Open the gates

Here’s the thing – entrepreneurship is the hot topic in the region and thankfully, governments and institutions have caught on. Whereas small business lending was the primary method of involvement from governments in the past, today we are seeing much more in terms of training programs, the introduction of new licenses and structures, as well as funding efforts.

Having said that, in order to encourage growth in the sector, there needs to be a favorable environment for venture capitalists to operate. There are positive initiatives being announced in an effort to create such an environment. For example, Bahrain Development Bank has recently announced a $100m venture fund of funds. In the UAE, a new venture capital regulatory framework has been put in place to guarantee a standard of governance for the asset class, thereby increasing its competitiveness and attractiveness. Saudi Arabia, on the other hand, is exploring different platforms to invest in VCs and attract them to the market.

But where do we stand and why is this really important?

Government funding programs vs. VC funding – what difference does it make?

While most government funding programs are created because of social and political reasons, VC’s are founded with the aim to generate high returns to their Limited Partners. Due to this critical difference, we conduct our business in very different ways.

VC’s are crucial for the success and development of every entrepreneurial ecosystem. Like any other industry, if competition is there, the venture capitalist will be pushed to develop and innovate in order to differentiate themselves from other players. Startups will ultimately receive a better “service,” and will see that the financial support is secondary to the added value provided by VC’s. Moreover, founders will be able to shop between VC’s and choose the right partner. Over time, VC’s will start to narrow down their segment focus to achieve expertise and will recruit high caliber team members and experts to ensure competitiveness.

With that in hand, strong VCs will be able to intelligently filter and invest in top startups with solid teams and products. At this stage, great entrepreneurs have been funded while VC’s are continuously upping their game. This environment will attract more high-potential entrepreneurs to pursue their dreams and the ecosystem will flourish.

Going back to our topic, If governments want to take on the VC role, who will they compete with? With the absence of LP’s, how will their performance be evaluated? Their teams probably would not have a carry incentive scheme, so how can we gauge commitment? Would fixed salaries of team members push them to select the best startups or focus merely on the value deployed and the number of companies funded? How will procedures, layers, and bureaucracy affect responsiveness?

Alright, so what can be done?

All of us ecosystem participants (VC’s, founders, governments, etc) have the same ultimate objective of building a thriving ecosystem, but each one of us has a different driving force. We need to work towards meeting our individual goals to collectively benefit the overarching goal for the government: job creation, economic development, and progress. In order to achieve that, I believe we need to see the following:

1. Define roles: there are many players in the ecosystem and everyone’s role is very important, however, we fall into the trespassing problem. This problem will only be solved if we can define each player’s role and be disciplined about it. If everyone is dedicated to their roles, an ecosystem can flourish efficiently with fewer obstacles ahead.  Government roles can include ensuring proper legal structures and protection are in place as well as reforming taxation and labor policies.

2. Say no to direct funding: I am a strong believer that governments should not fund startups directly. They should act as enablers and regulators. Why? Simply, they do not have the required DNA which can match that of a specialized investor. In addition, government officials are influenced by politics and many other social aspects all which influence their decisions and vision.

3. Collaborate: GCC governments are working in silos when it comes to solving VC’s and entrepreneurs’ challenges. Collaborations between governments will speed up the process,  allow better knowledge sharing and bring all countries up to the same level.  I take part in many of these discussions and there is a significant difference between where each country stands. Will we see the day where entrepreneurs are allowed to expand cross-border and operate in the region more easily, allowing them to grow their businesses and attract foreign investment? We sure hope so.

 

TL;DR (too long; didn’t read)

Supporting the booming entrepreneurial ecosystem means also creating a favorable environment for VCs. Regional governments can get on board with this by focusing on empowering entrepreneurs, leaving funding to investors, and collaborating with each other to create a thriving ecosystem.

 

Read the whole ArzanVC July newsletter here

April: It’s been a while

April: It’s been a while

 

Hey folks,

It’s been a loooong time since we sent an email to this list, but we thought it was time for something fresh.  If you never want to hear from us again, you can unsubscribe at the bottom. We won’t be offended.

Spring at AVC has been full of action. We were at the STEP Conference earlier this month, and saw cool startups, talks and speakers.  It’s always great to see familiar faces and feel the jolt of energy at the event.  We’ve also been hopping around the GCC presenting our upcoming fund which we’re excited about.

MENA Payment Solution Providers

Who is going to survive?
How can they differentiate?
Join the discussion at #arzanVCchats

On the radar

While I was doing my MBA, I worked with an intellectual group (Marco Di Mare, Alex Pham, Guillaume Pigot, Huang Yaping) on an extensive research project titled “Blockchain and it’s effect on the Financial Sector.” Of course, I won’t try to fit all that in this newsletter, but I’d like to share some interesting bits as well as our analysis at ArzanVC.

BlockchainBlockchain is a technology to run distributed ledgers that can reduce counterparty risk while boosting transparency and consistency.  Using an analogy:

(Sideways Dictionary)
The first application of Blockchain was Bitcoins. Innovations in the technology enabled potential applications in the financial sector that bear promises of disruptive potential.
 Long story short
Based on a World Economic Forum survey, many bankers believe that by 2025 Blockchain can reshape finance and banking. According to experts in Santander, banks will have $15bn to $20bn in annual savings in bank infrastructure costs from distributed ledgers. Hence, retail banks have started to experiment through VC investments and pilot projects.

Foreign Retail banks are dipping their feet

The impact is gonna be YUUUGE
These are the four major areas in which the technology has been used and is impacting financial services, firms and institutions. The most relevant applications and the players pioneering them are highlighted:
 

 

And what about MENA?
A few banks based out of Dubai, such as Emirates NBD, are partnering with other larger banks to launch the first pilot Blockchain network.  Small MENA banks should consider testing and partially implementing Blockchain applications in their operations. This will create a competitive edge and will give small banks the first mover advantage by allowing them to engage with large international banks via the Blockchain network. We’re keeping an eye out to see how things evolve.

4 things you’ll want to read

If you haven’t read Jeff Bezos’ Annual letter yet
Venture capital did not start in Silicon Valley
Who rallies your team?
Entrepreneurs: 3 tips for getting a sale unstuck

Family postcard

Is it lunch time yet?
Lunchon is solving the ordeal of ordering lunch at work with options from 100s of restaurants in Dubai, and they are killin it! Where do you think they should operate next Tweet @lunchon_UAE

If you’re thinking of supercharging your voice calls…
Bellgram launched its integrated app to the public in February, after successfully beta testing with 5 customers. Our productive friends at Onfleet and Lyft have joined too.


And speaking of productivity…
Forget deciphering through your meeting scribbles notes, Wrappup, the meeting based productivity app, had its big reveal in March

Welcome to the fam

We’d like to introduce you to Armada, our latest investment and member of the AVC family.  Led by CEO & Founder, Ahmed Al Obaid, Armada is is a marketplace for last mile delivery services that utilizes a crowd-sourced fleet of private cars and freelance drivers.

Say hi to Ahmed

 

Yes, we realize that the delivery industry is really crowded. However, it’s crowded with many delivery companies who own their fleets.  Furthermore, from about 250 granted licenses in Kuwait, only around 50 companies are active. This is due to their inability to scale and the high capex requirements involved.  Here is where we see untapped value.  Armada’s marketplace offers a solution to the delivery companies’ problem, since idle fleets will be optimized and new “business/income” is granted within Armada’s marketplace.

But it doesn’t stop there…

Armada’s marketplace will not only be focused on food, but also can cater to pharmacies, groceries, retail stores and more.

Here’s Laith and I after a long day of fundraising meetings in Saudi this week. Good times!

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