Do Venture Capitals in the MENA region compete with each other?
MAGNiTT’s 2019 MENA Venture Investment Report showcased many highlights for the regional startup ecosystem. However, is it possible that the Venture Capital firms spurring this entrepreneurial activity, might also be rivals? Basil Moftah, a General Partner at Global Ventures, provides his insights and opinion on the extent to which regional VCs are competitors.
Each week I meet between 5 and 10 entrepreneurs to learn about their brilliant ideas. Less than 5% of these meetings lead to follow on discussions, often because the idea or business does not fit with our funds criteria or it is simply too early in the process. Each interaction, however is worthwhile since we both learn something new and make good connections. Given that investing is a long term partnership, Venture Capital is fundamentally a people business.
At the initial meeting I always ask the same rather blunt question "who else are you discussing your financing round with?”
The question is deliberately direct and intends to discover 3 key things. Firstly, I want to establish how far along the business is in the fundraising cycle. Fundraising usually takes several weeks, if not months and quarters. Knowing the stage and timeline helps calibrate our small teams’ time. Venture Capitals receive more deals to look at than they can handle, so having enough time to evaluate each proposition is key.
Secondly, the question helps to explore how confident the CEO is about his/her business. Confident and mature entrepreneurs are likely to share the information openly since they know that the answer does not usually require the release of confidential information. Venture Capitals often share management boards and other investments together and regularly discuss what is going on in the ecosystem.
Finally, I want to know if the company understands the sources of funds available in the market. Are they plugged in or not? Over the past 12 months, the ecosystem has really grown in the Middle East and North Africa region and there are now many sources of funds - VCs, Corporate VC arms, family offices, and of course angel investors and super angel investors. Knowing how the company is hustling to raise money is an important measure of their seriousness and stamina. Raising money is liking a running a marathon, it requires practice and the final run is gruelling in terms of time and effort.
This brings me to the question - are Venture Capitals in the region competing with each other? On the one hand, the answer is “yes” because each Venture Capital fund is measured on the returns it achieves for its limited partners. So naturally, each Venture Capital wants to invest in the best companies and deals to make sure they maximise these returns. That creates natural tension and some entrepreneurs try to play that card by making it seem like a competition.
On the other hand, “not really”. Each Venture Capital in the region has unique capabilities, mandates and to a very large degree, the culture they bring to their portfolio. Most companies need more money than any single Venture Capital can or is willing to put into a business. At the same time, smart entrepreneurs usually take money from more than one investment fund to maximise the valuable relationships it creates in the market. By bringing more than one investor into the company, the business naturally creates more partners and advocates. Encouraging different opinions can be beneficial later when hard decisions need to be made.
At Global Ventures, we have been fortunate to invest alongside and co-lead with some of the best investors regionally and globally. We have worked regionally with Wamda, Beco, Algebra, DAI, and many others. We appreciate their views and capabilities, while at the same time bringing our unique relationships to our portfolio companies. Globally, we have worked as a great team with Gobi, Accel, GFC, and several others. Our portfolio companies have benefited from the diversity of investors and are stronger because of it.
The challenge for each business is to find the right mix and chemistry between its investors, which often comes down to the partners and individuals working with the company. Investors who do not work well together and who do not see the same path to success can be a real headache for the CEO - consuming time and energy to remain aligned. At the same time, a strong partnership can create exponential benefits, with all investors working to champion and support a business. Savvy entrepreneurs spend time getting this right and ultimately reap the rewards.