I’m not sure how many of you know the story of Pentugram, the startup I had co-founded along with Miled Elias. Pentugram got acquired by KSA’s RasMal and we announced the transaction last week at LEAP.

Here’s the story of my latest personal exit.

The story of Pentugram, its 3 key challenges and lessons learned

Last week Saudi-based RasMal announced that it acquired Pentugram, a startup that I had founded in 2018. A 6-word bio: a dealflow and portfolio management tool.

6 years ago I had been continuously searching for tools that would help Arzan VC manage the increasing deal flow and our portfolio companies’ data. We were looking for software that would be reasonably priced and would combine both deal flow and portfolio management. We demoed many tools: Affinity, Zapflow, mydealflow, etc. We went ahead with Pipedrive and Asana, but I was already anticipating that with the amount of data we were receiving daily, those softwares won’t allow us to benefit from our own data… and this problem got me really excited 😉 You can easily imagine the amount of interesting startup pitches that had passed through my hands and ears since 2014. I always imagined what it would be like to be in the shoes of founders and pitching, because it appeared as much more fun than sitting on the comfortable (not so those days) VC seat. And it turned out to be more fun; more exciting yet more challenging, too.

A 4:45AM idea

One early morning I woke up at 4:45AM with an idea that could be developed and used internally at Arzan VC and licensed externally to other ecosystem investors. The idea was to create a platform on which founders could keep all their data/metrics and share it with investors who would also be on that platform. It would allow for all data to be in one place, easily shareable by founders, while in parallel allowing investors to accumulate all their notes, emails, tasks and news related to specific startups. All that in one place. I could not sleep anymore and right from the morning I began brainstorming the idea with my team at Arzan VC. By coincidence, on that very same day, I was meant to meet the CEO of the Kuwaiti National Fund for SMEs and I thought: It’s a perfect opportunity to pitch the platform to them and get their initial feedback. Obviously, the platform was non-existent and I had one hour to come up with a name. Pentugram. I liked how it sounded although its meaning had no relevance to the platform. I was sure that, with time, the platform would create its own brand value.

After some extensive research, I presented the idea to Arzan Financial Group (AFG) who liked my thesis and decided to support Pentugram with an investment. I hired the head of engineering Abdulhaleem Lagrid and we began to stage the project and set the development milestones. We started by recruiting a designer and back-end and front-end developers, all from Tunis. I was so excited that I had gotten this opportunity to build a tech startup although I was pretty busy managing Arzan VC.

Challenge no.1

The MVP was ready after 9 months of hard work. It was far from what was acceptable, but the team’s excitement kept me going. Being a venture capitalist, I used my connections to get other regional VCs to consider using Pentugram. Let me tell you, the talks with fellow VCs turned out to be not what I’d expect. None of them was comfortable with the idea that another VC would host their data (although important data is encrypted).

So, I immediately started to think about an alternative way to sell this product without being questioned about data confidentiality or even ownership. I decided to spin off the project as a standalone company, hire a COO and remove Arzan VC from the cap table. I was lucky enough to meet Miled Elias at one of ArabNet’s events and I knew he would be a great person to manage the sales and operations of the business.

Challenge no.2

Miled, Abdulhaleem and I worked closely with the team to develop the platform and bring it up to a standard that VCs would find acceptable. The team at Arzan VC played a key role in the process by providing continuous feedback, which helped us not only to improve the platform but also to make it as slick as it is today. Once ready, Miled began pitching the platform to VCs from the region and this was when we stumbled upon our second major challenge. Although the VCs liked our platform, they were worried that a regional platform like Pentugram might not exist in the short term since we had not raised any significant funding rounds and we might have a rather short runway. In addition, back in 2018, a SaaS from MENA was not as appreciated as it is today. Any international tool would be preferred.

Challenge no.3

To solve the challenges, we raised a second round from AFG to ensure a long runway and we also hired a digital marketing expert. Our aim was to onboard more VCs who could help us improve the platform further and give us feedback. This proved to work and Pentugram expanded from 1 client (Arzan VC) to 9 clients. We began receiving precious feedback. Miled was superb in providing a customized customer experience and clients loved his passion and willingness to help. However, we got face to face with our third challenge (which was, at the same time, a benefit for this business model). These CRM tools can be very sticky! If a potential client was already using different software, it would be very difficult to make them shift to Pentugram. Hence, we focused on pitching Pentugram to newly established regional VCs.

As Miled continued to sell, we all realized the difficulties he was facing in convincing VC partners to sign up and pay. We had a feeling that partners thought of Pentugram as a “nice to have” tool, but not a “must have”. Looking back, I don’t think we were able to clearly demonstrate the long-term value of Pentugram to potential clients and hence onboarding clients turned out to be a struggle. As I expressed earlier, the vision of Pentugram was to enable VCs to use their data and improve their decision-making. That was not clear to our clients. Moreover, it became clear that if we continued our focus on VC firms, our market size would be too small. Hence, we decided to use our core platform to build new products that would cater to other fund managers in different asset classes such as private equity, wealth management, real estate, etc. Although we had very little funding left, we were able to create a reporting platform for retail investors who are invested with Arzan Wealth (a firm focused on investing in yielding assets): they would log in and easily view the news about their investments and details about their income distributions.

A future with RasMal

I believe there are different ways in which Pentugram can be attractive as a software tool for asset managers, but we could not have developed that with the limited resources we had. For Pentugram to be successful and truly take off, it would require selling the product in much larger markets in order to receive consistent customer feedback. We realized that the traction would be much better if we integrated with existing deal flow management tools and focused on developing a technology that demonstrates AI. This is when RasMal came into the picture.

We passed the torch to team RasMal last week (along with Miled, who is now fully at RasMal) and I am convinced that RasMal’s acquisition will allow for the continuous development of Pentugram. RasMal will introduce Pentugram to a broader range of asset managers beyond just venture capitalists, ultimately leading to improved returns for all users.

Thank you, Miled, Abdulhaleem and team Pentugram, for the journey.

Hala, Zid and Lean Technologies on one stage

Delivering in 7 cities in Saudi

Luxury’s resilient price points

Feeding collection in 3,2,1…

Zid + Qoyod

Qoyod + Supi

Subsbase + KayanHR

• Bookkeeping Manager at Qoyod (Riyadh)
• Search Engine Optimization (SEO) Specialist at Money Fellows (Cairo)
• Business Development Manager at Subsbase (Cairo)
• Sales Executive at TruKKer (Amman)
• Sales Executive – SaaS specialist at Repzo
• Content Marketer at Gameball (remote)

Wishing you a peaceful Ramadan,

Hasan

If January was a trial month, would you cancel your annual subscription?

Back to reality. Those of you who didn’t intercept Clara releasing their updated Term Sheet for Series A investments – I got you covered.

Their Term Sheet provides a balanced and fair draft of key terms and conditions, endorsed by various venture capital firms, investors and law firms in the Middle East, including Arzan VC, 500 Startups, Wamda, MEVCA and TaylorWessing.

Scroll down for the download link.

Term Sheet template for Series A rounds in MENA ecosystem (by Clara)

Founders, you’re all well-aware that a term sheet is one of the most important documents that you will negotiate and sign, and so it’s super important that we are all aligned with the latest legal standards in our market.

Do you know what a good Series A Term Sheet looks like? And do you know what provisions are worth fighting for? (Short answer: Not just the valuation…)

Clara team took it on their shoulders to update their Term Sheet for Series A with the help of leading VCs and law firms in the region – and we thank Clara for spearheading this initiative.

Clara’s Term Sheet is what a Series A term sheet should look like with standard, clean and balanced terms. Remember that this is a template and it’s been developed for use in common law jurisdictions, such as ADGM, DIFC, the Cayman Islands and BVI.

Download your copy here.

You’ll notice that it comprises 37 sections, including Price (+ Valuation), Liquidation Preference, Anti-Dilution, Voting Rights, Conversion Rights and, equally crucial, Information Rights. Also, your Board composition will hint on your power dynamics and how much control the investor wants to exercise when it comes to operational decisions. (Note that Clara’s Term Sheet is non-legally binding, intended for discussion purposes only, with the exception of the last six of the 37 sections, which are binding.)

Schedule 1 presents Pre- and Post-Closing Cap tables, Schedule 2 outlines a sample list of Board Reserved Matters and Schedule 3 outlines a sample list of Shareholder Reserved Matters.

A serious last note:
I’d say Clara’s term sheet is very straightforward and it’s a solid foundation to build on. Ping me if you got questions.

Nearpay at Seamless Singapore

Lucky One was lucky in 2023

Merit recognized as leader of Saudi growth

Carseer became closer to Islamic International Arab Bank customers

Citron offers free replacement parts until Feb 11

Retailo + Starlinks

Subsbase + Wadi Degla

• Community Sales Executive at Money Fellows (Cairo)
• Senior Product Manager – Payments at Money Fellows (Cairo)
• Product Innovation Manager at Qoyod (Riyadh)
• Full Stack Engineer (Lead) at Khazenly (Cairo)
• Product Owner at Khazenly (Cairo)
• Partnership Executive at Merit Incentives (Singapore)

See you around,

Hasan

HAPPY NEW YEAR. (It’s only the second week of Jan, so it’s still ok to say it.)

We don’t like to release our Wrapped before the year ends because who knows what the last few days may bring…? And it turns out that the end of our December was just that busy – ahead of Beban’s airing of its first episode of Season 3, in which I took part. (Did you miss it? You can watch it over and over here for free).

What we at Arzan VC treasure most about our 2023 is the old and new faces we got to meet at events … and there were so many of them – you can tell by the amount of photos below! Our wish for 2024 is to continue doing so – while having a chance to witness the comeback of events in Palestine️

Let’s unwrap.

2023 Wrapped… by Arzan VC

This is how the ride began.

Hope 2024 is treating you well so far… see you on the ride!

$14 million for Nearpay

Merit Incentives delivered over 1 million rewards & gifts in Saudi

Money Fellow’s Ahmed Wadi featured on Bankawy’s 2023 Influencers list

Klaim is Future 100

4th Tajerthon event by Zid

What are 2024’s big marketing trends? And edtech trends?

• CRM Specialist (User life cycle management) at Money Fellows (Cairo)
• Software Back-end Engineer (.Net) at Money Fellows (Cairo)
• Account Manager at Khazenly (Cairo)
• Account Manager at Cartlow (Dubai)
• Operations Lead at Retailo (Riyadh)

I’ll be in Dubai on Jan 17. Coffee?

Hasan

The tone of our issue #70 is different from the previous sixty-nine.

I’m sharing some thoughts on how we should communicate in these times and how each of us can ensure that the concept of free speech in the workplace survives the ongoing war on Palestine.

How do we communicate when striving for entrepreneurship suddenly becomes striving for mere survival?

Gaza’s startup ecosystem has been blown up and its founders are being killed. Gaza Sky Geeks, the largest tech hub in the Strip run by Mercy Corps, had their offices demolished and some staff lost their life. The startup community in West Bank remains operational albeit with a very uncertain future. (I wrote about the Palestinian startup ecosystem here in June 2021 – amid another aggression.)

Over the last two months, several individuals in the West lost their jobs or had their events cancelled because of what they said or what they did not say, students lost their job offers and were publicly shamed… and often times they ended up being offered better jobs in more supportive environments, they found new audiences and support groups. These excessive firings and cancellations showed that such actions are indeed extreme measures and can spark more outrage in response.

Not sure how about you, but I’ve seen my LinkedIn feed turn acutely political or should I say acutely humanitarian?

How do we communicate in these times and how can we ensure that the concept of free speech in the workplace survives the ongoing war on Palestine?

In MENA, many VC partners, founders, teams are choosing not to stay silent. Some are actively posting, others are fighting the battles in the comment sections, some startups adapted their logo to reflect colours and symbols associated with Palestine and some founders even rejected investments after finding out the money was in some way affiliated with the occupying party. It’s their right. We should only do what our conscience tells us to do – and that certainly includes fundraising for your startup.

Earlier in November Fortune, Forbes, Inc and others began to dwell on the correct approach to talking about the ongoing conflict in the workplace. Geopolitics has become the no.1 challenge for CEOs. Google, the hub for employee activism, has been retaliating against Muslim employees. Communication advisors have full hands advising management teams around the world on how to respond while not offending the other group… and who are the groups? Should we label them by religious affiliation, or should we label them by their political beliefs, because the two do not seem to be interchangeable? A tricky quandary.

Free speech comes with responsibilities. Free speech means that not only bosses get to have a real freedom of speech. Free speech in the workplace means not retaliating against employees. Free speech means we sometimes have to stick up for people who have said things that we don’t like (unless what they said is pure hatred and source of threat to others and hence a good subject for cancel culture).

As a founder, ensuring the well-being of your team, safeguarding the culture you’ve created inside your startup and protecting the relations with your investors and clients is a must, but so is addressing sensitive issues that may disrupt that well-being, culture and relations. Whenever we’re talking about contentious topics, let’s not forget:

1. 1. Our emotional intelligence & compassion
2. 2. Our workplace policies and to what extent we can express our solidarity
3. 3. Our company’s social media policies and how to make sure our opinions are voiced as our own
4. 4. The language and tone we speak with
5. 5. The sources of information we share
6. 6. To keep documenting our conversations as a form of protection (evidence)
7. 7. To stay calm and professional
   

These are difficult times to be a leader. However, it is possible to address issues involving human suffering in a diplomatic and compassionate way, starting by referring to our own values and principles. In an ideal world, leaders should bring people together, not divide them, and they should nurture healthy conversations – even when politics is involved. I believe that no matter what our opinions are, if we ready ourselves for listening to one’s opinion without immediately arguing back, if we don’t resort to aggression (although yes, emotions are high right now), if we work harder to create that safe zone, that neutral gathering space, where arguments can be voiced, heard and acknowledged, only then we will be able to progress – as companies, as communities, as countries, as humanity. I’m not daydreaming; if we don’t realize this now, we can as well forget about any lasting progress. 

I wish for a future where our communities’ culture will be robust enough for all of us to have open discussions – even if they frustrate us. Frustration is better than silence and denial. 

I trust that Palestinian entrepreneurs will be able to rebound and rebuild, except that this time they will do so without fearing that someone will come again and shatter everything they have built. 

#FreePalestine 

© Symbol of Hope by Sliman Mansour (1985)

$15 million for Retailo

Khazenly becomes Content partner for Tech Her Program

Lucky Talabat

Merit + Alshaya Group KSA

Klaim + Huawei Cloud

Zid discussed how to grow business with modern financing

• National Operations Manager at Retailo (Riyadh / hybrid)
• Partnership Executive at Merit Incentives (Singapore)
• Scrum Master at Money Fellows (Cairo)
• BD Representative at Swvl (Cairo)
• Digital Marketing Specialist at Qoyod (Cairo)
• Cash On Delivery Coordinator at Khazenly (Zamalek)

Stay well & warm,

Hasan

How are you coping?

In a parallel world, I’d like to take a more holistic look at cap tables – their shape and health, because some cap tables out there could benefit from some tidying up

Fixing (un)investable cap tables

Your cap table (CT) may not always look like your dream team, but a messy CT structure is sometimes the sole reason why an investor decides to pass on an investment.

Before I get to the types of messy tables, recall my recent address to founders: You should treat your equity like gold (or diamonds?). It’s about finding a balance between how much you want to own and how much faster you want the business to grow. Not striking that balance can often turn into an obstacle and render your startup uninvestable. Have no fear though; most messy structures can be tidied up over time. I think it should always be a joint effort of all shareholders – founders & existing owners/investors alike – to work together to avoid a state/situation when the startup becomes uninvestable due to an unhealthy ownership structure and cannot raise – which will negatively impact ALL existing shareholders.

Types of messy cap tables & how to fix them:

– Founders with <70% before Seed. Imagine a startup with 3 co-founders holding collectively 75% of shares before Seed, while no investor on the CT has more than either of the 3 co-founders… – this is quite a common scenario. What could raise an alarm are founders with <70% before Seed and an investor with a relatively high share standing out from the rest of investors. Founders that find themselves over-diluted before Seed may not feel as motivated and incentivized as founders with healthy ownership. That’s why it’s important to achieve the MVP phase without giving up too much equity for a relatively small amount of funding (usually hundreds of thousands of dollars). If you need to raise that initial round, use SAFE notes or vesting schedules. Also, be careful about the initial valuation and ensure it reflects your peers and the prevailing market conditions.

– An investor with a major stake. An investor with a stake of >50% can pose a clear threat to the health of the startup’s overall ownership structure and its investability in the future. Examples include startups that are products of spin-offs. Or startups that relied heavily and/or repeatedly on one investor. Example: a post-B startup with founders owning collectively 5% (over-diluted!), a major investor owning >50%, two other investors collectively owning 30% each and an ESOP pool. If new investors are to come aboard, it will be imperative for them to bring that one majority owner to a healthier% – perhaps through a secondary where the already-very-small founders’ ownership won’t suffer from dilution.

– No ESOP for C-level employees. Example: a startup owned by another company (55%) and a pool of investors (45%). The startup’s CEO has no shares although, in a fair world, he would have been given the co-founder title a long time ago. Unfair practices should have no place in 2023. (Don’t pick on my use of “a fair world” – we’re all aware that the meaning of that phrase has recently become a kind of mirage.)

– Unhealthy amount of inactive equity. Inactive equity belongs to shareholders who are not actively involved in the startup. Shareholders such as Friends & Family (F&F) and/or business angels who came in at a very low valuation in the founding phase. I’d like to argue here against the proposition that ex-founders’ equity should also be also considered a kind of inactive equity, because – in case of any founder – we shouldn’t forget their long-lasting contribution in the early years of the business and, as thus, they cannot be simply put in the same basket with F&F and other actual inactive equity owners.

– Too many investors. Having a CT resembling a colorful palette is not uncommon and it doesn’t have to be a bad thing as long as all investors are aligned with the founders’ vision. And quick to sign documents.

Any other (un)investable tables that you’ve seen out there?

Dtonic Corporation’s $1.5m investment in Retailo

Swvl’s FY2022 results

#PeopleOfEndeavor: Ahmed Wadi

Another proud #MadeInSaudi brand

Decoding fintech jargon

+1 photo from this week’s /MoneyTech in Kuwait:

• Treasury and ALM Manager at Money Fellows (Cairo)
• Strategy Lead at TruKKer (Dubai)
• Senior Graphic Designer at Subsbase (Cairo)
• Senior Payroll Specialist at Hala (Riyadh)
• Quality Assurance Engineer at Gameball (remote)
• Content Validation Specialist at Cartlow (Cairo)

Adeel will be leading NIC Karachi’s FI Session 13: Investor Pitch Review on November 17, where he will be mentoring startups participating in the NIC Karachi FI Summer 2023 Semester.

Take good care.

Hasan