businesses, who are now understanding that there are definite synergies and benefits from using digital technologies whether it’s across their supply chain or whether it’s just green technology marketing. The biggest challenge is the perceived political instability. Now I’m here in Beirut, and the things that I’ve been hearing about the Beiruti ecosystem are very much different to what I’ve actually seen: I’m seeing a lot of positive changes in the local ecosystem here, but there is a perceived political instability that tends to harm the prospects for entrepreneurs from this region. [Another challenge would be] the immaturity of the ecosystem linked to everything related to utilities, electricity, internet...so you don’t have an infrastructure for legal investments, neither for mentoring and advice. Across the board, it [the MENA region] just doesn’t have enough investors willing to take the risk for early stage. There aren’t enough advisors and mentors [from the region] who have been through the process of creating a startup. This is the reason why we [the region’s ecosystem] would always like to outsource advice. The problem is that the minute you get the entrepreneurs with an exit, they leave and they don’t stay here. When Facebook went public, they created an IPO that created 4,000 millionaires overnight. Those millionaires went out, they partied, they bought houses, and then they started reinvesting in local startups where they were. We haven’t seen that with all the exits coming out of the Middle East. The problem is with the concentration of wealth within these companies. You don’t have for example stock options: Any small company in the U.S. or in the West will give options to its employees. We still aren’t seeing that here, and employees are still treated as employees. They’re not co-owners or stakeholders of the business; So when the business succeeds, the employees don't really get a whole lot. You have a few people and some of these companies making a lot of money and that's it. You need that money trickling down for the ecosystem to grow.
Which of the region’s countries are more active at the ecommerce and digital retail levels, and why?
I think Bahrain has a pretty interesting story to tell, and we’re seeing some startups coming out of there that are showing the same maturity as startups from Dubai. Even here, in Lebanon, there’s a couple of startups I’ve met that have shown an incredible amount of growth since the point we started tracking them. At Techstars, we track hundreds of thousands of startups around the world, and we’re always tracking their metrics and progress, and there’s quite a few that I’ve seen that are from this region, and that are showing a lot of promise.
How important do you think having specialized industry accelerators is? What would be the added value for a startup to join a targeted accelerator rather than a regular one?
The key thing for any startup I advise when going to any accelerator, whether it’s Techstars or not, is to look at the mentors on the program, the profiles of the people who are involved, and who are giving up their time for free to be involved with the startups that will join these programs. Then look at the track record of the company that’s going to sponsor the accelerator: If it’s an industry-specific accelerator, then you want to be able to partner up with a company that is doing interesting things. A company that is very conservative, that isn’t really looking at disruption or at innovation in any way, is not going to think out of the box, and there will be limited opportunities for the startups that go through those programs to then work in that sphere.
[Choosing an acceleration through a general accelerator or an industry-specific one] is entirely dependent on where the startup is. Industry-specific accelerators are better for startups that already have products, that are a little bit more mature, that have some sort of product market fit, and that need to scale up. General accelerators are better for idea phase startups, as they give you a safe space to try out and test your product.
Besides being a leader at Techstars, you have been an investor in startups for a long time. What would drive you to invest in a specific retail startup? What are the success components that you try to spot, and how would your entrepreneurial flair guide you?
I’ve invested in over 70 startups over the last six years as an angel, and the single criteria I look for is the team and what drives them. I’m always backing the team. Even when I’m referring companies that I’m backing, I always invest in the people. It’s always the founders that I’m backing and it's for life. I want these people at my dinner table at dinner parties. I want to be able to engage with them not just as someone who's going to give me a return, but someone I want to get along with. [I wanna feel if] they have the killer and do they work in synergy. I set up multiple businesses, and I’ve had business partners I didn’t get along with, and also had other business partners who were my best friends and then when we entered a commercial environment we found things to disagree with.
How important do you think events and demo days such as Speed’s Demo Day are, and would they give startups enough exposure to introduce themselves and appeal to investors?
I think these events are extraordinarily important in this part of the world for the startups to gain access and exposure, but it's actually more for the ecosystem to see the results of these startups. The ecosystem who has seen these companies come in before the accelerator, will be able to judge the progress that these accelerators are making and hopefully, they’ll want to get more involved and invest in these startups.
How do you evaluate the Lebanese ecosystem, and what would you advise startups working in ecommerce and retail?
The Lebanese ecosystem is growing rapidly. You’ve got a workforce that is very highly educated that doesn’t cost very much. I think one in six graduates in this region and in Lebanon are in the science and technology fields. That’s amazing. Most Western prime ministers would kill for those levels of education. Almost two thirds of the population is considered a millennial. That’s the perfect testbed for early adopters for these products. So my view for startups is to start local but go global as soon as you can. Think about expanding not just to the West, but also to the East, to everywhere from Iraq and Jordan all the way to Australia. The East is huge and has a lot of potential. In some cases, it’s easier for these Lebanese startups to go into the East than it is to the West. The brand ‘Lebanon’, or ‘Made in Lebanon’ is extraordinarily strong. You just have to go out to the Gulf countries and see all the Lebanese brands that are out there. It’s about having pride in what you do, and being passionate in what you do and then taking it out so that the world can actually experience it.