In December 2015, 500 Startups unveiled 500 Falcons, a regional micro-fund that covers the MENA region (Middle East + North Africa).
Even before launching the fund, which has a target size of $30 million, 500 Startups has made “about 30 deals,” said Hasan Haider, 500’s MENA venture partner.
As in other emerging ecosystems, few investors in the region have experience with startups, but through engagement and networking, Haider’s working to cultivate a deeper bench of VCs and angels.
“One of the things we’re doing with any LPs in the fund is actively looking to syndicate and co-invest with them,” said Haider. “By showing them some deal flow and giving them access to good deals that we’re investing in, we’re hoping that will encourage more people to invest.”
— Hasan Haider (@Hasmanh) January 24, 2016
Last December in Bahrain, 500 Startups produced Premoney MENA, a one-day conference for accredited investors interested in building venture portfolios. Approximately 200 – 300 people attended, said Haider.
To build on that success, “we’ll probably be doing something else within the next year in terms of investor education,” Haider said. “We’re also trying to send people to the VC Unlocked course at Stanford, where we usually have quite a large component of people from the Middle East.”
Formerly a banker, Haider set up Tenmou, one of the first angel investment groups in the region in 2010. “As a result, I know other people in the ecosystem fairly well, so I do get a lot of referrals from other VCs. We have a pretty strong and solid network,” he said.
There just isn’t funding available for these startups, so whoever’s able to expand most efficiently will be the one who succeeds.
Dropping Oil Prices Spur New Investment Initiatives
Since 500 Falcons began building its portfolio, “a lot more VC funds have come online and there’s been some government-led initiatives across different countries in the region aimed at increasing VC and angel investment,” said Haider. The global drop in oil prices has definitely led to “a shift in focus,” he added.
“Countries like the UAE and Saudi realize that they need to shift their economic output from oil to knowledge-based stuff, so they’re starting to look more into startups,” Haider said. Although the sudden collapse of oil prices has led to economic and political uncertainty, “it’s positive, in that it’s shifting the thought process away from oil and manufacturing,” he noted.
Since the shocks to the energy sector, the number of new accelerators and networking events increased sharply, said Haider. “There’s also a bunch more Series A funds that have launched in the last year or so, and there’s more attention from government.”
MENA’s nascent ecosystem is underserved by many of of the companies offering products and services that most of us take for granted. Because Amazon and eBay don’t operate in the region, “I still see a lot of opportunity in ecommerce; payments, infrastructure, and logistics,” said Haider. “We still see a lot of potential in Arabic language content, media, video, and education,” as well as increased interest in hardware.
ShopGo, a MENA commerce platform, is one of the 30 companies in Haider’s portfolio. CEO Mohanad Ghashim is from war-torn Aleppo, Syria but started his company in Amman, Jordan. Like online bookseller Jamalon, another portfolio company, ShopGo also received funding and mentorship from Oasis500, an accelerator created by King Abdullah II of Jordan.
500 Falcons company Wuzzuf, Egypt’s top online job site, received $1.7M last August, one of the country’s largest Series A deals last year. Haider said offshore investment is starting to manifest, but local funders are starting to get into the game.
According to the MENA Private Equity Association, fundraising for 2014 reached 1.2 billion, its “highest level since 2008.” Most funds flowed to the UAE and Saudi Arabia, a reflection of uncertainty created by instability in the region.
Many startups have bootstrapped themselves to profitability and after that, start to go and raise funding.
Founders Seek Sustainability, Not Exits
The differences between MENA and Silicon Valley are myriad, but one of the most striking differences is the way founders approach entrepreneurship, Haider observed.
“A lot of startups that are forming are intended to create stable businesses, whereas in Silicon Valley, they probably will be burning through a lot of money in search of growth,” he said. “A lot of MENA startups are thinking about how to make themselves sustainable.”
Without a strong funding ecosystem, “exits from acquisition are few and far between,” said Haider. “There’s been a lot more in the last year than there historically have been, but it’s still not very much.” As a result, “many startups have bootstrapped themselves to profitability and after that, start to go and raise funding to ramp up growth.”
For example, Haider has seen several startups also act as dev houses and hire themselves out to make websites and apps for clients. “A lot of these founders are creating real businesses that they want to grow and eventually see some exits, but we don’t know when the acquisition activity is going to start picking up significantly in the region.”
Regions like India, the US and Europe often see many companies competing for a share of a single sector, but MENA “is still too young for that kind of overlap,” said Haider. “We have different events and ticketing companies for Egypt, Jordan and Lebanon,” but each one is focused on “dominating their markets, and then expanding onto other markets afterwards,” he explained.
A lot of startups in the region don’t have the money to burn like the guys in SV do, so they’re not spending too much money on extras.
Because MENA founders don’t have ready access to VC, they don’t emulate Silicon Valley startup culture, said Haider. “I think the main thing is that a lot of startups in the region don’t have the money to burn like the guys in SV do, so they’re not spending too much money on extras” like snacks and exercise balls, he said.
At the same time, “working in a startup isn’t a preferred job choice for most people, so most of the work environments are fun, to some extent,” he added. “They’re different to work at than other places in the region, but I don’t think they’re as extreme as Silicon Valley.”
What’s the most obvious difference between MENA startup culture and Silicon Valley?
Why are there so many women in tech in MENA?
“Why aren’t there more women in tech in Silicon Valley, I think is the question.”
“We have a better gender balance in the region than you all do,” said Haider. “Our PreMoney conference we had more female speakers than we’ve ever had in San Francisco,” he boasted. “In terms of the startups we’ve invested in, I think there’s a 50/50 female-to-male founder ratio that we see. The gender issue here isn’t really that big an issue.”
Why are there so many women in tech in MENA?
“Why aren’t there more women in tech in Silicon Valley, I think is the question,” he said. “For us, there’s no bias against women setting up startups,” although a woman’s agency “really depends on which part of the region you’re talking about,” he acknowledged. “Saudi is more restrictive, but even despite that fact, there are still a ton of women entrepreneurs and founders setting up businesses there and building significant things.”
Photo: Dom Sagolla/Flickr