It seems that the Middle East, and UAE in particular, is quickly becoming a new hub for tech startups and entrepreneurs . Talent is there for sure, and the opportunities are endless in a still under-served region, but the infrastructures needed to cultivate a striving startup eco-system are only now falling in place.
Incubators and accelerators have been around for a few years in UAE, but now that trend is accelerating and these structures are popping up like mushrooms. Over the last few years we saw the setup of In5, DTEC, Turn8 and Flat6Labs and many more. In the last few weeks only we have seen Dubai Future Accelerators and Intelak as the latest programs announced in Dubai, but I know of at least three more in the making. So there is a dynamic startup community and several programs have been defined to support these. But several challenges remain. One of these challenges was the potential consequences of failure. Fail and you could end-up in jail. A big step was recently taken by UAE to adjust its legal environment for entrepreneurs, to address that particular problem. With the new bankruptcy law, it become easier for entrepreneurs to fail and restart. The government is also working at improving the education system securing more talent with skillsets in IT and entrepreneurship. The other major challenge in this region is still to secure investments. This is mainly due to regional investors that are very risk averse and have traditionally invested in brick and mortar businesses.
Now when reading the news it can be a bit confusing to understand what is going on. In the last two weeks only there has been a number of announcements of startups raising larger investments. To name a few of these: Insider gets $2.2m investment from WAMDA CAPITAL, MoveSouq.com closing $3M Series A, Compareit4me raises $2.4M in bridge funding round and BECO Capital helps Wrappup close seed funding round. There is definitely money for startups… that have already created substantial traction on the market and that are generating revenues.
At the same time accelerators are proposing seed money to take startups of the ground, and now we even see some international entities like 500Startups or 1776 Incubators targeting the middle east. So there is interest and seed money being injected.
THE CHALLENGE FOR ENTREPRENEURS IS REALLY WHAT IS HAPPENING IN BETWEEN THE SEED MONEY YOU INITIALLY GET AND THESE LARGER INVESTMENTS MADE ONCE YOU GENERATE SUBSTANTIAL REVENUES.
For a founder this can feel like a long walk through a cold tunnel. How do you make sure your company survives from the 30-50KUSD initial seed money you get until you secure that growth capital, that the local VC’s have available.
There is a funding gap and also a lack of dialogue, which is very well summarized in an article from arabian business where the founders of Melltoo, Morrad Irsane and Sherene Lee were interviewed. Quoting Morrad on this topic: “There is a growing number of investors, but only a handful are actually part of the ecosystem. By this, I mean that most investors do not actually participate in the ecosystem, they do not engage with the start-ups and it is questionable how much they engage with one another”. Further, Morrad mentions: “Start-ups don’t know what investors want and investors don’t have a way to evaluate start-ups beyond decks and spreadsheets”. As a startup mentor and coach I can only agree on this! It seems a lot of investors are working from their ivory towers and are not engaging and leveraging the startup community.
I am curious to hear how entrepreneurs deal with this issue! For sure their is an issue related to risk, but then there needs to be a dialogue on de-risking… As part of that de-risking, I would give a few recommendations to founders:
- Focus on sales. It is never too early to engage potential clients and customers.
- Think twice about taking money from angels or other investors that cannot help you with sales. Whether they help you directly or indirectly doesn’t matter, but they should really have an impact on your capability to sell, especially if you give equity in return for that initial money.
- Select your accelerator program based on the active investors they have and make sure they invest in the type of offering you put to the market. Make sure they can also hep you in the sales process.
- Get external help from mentors, marketers, but make sure you incentivise them based on results.
FOR INVESTORS AND VCS, THERE NEEDS A DIFFERENT DIALOGUE, ONE THAT GOES BEYOND PITCHING DECKS AND SPREADSHEETS. INVESTORS NEED TO ENGAGE STARTUPS MORE BUT ALSO MENTORS AND COACHES, WHO CAN PROVIDE INVALUABLE INSIGHTS THAT WILL ALLOW TO BETTER MANAGE RISK.
Mentors and coaches can help on at least two levels, one related to domain expertise and the other one related to team dynamics and team assessment.
These reflections are mainly based on the dialogue I have with other founders, do you agree with these views? Is this a typical middle east situation or are there other parts of the world experiencing similar struggle? I would like to hear your stories! How did you secure funds? If you failed raising funds what were the learnings? What have you tried?