20 Tips For Founders Raising SEED Investment Round in MENA
The internet is a great source of information and advice. By browsing through on a daily basis, you can find many protagonists from across MENA and beyond the region sharing wisdom, advice and hacks on startups, founder journeys and the investment cycle.
I recently fell upon one that particularly caught my eye. Having recently closed our SEED round at MAGNiTT all the points that were shared by Tarek Fahim in his FB post resonated with me. Each point was short, to the point and extremely articulate. However, what was more inspiring was that he was speaking the truth about issues that are often not shared across the region and the challenges faced when raising funds. I have a lot of admiration for the work that Tarek has been doing in promoting the region – both on a local scale and internationally. Tarek has a portfolio of stellar investments in regional startups as well as internationally based startups with founders originating from the MENA region.
I caught up with Tarek recently and wanted to share a bit of our discussion with you below:
PB - You are considered a pioneer in the VC community as an investor with a Midas touch. Your portfolio is a mix of MENA startups and international startups with founders coming from MENA countries. Why take this approach rather than focusing on the region?
TF - The future is already here — it's just not evenly distributed and it has always been a great advantage to see the future. When entrepreneurs across the world allow us to be a part of their success early on, we learn and build strong ties with leading players. We learn that it is our responsibility to share with MENA region founders. Think of us a harbor, the more trade and diversity we have the more wealth we can build and distribute.
PB - You regularly visit Silicon Valley, which no doubt provides great benchmarking and learning. What would be your 3 biggest takeaways that need to change across MENA for us to move in that direction?
1. We need less ego and more transparency and resilience from all of us. After all, most successful startups witnessed near death experience and the best performing funds are less than 5% right. A broken clock has a better chance in telling the time right!
2. We need way more angel investors who are capable and willing to support seed startups on fair terms with more than just money.
3. In MENA, we should support as investors, businesses, governments, communities, startups that already achieved or are close to escaping velocity to hyper growth. The spillover effect of these startups talents will be the coming founders, mentors and angel investors. This was seen in the US with the PayPal Mafia. Successfully and excited founders become the pillars of the high rising ecosystem.
Below is the original post that Tarek has shared across social media. A must read for all Entrepreneurs and Investors at the SEED round:
The below are some practical tips to MENA founders to overcome possible pitfalls at seed rounds.
1 - Don’t give up more than 20% of your company at the seed round for the money you need to grow the business for 12-16 months.
2 - Use standard funding documents like SAFEs and 500s KISS.
3 - Hire a competent lawyer and understand every single term in the Note or Term Sheet. Don’t take the investor’s lawyer.
4 - Try to have an advisory board.
5 - In case of a party round, always search for a lead investor you can trust.
6 - Before taking money from an investor, ask his/her portfolio companies about him (non-successful and successful ones).
7 - Agree on the targets of the next round/phase. Not necessarily to achieve it but the discussion is so revealing and will create alignment.
8 - Ask him/her about what he/she would like to see in the monthly reports. If he/she asks for too many at this early stage or didn’t ask for any, think again.
9 - If it is a fund, ask about the major LPs and fund timeline.
10 - Don’t take corporate venture money or Strategic investor money at the seed stage unless there is a very viable reason other than the perceived access to distribution or key first clients.
11 - Don’t wait, stop or even depend on closing the round to carry on the business.
12 - If you are not comfortable, bootstrap or get investors from outside the region.
13 - Finish the round quickly!
A few additional points from our experience at MAGNiTT:
14 - Beware of seasonality. Fundraising takes time. The MENA region tends to be quiet over the summer, making it harder to close deals. An optimal fundraising cycle starts in September and closes in the new year with the deployment of funds.
15 - Create a deal room. All Investors will ask for the same documents as part of DD (pitch deck, financials, license, CVs, Domain registration certificate, etc.). Have this ready and easily shareable BUT only to the right investor who shows interest and not all!
16 - Cap table. Prepare this in advance. List the investors and their allocation including any Angel or Friends & family contribution.
17 - Keep investors updated. Fundraising takes time. Investors who may have said no at the beginning of the process may come and close the round later on based on your performance. Create monthly summaries of key KPIs.
18 - Expect delays. You may believe that you are the investors priority. But remember they are speaking to multiple startups. Your priority may not always be their priority. Remain patient and not disgruntled.
19 - Practice, practice, practice. Rehearse your pitch the same way a singer would practice a song or a footballer would practice a free kick. Learn what works and adapt.
20 - Do your research. Go in prepared to each investor meeting. What is the investor's background? What startups have they invested in? Do they have a geographical or industry focus?