Remember, it’s not a race to invest but to exit (and exit well)

Remember, it’s not a race to invest but to exit (and exit well)

How is 2022 treating you so far? Resolutions going well?

 

We’re all neck-deep in last year’s financials and reports, defining the value we generated.

 

For us @ArzanVC, that value is not in the amounts we invested or how many times we led a round. We look for it in returns. In the money we exited. And we made 4 exits in 2021, which we internally call a stellar year. 😎

 


 

It’s not a race to invest in unicorns but to make a dragon exit

 

We’ve been out there for 7 years, taking it slowly but steadily, making well-informed bets (40 investments to-date!) that so far turned into 2 IPOs, numerous exits… Let me pause here. I’m not sure if this is what you want to read about.

 

Any VC can say how they took the investors’ money and invested it – and how many times they did that – but let’s talk about how much money we VCs get to take out when the time comes. An honest cash talk.

 

Dragon > unicorn
Fund investors often look at how many unicorns a VC has in their portfolio. But unicorns are illiquid; they represent returns yet-to-be-realized. So, no cash in hand – unlike in the case of a dragon. (Also, having a unicorn in your portfolio doesn’t mean high returns as it all depends on the actual valuation at the time of the exit.)

 

A VC becomes a dragon whenever it returns the fund with just one exit. (No sci-fi / magic involved.) Dragons are the elite of VC managers. For the sake of example, let’s say you’re managing a $20M fund and you make an exit of $20+M. Your VC just turned into a dragon.

 

So, let’s get the basics rights. It’s not about the number of investments we make or how many dollars we inject in, but how high our returns are.

 

It’s not a race of who gives out more or how many rounds we get to lead or how many unicorns we nurture in our portfolios…

 

It’s a race to make an exit. A better-than-good exit. A dragon exit. That’s where the real value for the fund investors is.

 

Arzan VC made 4 exits in 2021: Swvl, iKcon, POSRocket and Tamatem. Let’s check out the metrics = the returns they gave us.

 

1. Swvl (IPO; Arzan VC Fund II)
Back in July’21, the ride-sharing ace Swvl announced its IPO on NASDAQ by merging with a SPAC Queen’s Gambit Growth Capital. Swvl will thus become the 2nd company from the region to take this path (the 1st was Anghami). The startup‘s goal is to bring its annual gross revenue to USD 1B by 2025.
gross multiple: >10x Can become higher or lower depending on the stock price performance once the company de-SPACs. If it goes higher, it can turn us into a dragon 🐉.

 

2. iKcon (partial exit upon acquisition; Arzan VC Fund II)
Backed by SoftBank and Mubadala, REEF Technology (US) decided to make its first transaction in the region by acquiring iKcon. The cloud kitchen startup was only founded in 2019 and a year later Forbes Middle East ranked it among the region’s 50 most-funded startups in 2020. As of November’21, iKcon has been operating 30 cloud kitchens across the UAE and KSA. 🍟
gross multiple: <10x Since this is a partial exit, we’re holding onto our stock. And the stock part of the deal (which is the majority) can pay back the full fund, hence another potential dragon for us 🐉.

 

3. POSRocket (exit upon acquisition; Arzan VC Fund I)
The news about POSRocket’s acquisition came out earlier this month. The 2nd largest restaurant cloud tech player got acquired by its Saudi competitor Foodics. And so, the team will now work on turning Foodics into the leading restaurant tech provider in the MENA. Safe onward flight, astronauts!
gross multiple of <10x

 

4. Tamatem (exit; Arzan VC Fund I)
Tamatem is one of our oldest investments. This publisher of Arabic mobile games has generated over 100 million game downloads since inception. Towards the end of 2021 we got a good opportunity to exit it and so we took it. Thank you for the journey, gamers!
gross multiple of <10x

 

Pretty diverse exits, aren’t they?

 

Prior to 2021, we recorded other memorable exits like Onfleet (gross multiple of >4x) and, of course, Careem (gross multiple of >8x). The exit from Careem turned us into a dragon 🐉 – our returns were actually bigger than our Fund I size!

 

Our mission at Arzan VC is simple: we look for dragons.

 

The size of our investments in 2021 increased by 208% YoY; we made new investments, we made follow-ons, we co-invested with big names… – because that’s our job.

 

But our job is not only about taking your money and investing it but also returning it. Not so many VCs can say they’re mastering that process. So, if you’re an investor considering investing in a fund, look out for the real value behind all the numbers and infographs out there.

TL;DR (too long; didn’t read)  
As a VC, our job is not only to take your money, invest it, lead rounds, collect unicorns in our portfolio... our job is also to return that money back to you. At Arzan VC, we focus on making dragon exits. A VC becomes a dragon whenever it returns the fund with just one exit. We already became a dragon through Careem exit, and two of our exits in 2021 could become dragons, too… And how was your 2021? 😎
 

Family Postcard

 

Astronauts boarded a new spaceship

POSRocket got acquired by its Saudi rival Foodics (KSA). Congrats again, guys!

 

Labor Award

Zid won the Labor Award from the Ministry of Human Resources and Social Development in Saudi Arabia, an award for companies that are following the nationalization path.

 

Come on in

Citron has opened its first Flagship Store at Times Square Center in Dubai.
 

 

200+ clients

Repzo‘s salesforce automation solution has been deployed by 200+ clients.

 

🎤

Dana Baki of MUNCH:ON spoke at Dubai’s Enterprise Agility Forum 2022, Abdullah AlDayel of Qoyod was interviewed by AlRiyadh Newspaper and Kunal Kapoor of The Luxury Closet had a talk with Blomberg Middle East.

 

Latest Jobs @ ArzanVC Family

 

  • Tech Lead – Python and React at Merit (Dubai)
  • DevOps Engineer at Qoyod (Riyadh)
  • Sales Specialist at CARSEER (Amman)
  • Marketing Director at Zid (Riyadh)
  • Head of Business Development – KSA at FlexxPay (Riyadh)
  • Engagement Lead at Retailo (Dammam)

 

 
… almost like our winter here in Kuwait!
Btw. We’re cooking something and there are many 0s in it 😉

 
Hasan

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It’s beginning to look a lot like… a regional B2B king

It’s beginning to look a lot like… a regional B2B king

I will wrap 2021 up with an exciting discussion with Retailo’s Co-founder Talha Ansari.

 

Earlier this month, Tamatem secured $11M Series B investment led by Krafton, a South Korean game developer behind the game series PUBG.

 

What shall I add… that this year has been eventful and exciting? Very. Our ArzanVC family is keeping us proud and we’re bracing for what 2022 will bring―we got quite a few announcements in the pipeline…

 


 

Set big, scary targets that will inspire you

 

Hasan: Retailo was launched during the early stages of Covid-19 pandemic and you managed to create a truly resilient business ever since. Looking back at 2021, what’s your biggest lesson learned?

 

Talha: I think it’s the importance of being a regional player from Day 1. Retailo is the first regional B2B startup in MENAP and we flipped the traditional model of starting in one market and then expanding organically. It was challenging and some people questioned our model, but our growth has proven that ultimately it was the right choice. We were able to tap into a $160B market with more than 3M potential SME customers, picked business learnings from both KSA and Pakistan, hired a regionally diverse team, worked with top regional and local manufacturers, and achieved both high sales volumes and revenue. Saudi is fast becoming a regional tech powerhouse and Pakistan has massive potential. We benefited greatly from our multi-market model and are now preparing to expand to other markets which will further improve our reach and business growth.

 

Hasan: You have a long-term vision of reaching and impacting 10 million retailers across the MENAP region. What’s your top priority for 2022?

 

Talha: In the past 18 months we expanded to 11 cities where more than 700 colleagues serve 50K+ SME retailers.

 

Hasan: Those are some good numbers…

 

Talha: Yes, and we want to keep the momentum in 2022. Our three main priorities for next year are geographic expansion, venturing into new business verticals and expanding our BNPL service. While we are reaching out to a broader customer base, the BNPL option will further improve the lives and business of the under-served market.

 

 

Hasan: What’s your strategy for the Saudi market?

 

Talha: We are headquartered in Riyadh and already present in six of the largest cities in KSA. Riyadh and Jeddah have given us a great launch pad and we are primed to disrupt retail supply chains in other cities.

 

Riyadh is fast becoming the tech hub for the MENAP region. In the retail sector this means e-invoicing, which has disrupted the conventional market. The ease of business is increasing every day and we see a lot of local talent coming into the market. Overall, there is growth of population, especially the middle class, which means more disposable income spent on consumer goods. The realization of Vision 2030 partially relies on a robust and tech driven retail supply chain and expansion of the sector. Let’s not forget that new startups can now be listed on the Saudi Stock Exchange and that is attracting impressive volumes and investors… We are taking full advantage of this dynamic environment in Saudi.

 

Hasan: Earlier this year you signed a partnership with Maersk to make use of their warehouses. Will we see more such strategic deals in 2022?

 

Talha: Working with a global organization like Maersk has helped smooth out our warehousing operations and focus on many other areas. We are in the process of formalizing more partnerships that will enrich our business processes and better the customer experience.

 

As a customer-centric company, we are fully aware of the growth vs. performance trap that other startups have suffered from and we are doing everything to avoid it.

 

Hasan: What would you say is your biggest leverage as a startup?

 

Talha: We have always believed that our biggest strength is our team. Retailo was founded by three former Careem executives and, besides their startup leadership experience, it was equally important that they were friends who shared the same values. The best product or business idea is only as good as the people working on it and our top management was selected accordingly.

 

Keeping that in mind, since the pilot phase we have looked for people who have the skills that would help us scale quickly but are also aligned on our values which means they should be humble, respectful, have complete ownership, believe in starting small and growing big, follow the customer-centric philosophy, and enjoy their journey in Retailo.

 

I am very happy to state that Retailo now has more than 700 colleagues from diverse backgrounds and yet sharing the same vision and values. This is a powerful factor which gives us enormous synergies and strength to overcome any challenges that may arise.

 

Hasan: Competition among B2B marketplaces is growing very fast and the store owners have more choices. How do you stay ahead?

 

Talha: We have in-depth understanding of customer needs and wants, and we are familiar with the local markets. Retailo’s leaders and team members have similar backgrounds and experiences and have been connected with tech startups and supply chains. We also have the experience of living and working in KSA and Pakistan, which allows us to form lasting relationships with both customers and suppliers.

 

Of course, being the only multi-market and cross business B2B startup of MENAP that operates in both KSA and Pakistan is a huge advantage. We’ve been able to capture the customer base from a high purchase price-low volume point all the way to a low purchase price-high volume point giving us the best of both worlds.

 

Hasan: Now, the secret to success: What’s yours?

 

Talha: Our success comes from the values we follow. Retailo’s founders, colleagues and investors have a shared vision. This shared vision has given us the energy to do amazing things and grow exponentially. We believe in dreaming big and starting small, having a humble mindset and a learning culture, and setting big, scary targets that inspire us to greater heights.

TL;DR (too long; didn’t read)  
Retailo is the first regional B2B startup in MENAP that flipped the traditional model of starting in one market and then expanding organically. They opted for the multi-market model right from the start and today they serve over 50K SME retailers across 11 cities. Its Co-founder Talha Ansari explains why Retailo's team is the startup's biggest leverage and why they'll be expanding their BNPL service in 2022.

 

Family Postcard

 

Women of the Year

Mejuri‘s Noura Sakkijha is featured in Women of the Year 2021 list of Canada’s most incredible women leaders. Well-deserved, Noura!

 

Finalist of the Year

Klaim was awarded 2 finalist positions in the Gulf Capital SME Awards: “B2B Technology StartUp of the Year” and “Digital Business of the Year” for the GCC region. Congrats!

 

USD 100M

Fatura crossed the USD 100M annualized GMV threshold in less than 2 years! Also, the startup’s family grew to 350 members. 💪

 

Jaguar onboard

CARSEER signed a cooperation agreement with Mahmoudia Motors Group = the official & exclusive dealers of Jaguar and Land Lover in Jordan.

 

Retain those customers

Gameball presents its 6 strategies on how to turn customers from window shoppers to loyal customers.

 

 

Latest Jobs @ ArzanVC Family

 

  • Lifecycle Marketing Manager at The Luxury Closet (Dubai)
  • Country Manager (Germany & France) at Mejuri (London)
  • B2B Sales Support Manager at Cartlow (Dubai)
  • Commercial Associate at Retailo (Riyadh)
  • Senior Growth Specialist at Fatura (Cairo)
  • Scrum Master at Fatura (Cairo – hybrid)

 

 
 We’ll see how this one goes… See you next year!

Hasan

 

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Today’s menu: Great returns & some effective ESG on the side

Today’s menu: Great returns & some effective ESG on the side

It’s a longer read today (and no, don’t skip this email). I’ll discuss the adoption of Environmental, Social and Governance (ESG) standards by regional tech startups and how VCs could be the gamechangers in this important matter.

 

November has been exciting for us so far; iKcon got acquired by REEF and our family welcomed two new members: Merit Incentives and our new analyst Noha El Sherif. 😎

 


 

What if we consider ESG a bit more…

 

A very fresh report on GCC consumers exposed that their biggest worry is illegal data collection and misuse. And while the public is becoming more socially and environmentally conscious, we as VC investors should take that into account when analysing potential investments.

 

Mentions of “ESG” during earnings calls have skyrocketed since mid-2020. Could the same be said of calls between LPs and fund managers and the latter and startup founders? What we can say with certainty is that ESG principles are gradually shaping LPs’ preferences and fund managers’ investment choices. Because ESG isn’t an exclusive playground for multinational corporations; SMEs and startups need to play along, too. As usual, the Middle Eastern ecosystem is catching up.

 

My analysis will be 2-fold:
1. Regional tech startups adopting ESG
2. Can VCs help startups get their ESG right?

 

 

 

Regional tech startups adopting ESG

 

Each sector comes with its own set of associated ESG risks. An agritech startup would have a different ESG strategy than a ride-hailing app and so on.

 

Here’s my adaptation of ESG principles for startups (note that it’s not definite):

 

 

Having good ESG standards in place can provide a startup with these outcomes:
– Attracting more investments
– Attracting talent & retaining it
– Improved brand image
– Lower risks (market risks, reputation, etc.)
– Long-term sustainability

 

Here are some local startups that are taking ESG very seriously:
Swvl: Congestion reduced by 14.4 million person-hours. 245 million pounds of CO2 emissions saved. That’s what Swvl accomplished in the last 4 years―since its inception. The startup recently shared its 2021 ESG Report “Right to Mobility” – and we are very happy they did so. It’s important that startup stars like Swvl pave the way for other startups to pen down and execute their own ESG strategies.
Cartlow: This startup has sustainability at its core and its re-commerce platform has already helped reduce a lot of e-waste and boosted environmental sustainability.
Mejuri: The fine jewelry e-commerce aims to trace each of its pieces from mine to market to manage and improve the social and environmental impacts of its supply chain. Mejuri’s sustainability goal is to reach 100% traceability of materials. By the end of 2021, 100% of 14k gold products will be 100% traceable, with 70% being certified recycled and 30% responsibly mined.
TruKKer: Its carriers can save their empty miles by up to 13%, which reduces carbon emissions. Multiple deliveries can be clubbed into a single booking, increasing productivity by up to 20%, saving time, fuel and trucks’ service life.

 

Can VCs help startups get their ESG right?

 

Middle East Investor Relations Association (MEIRA) believes that the majority of the market here really cares about ESG and is working off the same hymn sheet to drive progress. Do regional VCs care as well? Yes, some already do. We at Arzan VC agree that ESG is an important factor to be considered and it positively affects businesses in the long run.

 

One of my takeaways from the Future Investment Initiative in Riyadh is that local startups lack a framework for implementing ESG policies. ESG becomes important when a company reaches scale, however basic ESG can be implemented from Day 1. VCs can be gamechangers in this regard. Integrating ESG into our own investment analyses would allow us to introduce the concept to startups. How?


– Looking for ESG when evaluating a startup is like looking for an additional value―not monetary but just as important. During due diligence, we analyze the main environmental and social trends affecting the startup’s geo region and industry and then we place the startup right into that analysis, highlighting its opportunities and risks. This analysis could serve as a good starting point for the introduction of ESG principles into that startup. VCs thus have a unique position to help create ESG-conscious businesses. Plus, when it comes to early-stage startups, these don’t have extra financial/human resources to allocate to ESG, so this is an added value that VCs can offer.
– We can compare the startup to its competitor (at a regional level) and create a sectorial ESG benchmark, i.e. having a single metric for each startup industry.
– Crunchbase argues for a simpler, single metric for all startups in a VC portfolio; a single metric for “E”, “S” and “G”, that is. In terms of the Environment, it could be a metric related to climate change, e.g. emissions. The Social indicator could be team diversity and inclusiveness. The Governance metric could be the percentage of independent directors on a startup board. Lastly, the startup founders should identify which of UN Sustainable Development Goals they enable and track their impact.

 

CB Insights was asking in one of their July newsletters about startups providing ESG ratings for private startups. That’s to say, there aren’t many. Such startups would be active in AI and alternative data domains. We got one like that in our portfolio: Crowd Analyzer. It’s not ESG-focused per se, but it can be of great help when analyzing the social sentiments on social media. Like how people feel about the activities of that and that company and what its brand reputation is like.

 

There’s a chance that ESG could become the future of investor confidence―for the regional startups and VCs alike. So, what if we start considering ESG a bit more and make it part of our DD… food for thought.

TL;DR (too long; didn’t read)  
The region's public is becoming more socially and environmentally conscious, and so are LPs, VCs and startups. I introduced an adaptation of ESGs for startups and named a few that are working hard on their ESG sustainability, one of them being Swvl. I also suggested how VCs can help nurture ESG standards in their startups and that there is a lack of startups providing ESG ratings for other startups.

 

Family Postcard

 

Next stop: Hong Kong

Citron expanded to a new market, Hong Kong, where it will be able to access additional 2.65 million families. Where to next?

 

Saudi fintech map

Qoyod got featured among the leading Business Tools & Information Provision in the latest Saudi Fintech Map 2021. Well-deserved, guys!

 

Zid & Qoyod at Step Saudi

Zid’s Co-founder & CEO Sultan AlAsmi as well as Qoyod’s Founder & CEO Abdullah AlDayel will be participating in “The Rise of B2B marketplace in Saudi Arabia” panel at Step Saudi (Nov 17-18).

 

Best workplaces

MUNCH:ON has been awarded one of the Best Places to Work 2021 in Pakistan. Careem is on the list, too.

 

 

 

Latest Jobs @ ArzanVC Family

 

  • Junior HR Consultant at WizHRD (remote)
  • Business Analyst at Zid (Riyadh)
  • Customer Success Executive at Gameball
  • Senior & Junior Talent Acquisition Specialists at Fatura (Cairo)
  • Sales Executive KSA at FlexxPay (Riyadh)
  • Sr Front End Engineer at Qoyod (Cairo)

Take care!

Hasan

 

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Art & science of VC strategies

Art & science of VC strategies

The liquidity is increasing and so is the VC competition. While founders may seem to have more leverage in their hands, for us VCs it’s become very important to set our strategies and stick to them. Don’t rush in finding your next founder.

 

Ps. Our Laith Zraikat (@laithz) will be attending GITEX next week. Let us know if you’ll be there.

 


 

About VC strategies and what the history tells us

 

I looked at Chris Sacca’s journey with Lowercase Fund I and thought it would be a good idea to share some thoughts with you. Sacca became a brand name when his early investments into Twitter, Uber and Instagram turned out to be really good investment decisions. Sized $10M and with a sole focus on seed investments, his fund had 250X multiple―as Sacca himself noted on The Tim Ferriss Show in 2015. Quick math: an LP that wrote a $100,000 check got back $25M.

 

But Sacca was sometimes also wrong―he ditched his chances to invest in GoPro and Snapchat. He didn’t invest in DropBox and Airbnb either. “I let the negative case dominate my choice of whether I should invest or not,” he explained on the show.

 

Lessons learned from Sacca’s Lowercase Fund I:
– Small fund (<$10 mil)
– Very well-connected in the Silicon Valley
– Businessperson at heart
– Had great mentors
– Possessed unicorn radar
– First he was an angel, then he raised a small fund
– Only got involved in deals where he could personally impact the outcome
– Partnered mostly with similar seed-stage VCs

 

Early-stage investments don’t allow for much massive due-diligence, so it’s all about the VC’s gut, the size of the addressed market, the product and the team behind it. And, importantly, the aftermath following the fundraising. (That’s also at the core of Arzan VC’s strategy.) It’s not much about strategies than about a subtle collaboration between the startup and VC teams and offering a helping hand whenever needed.

 

We at ArzanVC believe that every good VC needs to do this homework:

 

1. Take your time in finding the next founder. This often requires a solid network. Reach out only to those founders who really excite you. Outbound sourcing > inbound sourcing. Our team gets emails with pitch decks every day. Around half doesn’t pass through the screening phase and they’re filtered out, which saves time for both parties. Some VCs claim to filter out as many as 99% of pitch decks they receive, which means they’re not working hard on their outbound sourcing.

 

 

2. Test your bets. You must learn to make informed investment decisions, and that takes time and experience. Continuous research and critical thinking is a must.
3. Offer value that makes a difference. A good VC must bring value to the table.

 

What the history tells us:
Be as exclusive as possible. Like when Sequoia Capital was the sole investor in WhatsApp and multiplied its $60M investment into whopping $3B upon WhatsApp’s acquisition by Facebook.
Don’t underestimate exponential growth. Let’s recall how Facebook’s very first investor Peter Thiel didn’t participate in the Series A round and thus missed his potentially huge return on investment if he had done so. He thought Facebook to be overvalued at that time, while it was, in fact, undervalued.
Negotiate the exit. The higher your stake, the more say you can have and the higher return on your investment.

 

Globally, these are some of the recent VC strategies:
– investing in female founders only
– launching funds and programs for “underprivileged” founders―we see these initiatives specially in the US (e.g. a16z’s The Talent x Opportunity Fund (TxO) or when Softbank dedicated $100M to Black, Latino and Native American founders)
– supporting and mentoring wanna-be investors from diverse ethnic groups

 

A successful VC strategy goes beyond returns. It’s a matter of both art and science; gut feelings and mindful decisions. And we already know that a good VC needs to offer much more than a cheque. My team and I believe in providing our portfolio companies with structured support: recruiting assistance, consulting, research resources, PR and other value-added services. Rolling up our sleeves is a must.

TL;DR (too long; didn’t read)  
The market liquidity is increasing and so is the VC competition. What can we learn from the best strategies? I looked at Chris Sacca's Lowercase Fund I―a $10M fund that had a 250X multiple thanks to the take-offs of Twitter, Uber and Instagram. I also mention how important it is to do more outbound screening and test your bets. Globally, recent VC strategies focus on investing in exclusively female-led startups or underprivileged founders. In all cases, a good VC has to bring value to the table―like structured support, for example.

 

Family Postcard

 

900 and growing

In a short span of two years, iKcon has grown from a team of just a few members to a team of 900 across the UAE and KSA.

 

Female Founders 100 list

Mejuri’s CEO & Founder Noura Sakkijha for being included in Inc’s 2021 Female Founders 100 list.

 

Top big data startups of UAE

Data Magazine featured Crowd Analyzer in its list of the Top 28 UAE Big Data Startups & Companies.

 

Swvl’s ESGs

Swvl shared its 2021 ESG Report “Right to Mobility” that highlights the startup’s environmental, social and governance-related challenges throughout their journey.

 

Latest Jobs @ ArzanVC Family

 

  • Sr Product Manager at Zid (Riyadh)
  • Sr Digital Marketing Manager at Cartlow (Dubai)
  • Product Manager at Taker (Riyadh)
  • Influencer Marketing Executive at The Luxury Closet (Dubai)
  • Healthcare Data Analyst at KLAIM (Dubai)
  • Junior Sales Officer at Armada Delivery (Riyadh)

 

 

Happy Halloweening in advance 👻

Hasan

 

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Who’s gonna return the fund?

Who’s gonna return the fund?

2021 is one of the hottest years to be a VC – or a startup. Regionally, globally… Plenty of investment rounds, exits, new SPACs… so the returns shouldn’t be any different than sky-high, right? Well, that’s what I’ve researched this month…

 


 

Who’s gonna return the fund?

 

This year looks so good in terms of the VC investment raised. How about the VC returns though? Globally, venture capital was the top performing asset class when it comes to PE/VC funds in 2020. In general, though, it’s not easy to access the individual data to begin with. A few may reach up to 700% (7x committed capital), many would be negative.
 
Globally, venture capital returned 28.5% in Q42020 ― the highest return since the dotcom era, and the 1-year IRR of VC funds surpassed 53% (vs. 19% in 2019).

 

Source: Burgiss; Q4 2020 Global Private Capital Review
 
The best VC times to live in?
If you’ve been investing for the past 5-10 years, your investments are currently maturing, and the returns are touching the sky for few. The lucky investors indeed got a well-diversified portfolio and apply Pareto wherever they go: 80% of good returns come from 20% of your investments. So, as the principle goes, out of 10 startups you invested in, 1 will really explode and IPO/M&A and another 1 will get you medium returns. These 2 stars will basically “return the fund” (and make the LPs very happy). In general (not always the case) LPs are happy when they get a 3x or more return of committed capital, e.g. a $100 million fund will generate a $300 million return. That’s ideal. (The 3x return gets trickier to achieve the bigger your fund size is.)

 
The returns of course depend on the stage. Seed fund returns are riskier but, if positive, they are much more ravishing than other types of VC funds. Seed-focused VCs won’t accommodate to the lower returns of later-stage funds because of the risk they bear. Put simply, seed investors shoot for ~50x or more from one investment, Series A investors eye 10x to 15x and later stage investors seek 3x to 5x.
 
Unicorns x returns
One of the pointers in my research was the market valuation of unicorns, which is, as of April 2021, $0.951T in Asia Pacific, $0.929T in North America, with Middle East & Africa (MEA) at the tail with only $0.021T. (Note that the MEA figure doesn’t include Swvl.)

 
However, the fact that we don’t have that many unicorns here doesn’t necessarily mean sluggish fund performance. With the existing MEA fund sizes, if you invested early, own a decent stake in early-stage companies and few of those companies exit at around $250M, as a fund you can make good returns. So, in reality, you don’t need to have unicorns to be labeled as a high performer. As a comparison, VCs managing more than $1B funds need to have 1 or 2 unicorns to generate good returns – however, those funds are based in more mature developed markets.
 
Moreover, the above data suggests there is much room for new unicorns in MEA. The record-smashing 2020 and H12021 results only confirm that the regional and international VCs investing here are willing to make higher-than-ever bets on the local startups, eyeing more than just “returning the fund”.
 
Variations between global VC returns
During 2010 and 2020, the venture capital was the top performer in the United States and returned an average of 15.15% per annum (while S&P 500 did 13.6% during the same period).

 
From 2007 till 2017, the financial performance of UK VC funds has been comparable to the US with UK performance only slightly lower than US funds of the same vintage.
 
PitchBook looked at 82 VC funds launched in 2010-12. They had a median average annual return of 11% during Q12020 though the very best of them returned more than 50% – those that saw plenty of exits. The worst had a negative 6%. So, the gap between the best and the worst performers is profound. Those funds that had invested in MongoDB, Etsy, Tumblr, Zoom and Uber were among the top performers.
 
A cherry on the cake: some of the funds with a vintage year 2019 are reportedly recording an IRR of up to 119%.
 
Well, I can’t really compare that to our local funds’ IRRs because such data barely exists. Some VCs say it’s confidential, others say the numbers are only estimates anyway.
 
Since one way to assess profitability is by analyzing the exits, we can at least check out the most interesting exits that took place this year and see who backed them:

  • Anghami’s IPO – MEVP, SHUAA Capital, Samena Capital, Megladon, Endeavor, Sal&Co (+ others)
  • Swvl’s IPO – Arzan Venture Capital, Beco Capital, Oman Technology Fund, Raed Ventures, Sawari Ventures (+ others)
  • TreasuryXpress (UAE) – MEVP, Azure Capital Partners, The Luxury Fund (+ others)
  • Spotii (UAE) – Daman Investments
  • Mumzworld (UAE) – Gulf Islamic Investments, Swicorp, Wamda Captial, Global Ventures, Endeavor Catalyst, Saned Partners (+ others)
  • Eventtus (Egypt) – Algebra Ventures, MEVP, Raed Ventures, 500 Startups, Cairo Angels, Daal, Hala Ventures (+ others)
  • WaysToCap (Morocco) – Y Combinator, Battery Ventures, Soma Capital, Palm Drive Capital, Amino Capital, Endure Capital (+ others)
  • Invoice Bazaar (UAE) – Advance Global Capital
  • Ostaz by Synkers (Lebanon) – Phoenician Funds, Crescent Capital, 500 Startups, Dubai Angel Investors, Mulcan International Investments (+ others)

 
And, lastly, I had a look at the strongest vintage years for funds operating in the region:

  • 2015―funds with 2015 vintage had invested in Careem, Souq.com, Anghami, Fresha, TruKKer…
  • 2018―another great vintage. Investments included Swvl, Kitopi, MaxAB. And these funds keep on investing till now.

 
It would be an interesting exercise to look deeper into all the recent exits and create a mosaic of all the funds involved. Maybe another month. With 30+ exits since January 2021, there will be a lot of name-dropping.

TL;DR (too long; didn’t read)  
Returning the fund has become possible for a greater number of funds. Globally, the returns of venture capital were the highest since the dotcom era. For now, the market valuation of unicorns in the MEA region remains very low compared to Asia Pacific and North America. Yet, the record 2020 and H12021 results suggest that the regional VCs (and international VCs) are willing to make higher-than-ever bets in the Middle East, eyeing more than just "returning the fund". The strongest vintage years for regional funds include 2015 and 2018.
 

Family Postcard

 

The finalists 🌍

Our latest investment – Klaim – won the UAE round in KPMG Private Enterprise Tech Innovator 2021 competition. The finals will be at Web Summit 2021 in Lisbon, Portugal this November. We wish you the best of luck, Klaim!

 

1 million orders in 1 year

Within 12 months of operations, over 1 million orders have been placed on Retailo‘s app across MENAP’s region.

 

 

Onto Pakistan

In line with its expansion plans, TruKKer acquired TruckSher, one of Pakistan’s leading and most innovative digital land freight platforms.

 

Zid Pay

Zid launched Zid Pay to address the most urgent challenges faced by online retailers and to bridge the gap between payment providers and retailers.

 

Fintech innovation after covid

SubsBase was recognized by Plug and Play Tech Center as one of the “The 13 Fintech Payments Startups That Are Changing the Way We Pay”.

 

Latest Jobs @ ArzanVC Family

 

  • Logistics Manager at Fatura (Cairo)
  • Key Account Sales Manager at TruKKer (Cairo)
  • DevOps Engineer at Qoyod (Cairo)
  • Head of Sales & Growth at Retailo (Riyadh)
  • Logistics Manager at Citron (Dubai)

 

Enjoy the weekend!

Hasan

 

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Let’s make a bet about who’s the next Swvl!

Let’s make a bet about who’s the next Swvl!

This month I decided to grab a Zoom coffee with Taker. Its founder Abdullah Alsaadi spoke to me about how they’re re-empowering restaurants and why Taker is keen on collaborating with its competitors. More below.

 

We’re still not yet over the fact that Swvl is the region’s first $1.5B+ tech startup to go public on Nasdaq… and I believe we will certainly see more similar SPAC listings in the future. So, who’s next? Share with me your tips and let’s bet!

 

P.S. We will kick off the 2nd round of our Seed program with #RIYADH_Seed_02 (September 19-23). Startups from Saudi 🇸🇦 register here.

 


 

Taker is taking it to the next level through its open platform

 

Hasan: Taker is an online ordering system for restaurants – and much more. Can you tell us what Taker brings into the market?

 

Abdullah: Taker’s product offering can be split into 3 components: It has the ordering component, which includes website, application, social media channels, etc. The second component is growth – strategy, marketing tools, etc. The third component is logistics and it can be broken into 3 different models: outsourced, in-house and hybrid logistics.

 

At Taker, we say that we don’t just give you technology; we don’t just give you an application―we do give you that of course, but we also become your growth partner and provide you with support services. Why? Because we want to avoid a situation when you go online and unfortunately fail.

 

Hasan: How was the past year and a half for Taker? Did it surprise you? Did you take advantage of it?

 

Abdullah: We had anticipated the move towards having control back in the hands of the restaurants. The restaurants lost this control years ago in the favor of food aggregators. When we launched Taker, we knew there would come a point when restaurants would begin planning to retain that control again. Our initial anticipation of this move had been for 2022-3, but covid has speeded up that process, which ended up being in our favor. It basically saved us 1-2 years. So, today, restaurants are much more aware of the importance of being dependent on themselves and having their own digital channels.

 

Hasan: How are you getting ready for whatever comes next?

 

Abdullah: We love competition. We want competition. We believe we cannot solve the problem by ourselves―no one can―because the problem is much bigger than we think. It comes down to education, operations, logistics… Also, we would really like to collaborate with our competitors, because Taker is present in a new market category and we want to make this category bigger.

 

Also, most of our competitors (we don’t have many) think that in order to solve the problem you only need to provide a website and application, but this doesn’t work. You must have more to offer in your package. What is the biggest problem we’re trying to solve today? It’s not an application or website; it’s logistics. If we can solve the logistics issues perfectly, then the problem will be solved. That’s why we have TakerGo, which is our logistics arm.

 

 

Restaurants using Taker are spared of many headaches and burdens; they no longer need to go and negotiate with every single logistics company; we got that covered in our agreement.

 

One of our early goals was that we wanted restaurants to enable delivery with zero CapEx. Second, the solution had to be scalable and, third, it had to have a high success rate.

 

In order to solve the driver availability problem, we looked at the aggregators and their success rate. We found out everyone has a failure rate (which is normal). However, the aggregators’ failure rate was about 15% (i.e.,15% of all orders failed to be delivered), sometimes it went up to 60% (on Eid holidays, etc.). So, we built the product in a way that made all the companies work as one pool of drivers, which has helped us to increase the delivery success rate up to 97-98%. In fact, some of our clients have a success rate of 99.5%. And we keep working on further improving the delivery service. We didn’t only solve the problem faced by restaurants; we also solved the problem faced by delivery companies. That’s TakerGo.

 

Hasan: Since you mentioned the success rate, what is your personal secret to success? What’s your philosophy?

 

Abdullah: Our vision is to create a balance point in the market. I always tell my team: “We are not in the business of selling apps; we are disrupting the market and we have to give the control back to the hands of restaurants.” We don’t believe that aggregators will vanish; they’re here to stay. We are realistic in our planning, we have always managed the expectations of our clients and we got a great team.

 

There’s one thing I would like to stress again: we really believe in collaboration with other players in the market, and that’s why we’ve decided to have Taker as an open platform and to give access to 3rd parties’ innovations. We welcome anyone to build on top of our platform or simply integrate (i.e., delivery company/service integrates with TakerGo). Being an open platform is very important in achieving our main goal of creating a balance within the food delivery market. And, obviously, we cannot do everything by ourselves. It doesn’t matter how strong we as Taker are; the problem is much bigger and we can’t do it alone.

 

Hasan: We’re excited to be part of your journey!

TL;DR (too long; didn’t read)  
Taker is not only an online ordering system for restaurants; its product offering is made of 3 components: ordering, growth and logistics (TakerGo). Its aim is to create a balance point in the market and give the control back to the hands of restaurants. Also, Taker wants to collaborate with its competitors because they can’t create that market balance by themselves.

 

Family Postcard

 

🔥 Most funded

According to Forbes Middle East, iKcon was among the most funded startups in the first half of 2021, making it one of the hottest startups in the region.

 

🔥 Top 101

FlexxPay made it to the top 101 UAE FinTech startups.

 

Cartlow -> B2B

Cartlow launched a B2B wholesale marketplace for retailers and wholesalers to source pre-owned and discounted inventory, which includes overstock, returned, refurbished and liquidation inventory.

 

 

At the ministry

Repzo signed an agreement with Jordan’s Ministry of Digital Economy and Entrepreneurship that will help them to implement plans and export corporate services and products to new markets.

 

🏋️ The Olympics buzz

Crowd Analyzer put together the top insights from over 2M social media activities related to Tokyo Olympics.

 

 

Latest Jobs @ ArzanVC Family

 

  • Head of Customer Experience at Gameball
  • Sales Manager at Retailo (Riyadh)
  • Shopify UI/UX Developer at Citron (Russia/remote)
  • Outbound Telesales Executive (OTE) at FlexxPay (Beirut)
  • Chef De Partie (CDP) at iKcon (Dubai)

 

 

So, who’s gonna be the next Swvl of the region? 😉

Hasan

 

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