June: Reap the seeds you sow

June: Reap the seeds you sow

Hey folks,

Eid Mubarak!

Every year we hear about Ramadan being a slow month with barely any activity.
This Ramadan was surprisingly busy in the region and for AVC as well, and it was refreshing to see the ecosystem bustling un-caffeinated 🙂

On the AVC end, we’re so excited to tell you about a new offering we have in the works, and our latest investment, POS Rocket. Hope you all have a great Eid break and start to the summer holidays!


MENA EDTech Startups

This month, we looked at the EDTech sector in MENA. EDtech companies focus on designing effective academic instruction using technology, media and learning theory.  Our map illustrates a variety of categories in the market where we are seeing an increase in number of and growth in regional startups.  We found a large number of startups focused on creating educational content and software for young learners in Arabic, as can be seen below. In addition, companies offering platforms for tutoring and providing supplemental courses linked to public curriculums are increasing, indicating the dire need for quality educational content and delivery.

Overall, with the increase in internet penetration and new forms of media in the region, there appears to be huge potential for further innovation and growth in this sector.

Where are the gaps in MENA edtech?
Can it scale across the region?

Join the discussion at #arzanVCchats


Reap the Seeds you Sow 🌱

Close your eyes and imagine this….

A passionate individual has a hunch for a product that could potentially solve a big problem that people face in the MENA region. It’s been occupying his mind for some time. He can visualize the world with his product and what it could become.  It’s brilliant and he’s fired up. He puts in his time and money to work on bringing this rocking idea to reality. He diligently researches the market and convinces others to join him in achieving his vision. Together as a team, they work day and night for 8 months to produce an MVP.  After much trial and error, their MVP works and they high-five each other ✋, but sadly, they realize they’ve run out of money.They decide to raisea small amount of funds to enable them to test and build some traction. With great enthusiasm, he knocks the doors of family and friends but realizes that some turn out to be too expensive. He’s stunned. Some have asked for 40%+ of the company! Why? Because the company has a tiny capital base, no assets, and is not a “profit generating company!” The disappointed founder, clinging on to his dream, decides to explore his investor options. He has meetings with corporates & large institutions, but ironically, they send him job offers instead of checks! Thanks, but no thanks.

Unwilling to give up on his vision, he pursues regional VCs, but they (including

Arzan VC) worry about the risks and ask the founder to come back once sufficient traction is reached.That said, the founder is left with three difficult alternatives: accept an unfair deal and regret it for the rest of his life, become a career person, or bury the idea once and for all.  Buzzkill.  The sad thing is this idea could have been Souq,

Careem, Carriage, Talabat …etc, but the difference is that it did not get it’s real chance to get off the ground.Sound familiar…? We’re sure it is.

Moral of the story

If we do not plant seeds, we won’t see trees! Hence, if no Pre-Seed (MVP is available but no traction) investments are made, no sufficient Seed and Post Seed deals will be available. This also means the $100mn+ VC funds that are currently being raised won’t see adequate deal flow.

This has been on our mind at AVC & here’s what we are going to do about it…

We are taking the initiative to invest in the seeds of the ecosystem. This fall, we are launching a dedicated Pre-Seed platform to turn this story around.

How it works
Startup founder(s) will log onto our Pre-Seed platform, tick simple criteria boxes, upload a pitch deck, hit submit and track our investment process. Within two weeks the founder will receive a decision. If approved, s/he will receive $25,000 and all legal/admin documents required.  The founder will then need to raise at least another $25,000 (from angels) based on our standard terms. 

Wait – that’s not it! 
Once you’re in, you’re in! We will continue funding up to Series A and the ticket size will vary per stage. Sweet.

There’s more, but we’ll keep the other perks as a surprise for you once we launch!

Our investment criteria
We are looking for the basics:

🌱 Minimum round of $50,000
🌱 A technical co-founder (available or joining)
🌱 Focusing on a Large market
🌱 Operating in a legal entity

We will invite other angels/VC’s to co-invest, provide feedback and interact via our platform.

too long; didn’t read

We are launching our in-house Pre-Seed Platform to invest in companies at MVP stage in September 2017.  Companies that meet the investment criteria will receive a decision (within two weeks!), followed with $25k in funding + required documentation.We would love to hear your thoughts.  What would you like to see on the platform? What capabilities/functionality would make the process for you smoother as a founder? Investor?  Hit reply and let us know.

5 things you’ll want to check out


Family Postcard

Ramadan Careem

Careem raised $150m to close out its $500M Series E round. Also, Careem launched operations in Palestine and is working towards improving mobility and economic growth in the country.

He’s got game

Tamatem Games CEO, Hussam Hammo has been selected as an Endeavor Entrepreneur. Tamatem also got covered in Inc Arabia 👏👏👏

When nobody wants to be notetaker

Use AI to summarize your meetings with the Wrappup Slackbot and get the meeting notes in Slack! It even got featured on Product Hunt with 200+ votes!

Here comes the jam

Jamalon, the largest online bookstore in the Middle East, has been featured in Forbes.

They’re also expanding their tech team and are looking for an android mobile developer (senior), front-end developer (senior), UI/UX designer (senior), and 4 PHP back-end developers.  Applicants can send their CVs to jobs@jamalon.com


Welcome to the fam

We’d like to introduce you to POSRocket,  our latest investment, and member of the AVC family.  Led by CEO, Zeid Husban,  POSRocket is a cloud-based point-of-sale platform in the MENA region that improves customer discovery and intelligently increases sales. Their target audience is small to medium sized businesses that struggle with growth as well as retailers not currently using a POS or inventory management system. POSRocket supplies merchants with a cloud-based POS platform that consists of a software and a hardware component (iPad, cash drawer, and receipt printer).


Say 👋 to Zeid

Zeid is a second time founder; his first startup, ifood.jo was sold to Yemeksepeti (later acquired by Rocket Internet). For POSRocket, Zeid brings relevant industry experience in the food industry.

But not just the food industry…
POSRocket is also working with other types of businesses such as retail outlets, services and entertainment industry.  The opportunities for growth are endless.  We are happy to announce also that Arzan VC is leading this investment round.


On this festive occasion, I’d like to wish you happy eid to you and your loved ones!

Keep it real,

Hasan Zainal

May: Understand your CAP table (our two fils)

May: Understand your CAP table (our two fils)

Hey folks,

We’re back with this month’s newsletter and have some fresh scoop. We’ve been talking to a variety of interesting startups this month while continuing with our fundraising discussions for Arzan VC II.

Earlier this month we were invited to participate in Mix N’ Mentor in Kuwait and it was awesome to meet so many talented entrepreneurs. Although there were primarily non-tech startups, we are starting to see an emergence of some in Kuwait.

 

Anurag with the energetic group he joined

 

With multiple tabs open and endless distractions, if you don’t make it to the end of the letter, we’d like to wish you a happy Ramadan from the Arzan VC family 🌙

MENA Delivery Startups

 

The food delivery space is massive in MENA. There’s a lot of overlap ranging from food portals to one-store delivery services. We’ve focused on multi-vendor delivery companies.

Who do you think should be on here?
How can they differentiate?

Join the discussion at #arzanVCchats

 

Understanding your cap tables: our two fils

 

We see tons of startups at ArzanVC, and we tend to see common pitfalls amongst them.  One of those is in the CAP tables of startups.  Since AVC Venture Partner Anurag works closely with these startups on legal documents before we do invest, I asked him to share his experience and this is what he had to say…
Based on the deals we looked at so far in 2017, we can tell you that one in every three startups in the MENA region had shortcomings with its shareholding structure. Founders in the region seem to underestimate the importance of having a prudent shareholding structure to an alarming extent. Here are 3 common mistakes we have found in many startups’ CAP tables:
  1. Founders give up too much equity to early stage investors
  2. Founders’ shares do not vest
  3. No or limited employee stock option plan for key members

Let’s take a closer look…

 

1. Founders give up too much equity to early stage investors

In all the shareholding structures that we saw, the founder already owned too little equity at an early seed stage. Having this structure as it currently exists is a complete non-starter. While you don’t necessarily need to have 100% of the equity, you as a founder need to have at least 75-90% as you head into the first round of institutional funding.  For example, here’s an illustration of what the CAP table looked like for one company we evaluated in Jan’17:

In the above instance (Actual CAP Table), the founder owns almost nothing at the time of exit due to the dilution in multiple rounds. Think about it: what would motivate the founder(s) to continue working for this startup? How would future investors look at such a situation? What impact would it have on future funding rounds?

On the other hand, in the revised cap table, the founders along with the key employees (through ESOP) own 70% of the company after the angel round of funding. Starting with this ownership structure guarantees that the founders along with those key employees own a substantial minority at the time of exit, motivating them towards that goal.

Why do we see a lot of the first kind of cap table? First, a lot of founders are desperate to raise money from any investors. Second, investors -mostly angels- are partly to blame for this as they demand high equity percentages (“I need 40% for $100k”) in a company rather than giving money to founders at fair valuations (“I would invest $100k for a post money valuation of $500k”).

To remedy this issue, founders need to always raise money based on fair valuations, keeping in mind the dilution effect.  If an investor asks for a high equity stake, DON’T TAKE THE MONEY.

 

2. No vesting of founder’s shares

Any startup that wants to build a successful enterprise should vest its equity over time, particularly for founders and key employees. A carefully thought out and deliberate vesting schedule can prevent difficult conversations with investors or, worse, lost equity in the hands of departing team members.

Very few companies we evaluated had founders’ shares vesting. It is a very important aspect for a startup as it addresses 3 main issues – 1) keeping the founders enthusiastic and motivated, 2) whenever a founder decides to leave, you can fill his position with a new founder and give him the unvested stake of the leaving founder and 3) investors and other stakeholders see it as a sign of commitment; the founders want to get their due share only after achieving something.

Note: The legal aspect of vesting varies significantly from country to country. Consulting a lawyer is generally a good idea.​

 

3. No employee stock option plan (ESOP) for key members
Stock option plans are as important as vesting because in every startup, a founder will have to hire key, high caliber team members.  At an early stage company, founders seldom can match or pay more than industry standard salary to these members. Realistically, the only way a startup can keep these key employees motivated is through stock options (also vested over time).

Ideally, a startup should have a minimum of a 10% stock option plan (going up to 30% in some cases) in their CAP table before the first round of funding and the ESOPs can be distributed over any period of time.

Lastly, we believe the progression in case of most startups would be something like this. The infographic is a general example and in no way represents 100% of the actual scenario a startup would go through. It gives you a good idea on how a founder should distribute equity in his company over the period of time.

(too long; didn’t read)

Managing your cap table and equity options is not easy, but it is not something impossible with the right research and planning. Seek advice from investors, lawyers, and other founders. A clean Cap Table and solid stock option plan can be worth more than a million-dollar investment alone.

What challenges have you encountered while constructing your Cap Table?Tweet us at @arzanvc

4 things you’ll want to check out

Smart founders learn what didn’t work for others (also here & here)
Build the strangely familiar
Stop obsessing over the elevator pitch
An excellent piece on the rare hockey-stick growth model

Family Postcard


Storage just got even better

In addition to its tech-enhanced blue boxes, Boxit now also stores customers’ own boxes, suitcases and large items like fridges, TVs, beds & sofas.  Time to declutter!

They be killin’ it

Tamatem released its new car drifting game and hit number 1 on the Saudi app store in less than 24 hours. Yaaaaas.

Only on your phones guys, please

 

The big reveal
MenaCommerce has rebranded to Cognitev and you have to see their fantastic website 💯 Cognitev uses artificial intelligence to understand the meaning of content across the web and enhance user experiences. Think high-quality traffic, targeted ads, and more.
Everything in moderation, friends. You know what I’m talking about.

Happy Ramadan!

Keep it real,

Hasan Zainal

Data Scientist / Business Intelligence Analyst at LUNCH:ON

Job Description

As a Visual Designer, it is your responsibility to make people “see” and “touch” the beauty and simplicity of LUNCH:ON. To do so, you will be working closely with our Front End Developers, Marketing, Business Development, and Operations team to design an elegant, smooth and intuitive experience.
The core concept of LUNCH:ON is to provide absolute convenience and simplicity, and this philosophy will be a part of every single step of user interaction, through your deep understanding of UI, UX and strong skill in implementing visual effects and illustrations.

In an extremely fast-moving environment, you will be designing features, illustrations and pages everyday that will be built and instantaneously used by our users who will provide immediate feedback for you to collect and analyze.

RESPONSIBILITIES
Assist in designing the new front end and functionality improvements of the LUNCH:ON platform.
Contribute to and produce visual designs, patterns, illustration and assets to bolster the brand.
Improve the admin and restaurant-facing web panels.
Contribute ideas to help simplify the software-operations link.
Become well versed in the production cycle, offering thoughts on improvement, and taking on new duties wherever possible.
Work with our marketing and sales teams to produce a variety of outward-facing marketing material, such as flyers, pop-ups, landing pages, email templates, display ads, presentations, beautifully-styled data visualizations, branded products, event signage, etc.
Produce visual design style guides for each product and maintain them as they evolve.
Add beauty, elegance, creativity, and boldness wherever needed.

REQUIREMENTS
Experience designing for web and/or mobile experiences.
Strong portfolio showcasing web and/or mobile design.
Good understanding of design principles and fundamentals such as knowledge of composition, form, shape and color, layout, typography.
Proficiency in Adobe Creative Suite, especially inDesign, Photoshop, and Illustrator is essential.
Knowledge of current web and mobile design trends.
Enough passion and vision to push for beautiful designs, but enough humility to recognize when the tradeoffs favor usability or engineering.
Excellent communication and collaboration skills – you’ll need to convey and debate design rationale with team members.
Great sense of ownership over your work.
Ability to create pixel perfect mockups and visual design specs and design assets ready to be used by the development team.
Attention to detail and willingness to take the extra hour to make something immaculate.
Experience in HTML, JavaScript is a plus.

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LUNCH:ON is looking for a hungry hustler with a passion for food to become our very first Catering Manager. Having rapidly grown via word of mouth and a short sales cycle for individual ordering, we are now recruiting dedicated Account Managers to oversee the growth of our Catering business.

As a Catering Manager you’ll oversee the planning, logistics, set-up, presentation and serving of the best catered meals to the largest companies in the UAE. Ongoing responsibilities include tasting food, communicating customer feedback, solving packaging and presentation problems, and nurturing the relationship with each of our customers and restaurants. Your success in this role will bring more of the city’s best restaurants to our customers.

RESPONSIBILITIES
– Oversee the planning, setup and presentation of our catering service on-site at client offices.
– Build relationships with the employees at the coolest companies in the UAE.
– Work closely with our Operations team to solve any problems that come up during the meal.
– Work with our restaurants to create LUNCH:ON-specific meals.
– Provide feedback to vendors about daily meals and logistics.
– Maintain healthy relationships through community, communication, and trust.
– Strategize and implement solutions to delivery problems to minimize operations errors.
– Answer questions about food ingredients and allergens.
– Maintain a food safe and clean environment.

REQUIREMENTS
– Food lover is a must.
– Charismatic and genuine personality that easily builds relationships.
– Organized with superhuman attention to detail.
– Excellent written and verbal communications skills.
– Passionate about growing the local restaurant community.
– Experience with restaurants or the food production industry.
– Vendor/Account management experience preferred.
– Strong local restaurant network preferred.

PLUSES
– Arabic speaker.
– Bachelor’s degree.
– Sales experience.

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