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.
At any startup, no matter what’s the industry, being data driven helps all team members to focus on what really matters. Instead of gut feelings, decisions will be made based on facts, actual data, not guesses.
This applies to every single aspect in a startup. Starting from sales, growth & marketing, operations, design, product development, customer service, human resources, time management, …, all the way to your financials.
This also applies to personal data management! You can track your fitness activities, your eating habits, your sleeping time, your TV watching time, even your mood!
With these simple steps, you don’t really need fancy data tools, yet you will learn how to deal with data and make it a habit to collect, visualize, analyze and use data:
1. Collect Metrics On A White Board!
You can’t manage what you don’t measure! The first step in becoming a data-driven team is to collect data on everything. To start with, you can use very simple tools, as simple as a big white board or a glass door as a dashboard! Just get into the habit of collecting data on regular basis and about anything, everything you can measure. Don’t over complicate things. Just go with whatever you have, categorize different numbers separately and develop slowly.
On regular basis, every few days or maybe weeks, draw a diagram on the white board to see the numbers in lines, circles or diagrams. Get artistic with drawing, give the team some free time to imagine and play with the numbers. This will help you and your team visualize this data.
3. Look For Surprises!
Keep looking at your data board regularly, and try to find relations between different sets of data. For example, what happened to other data when a specific milestone was achieved or an event occurred. Or how a specific metric changed over time compared to another separate metric. Just enjoy looking at different metrics and get into the habit of discovering surprises!
4. Use The Data
Collecting, visualizing, and analyzing data is useless if you don’t really use it to make decisions. Whenever you face a problem or whenever a new decision is needed, like a new feature to add, an increase/decrease in the marketing budget, or even a new hire, you can gather all data related to that decision, and try to summarize it to make an informed decision.
5. Always Ask What If
Before finalizing a decision, get back to your dashboard and ask what if we did this or that, how would the data change? Draw again and again to predict the implications of your decision. This will help you realize if you took the right decision or not and will allow you to change the decision based on what the dat tells you about the future.
Eventually, you will have so many metrics on your white board, and you will know how to deal with data. You will diffidently not need all the data you collect, but you will learn what really matters and what doesn’t. Then you can find tools (and they are too many) to automatically collect, track, visualize, and even analyze the metrics or KPIs that you really care about.
As part of our efforts to connect MENA talents with their peers in Silicon Vally, we’re happy to share our interview with Evelyn Zoubi, founder ofGlanse App.
In this interview by Ahmad Takatkah, Evelyn shares her story of starting from Jordan and then moving to Silicon Valley. She talks about the ups and downs of startups, pivoting, fundraising, US visa, and life in the Bay Area.
Evelyn was the first female entrepreneur from the MENA region to get accepted at Plug and Play Tech Accelerator. She also participated in Tech Women Program in 2012.
After the premier of our first episode of Citizens of Silicon Valley last week where we met with the founder of Glanse App, Evelyn Zoubi, this week we met with Fadi Bishara.
As the founder and CEO of Blackbox VC, Bishara moved to Silicon Valley in 1992 where he started his career in sales. For over 20 years, he has matched human capital and venture capital needs as well as, using his experience to guide technology entrepreneurs pave their way in the area.
In this interview with Ahmad Takatkah, Bishara talks about how he started, his experiences after moving to Silicon Valley, how he overcame multiple challenges, and how he found his passion towards guiding entrepreneurs through Blackbox.
We believe VCs as well as founders need to keep learning from each other. In this category of posts, we create a hypothetical challenge, then ask founders and VCs to share with us what they would do if they’re in that situation. Your contribution is essential to build a library of challenges that help founders in tough situations.
So you worked hard to close that investment round, you got the lead VC partner you wanted as a board member because you know he/she will add great value, and he/she is as passionate about your industry as you are. But Suddenly, only few months after closing, he/she leaves! How would your startup be affected? and What would you do?
To give some perspective on the situation, this is how it would look like inside most VC firms:
The board seat belongs to the firm, not to the partner. So the firm will typically assign another partner to set on your board, or worse, a principal or an associate who might not be an expert in your specific industry.
The new board member’s reputation won’t be affected if the company does good or bad, he/she can always blame the previous partner who approved the deal!
Other partners might not give much attention to the company or fight for it in partners meetings as they are busy with their own portfolio.
The leaving VC partner might still be interested in the company’s success because it still counts in his/her own track record.
Potential investors might question the situation and think twice before investing in the next round because the main lead investor left the deal.
What Would You Do?
We asked this question to few founders and VCs, and they gave different answers, we hope this helps if you happen to be in a similar situation.
Here is a summary of the replies:
If the firm has a track record, then before making a decision the founder should do a due diligence on the other partners and maybe contact startups that are led by the replacing partner. You never know- the replacement might be a better fit! That said, many entrepreneurs accept investments from a VC but then they get surprised that post investment the lead is not the same person who closed the deal. So the entrepreneur should be careful and blunt about the choice of deal lead before signing the term sheets.
If this happens after the deal is closed already, I would ask the leaving partner to recommend his/her own replacement. He/she knows the team better and can assess the available skills of other partners or even principals who can add real value and fight for the company internally.
If the departure was on good terms with the firm, I would keep the leaving partner as an observer or advisor on the board if possible. This will help reduce the risk of potential investors (in the next round) questioning the commitment of existing investors. However, if the departure was on bad terms, it might not be possible to keep the leaving partner on the board. So I would be very transparent with the firm’s partners about how this might affect the company’s future if none of the existing partners have expertise in my industry, and I would push for more external board members to join the board.
We all have to have a Plan B. So, when choosing a firm, the founders should not base their decisions solely on a specific partner. The VC team together has to be able to add value, and there should be enough competent people in the firm who can take over from the leaving partner. It’s a risk equal to what VCs take by investing in startups: what if the CEO — Founder leaves the startup right after the deal is closed? VC usually mitigate this risk by investing in teams not solo founders.
Let us know what you would do, please enrich the discussion with more solutions to help fellow founders who might be in a similar situation.
We at ArzanVC have been in the game for a while now, eight startups, different countries, hundreds of pitches, meetings and ambitious entrepreneurs. With all of this, we as VC’s have had our ups and downs, our challenges and we’re learning more lessons as we go.
These lessons have helped us develop few principles while communicating with founders, here are some:
1-We manage expectations in the first meeting
We’ve been working on reducing the time we need to make a final decision. We value the founder’s time and we know that they want the funding to focus on building their product. But taking the decision to invest in a specific startup is not that easy. We need to do our research; we need to analyze the company and the market as thoroughly as possible. No matter how big the fund is, it’s still limited, and we are judged by the quality of startups we pick and the return they bring.
2-We don’t discard what we don’t know
The most interesting and valuable ideas are the ones that we don’t understand at first. Instead of discarding what we don’t know, we turn to our advisors. We made sure that our advisors are not ‘domain-experts’ because then they might be stuck inside the box. Our advisors are successful entrepreneurs who understand how a new concept can be disruptive.
3-We ask as many questions as we can
We don’t have the answers for everything, which is why we need to know the questions we ask. It can open up new avenues and new patterns; tough questions can also help the entrepreneur understand their business from all angles and give them new lines of thought.
4-We make the decision clear
Saying no is always very difficult but we try a different approach, we tell entrepreneurs why we are saying no. We give them valid reasons, pointers for improvement and we keep the line open for future communication
5-We do not follow other players blindly
When we started, entrepreneurs complained about our extensive due diligence exercise. They compared us to other VC’s and mainly the ones that are located in Silicon Valley. After analyzing the situation we kept our extensive due diligence, we did not follow other VC methods, but we refocused our attention to more relevant information that reflected the startup stage. Therefore, we did what made us comfortable but at the same is understandable to entrepreneurs
These are just a few of the things we’ve learned; our list can go on for days. We always keep in mind that being a successful VC requires an open mind and the willingness to learn and adapt to new things.