I believe that the 2023 vintage may be the best of this decade.

We are raising a $60M fund – our 3rd fund – and… are some of you are raising eyebrows now? It is a bold move given the times we are living in, but the timing is right. Other VCs are raising north of $100M – I say that’s ambitious but let’s hope they make it.

Each time a VC is raising a fund they will tell you now is the best time to invest. Of course they have to tell you that… But I’m going to tell you something else: invest in all vintages.

Why should you invest in all vintages?

Just like prevailing climatic conditions determine how a specific harvest year will turn out, VC funds are influenced by the prevailing market conditions in its vintage year.

Let’s look at IRRs of early-stage venture funds based on their vintage:

There is no linear correlation between S&P 500 Annual returns with dividends and Median Net IRR of early-stage venture funds (r = 0.04). Is there any other way we can predict performance of a specific vintage? Yes. The prevailing valuation environment.

Deploying in a lower-valuation environment like the one we’re in right now (2023 vintage) should allow VC funds to ride on a wave of economic growth in the next season, and it typically signals a better vintage performance. Down-rounds and flat-rounds during the 2008-11 financial recession outperformed the up-rounds (and the opposite happens in bull years).

Let me explain the evolution of MENA’s valuation environment through our funds:

AVC I (2015 vintage) started looking at deals in 2014 when MENA’s VC market was in its early days. There were very few startup investments happening because the space wasn’t crowded (that’s why we label ourselves one of the earliest VCs in the region). It was hence the best time to start investing and we made 17 investments in the coming 4 years, mainly in the region plus a few outside. AVC I had its investment period over by end-2018 – in parallel with our growing regional ecosystem – and that turned out very well for us: 5 great exits (Careem, POSRocket, Tamatem, Wrappup, Onfleet) and 4 more to go in the near future inshallah. Take-away lessons: A well-balanced portfolio of 17 startups (majority in the region); T&L (TruKKer, Armada Delivery), e-commerce (Mejuri, The Luxury Closet), mobility (Careem)… coupled with low valuations at entry and strong markets during exits took us a long way. If you ask me if we can duplicate this stellar fund performance, my answer is no because MENA VC 2015 vintage was a very strong one due to a mix of specific attributes (an untapped ecosystem with a limited number of VC players and plenty of first-mover startups) that I don’t think we will get to see again soon (or ever).

AVC II (2019 vintage) offers a different story. Our ecosystem was growing full steam ahead in 2019. Regional governments began backing VCs and incubators. Global PE/VC had a lot of dry powder. Valuations kept soaring and some entry points became very expensive. AVC II was done investing by mid-2022 – at the peak, and since then the global as well as regional startup valuations have been in decline. Take-away lessons: Deploy funds throughout the investment period even if you can deploy faster (i.e., 1-2 years). Despite AVC II’s exit window finding itself in a low/lower-valuation environment, the fund’s solid foundation and our balanced-portfolio strategy will ensure that the fund will sail through intact and generate good returns. We invested in a few not-so-tech startups like Citron and Haseel – to keep the portfolio balanced. E.g., Haseel supplies food (veggies & fruits) – and food is needed at all times. Moreover, 48.6% of the fund’s volume went into KSA-based companies, hence the market impact is expected to be less severe since KSA (i) has the ability to attract talent (regional and international), (ii) has a solid financial sector and (iii) has just started its growth journey.

AVC III (2023 vintage) is deploying in a low/lower-valuation environment and we got 3 warehoused investments (Nearpay, Money Fellows, Hala). Our strategy remains largely unchanged: we are industry-agnostic in our approach, sticking to MENA + adding a small allocation for Pakistan. The current, more reasonable valuations allow us to target good deals at “the right price”. We strongly believe that an investment in the GCC is and will be the most secure and stable investment for the next 10 years (x US facing economic challenges, de-dollarization, banking instability; x high inflation in Europe; x talent relocation from Europe to UAE & KSA). The GCC is where we should invest because of political stability, strong financial markets, strong currencies, visionary leaders and talent influx…

Many regional VCs were created in 2019 and afterwards – and since these vintages are not going to perform as expected, some of those VCs might not be able to raise again… expect seeing more zombie funds. Also, less funding means less competition. So – like in 2015 – future funding rounds should be priced reasonably, and that’s one of the many reasons why we’re expecting AVC III to have a very solid fund performance.

Concluding thoughts

We’ve recently seen how badly “all-eggs-in-the-same-basket” can turn out. Investing directly in “once-upon-a-time” hot startups proved unbalanced and risky for many around us.

But there’s a solution to getting the best even out of a “worse” vintage: Invest in any and every vintage regardless of the current market status. Definitely don’t invest all your money in one year. Very importantly – make sure that the fund manager of your choice has a track record of well-balanced portfolios that survive both good and bad times. Our funds prove to have that strength.

Companies that survive 2023 will emerge stronger, more efficient and more sustainable.

We’re ready to continue backing and building.

TOP 30 fintechs. Money Fellows and Hala landed on Forbes Middle East’ list of 2023 Top 30 Fintech Companies in the region.

Hello Saudi! Khazenly announced the launch of their newest service Cross Borders that provides customers with a legit setup to sell in the KSA, including full-fledged logistics.

Hello Saudi! (#2) Citron launched its collections in Saudi Arabia as well as a local website.

Share with uni students and fresh grads: Gameball has opened applications for its fourth Summer internship program “Elevate”. This is a paid opportunity targeted towards university students and fresh grads. Apply by May 30.

Charity e-giftcard. Merit Incentives partnered up with the Noor Dubai Foundation as their Charity E-Giftcard Partner in the UAE.

Car reports on OpenSooq. CarSeer partnered up with OpenSooq to provide customers with Carseer reports directly from the platform.

• Associate Growth Product Manager at Zid (Riyadh)
• Business Development Executive at Cartlow (Riyadh)
• Principal Frontend Engineer at Money Fellows (Cairo)
• Senior Developer at CarSeer (Amman)
• Product Owner at Qoyod (Riyadh)
• Accounting Associate at Retailo (Karachi)

I’ll be in UAE on May 24-25 along with our CFO Adeel. See you around🥤?

Hasan

Few weekends ago Laith took part in a discussion panel titled “The Endgame: Winning Exists For Startups & VCs” at RiseUp Summit in Cairo, and he’d like to share his views with those who weren’t there. Take notes.

How can founders win exits?

1) How do you as a founder decide whether to exit or not, and how do you seek advice/guidance from your investors?

I was on the panel as an investor, however this question brought back memories from when I was a founder of a fledgling startup called Jeeran – you’d know it if you have grey hair. At the time we had grown to over 7M users and we were at the leading edge of the internet in MENA. We had exit discussions with different parties ranging from full acquisition and takeover to majority stake acquisitions with a partial exit for founders. These discussions never materialized because we didn’t really know how to think about them. I can say, however, that we approached all of them with a defensive mindset. Our answer was always “Never! But let’s talk”. I have also witnessed this attitude from other founders during my work as a VC and have seen them pass on great offers only to crash and burn later. Always approach these discussions with a “Yes, let’s talk” attitude and the knowledge that these opportunities may not come around again, especially in MENA.

The second mistake we made was involving investors too early in the thought process. In fact, our investors were in some of those initial meetings, which centered the discussion around cheque sizes and valuations. We had more discussions about what we wanted to do with the company with our VCs than among each other as founders. We pretty much did not think of any other stakeholder when in fact there were many at the time: our team, families, customers, and the broader ecosystem.

Founders can feel burnt out, unable to scale or under immense pressure, resulting in a desire to exit. You will know when that feeling comes. And when it does, don’t ignore it. One of my mentors once told me: “You want to be the guy who sold it to the other guy. You don’t want to be the guy who held onto it for too long.” 

Deciding to pass and continue building the business is a very exciting option. It’s also a significant undertaking that requires careful consideration of individual goals and objectives. It’s like finishing a marathon and being asked to run it again, immediately, for double the prize.

2) Do investors need to be part of that initial we-got-an-exit-offer conversation?

Selling your company is (usually) a once-in-a-life decision. So, as a startup founder, the first person, aside from your co-founder, that you should talk to when you receive an exit offer is your spouse/partner because your partner is the person you’re probably most aligned with when it comes to you and what you want to do with your life.

Before bringing in outside parties, founders must discuss and align their priorities internally. It’s more important to involve team members since they are the backbone of the business and will provide support if the decision is made to continue with the venture.

Investors will try to tell you that they are always aligned with you in the exit discussions. That’s not true. They will have different objectives and priorities depending on their entry point, fund size, overall fund performance and other factors. Investors are diversified while you only have one company & one shot.

You should involve investors only once your desire to exit is crystal clear.

As an investor myself, I will always say that if the founder makes money, everybody else makes money. And when that time comes, then that is the time. Investors should then help push the deal towards a successful outcome for everyone.

3) What should be the investors’ role?

When the founders agree and decide they want to pursue an exit, that’s when investors should go out and try to connect with these potential buyers through their networks. Having investors involved in the conversation at that point can bring valuable perspectives and expertise to the table, which can help the founders make a more informed decision. It’s important to carefully evaluate each offer and consider all the factors involved, such as the potential for future growth, the financial benefits of the offer, and the impact on the company’s employees and customers. Investors should focus on helping with negotiating deal terms, doing DD on the acquirer and guiding founders through the process.

There is a good example of a portfolio company of ours that decided to sell “early”. We felt it wasn’t the right decision, but we supported it anyway. This was just before the global financial conditions took a turn in 2022. We’re now thankful they took that exit. Interestingly enough, that company was in Egypt. Phew!

As investors, we are there to support the founders in their journey from start to exit and help them maneuver it – as long as the founders know what they want to do. We shouldn’t provide an answer to the question of whether to exit or not; only guidance and advice once that decision has been made.

—
My co-panelists were Zeid Husban (founder of POSRocket – acquired by Foodics), Sameh Saleh (founder of Hawaya – acquired by Match Group) and Bassem Raafat (Principal at A15), and we were moderated by Qusai AlSaif (CEO & MD of Sadu Capital). It was a fired-up one!🔥

Outliers

Zid and Money Fellows are part of Endeavour Outliers list of companies for 2023 = top ~9% out of ~2,500 companies.

Moved to Riyadh

As part of the first joiners for the RELOCATE Initiative: Move to Saudi Arabia, Merit relocated its regional HQ to Riyadh. Also, Merit’s founder Julie Barbier-Leblan became President of Incentive Marketing Association IMA MEAPAC.

+1 partnership

Klaim partnered up with Dubai Healthcare City to help healthcare providers manage insurance claims and cashflow.

Fashion innovator

The Luxury Closet was featured in the Khaleej Times’ wknd. magazine as an innovator in the fashion resale market.

+1 article about us: “MENA-based investors with the highest portfolio exits” by Magnitt (note: we made more than 7 exits; Magnitt doesn’t count secondaries)

• Legal Associate at Retailo (Karachi)
• Operations Onboarding (Back Office) at Zid (Riyadh)
• Sales Executive (Outbound) at Zid (Jeddah)
• Senior Graphic Designer at Lucky (Giza)
• Graphic Designer at Cartlow (Cairo)
• Quality & Authenticity Assistant – Luxury Watches at The Luxury Closet (Dubai)
• UX Copy Writer at Money Fellows (Cairo)

Blessed Eid! 🌙

Hasan

P.S. 1 wish: Can MENA banks become more startup-friendly?

Earlier this month we organized a soirée in Riyadh for our Saudi investors, founders and several key local stakeholders… And we didn’t discuss tech for about 20 minutes thanks to Ali Husain of Husaak Adventures.

 If you weren’t at Cairo’s Startups Without Borders summit, below are the key arguments that I presented at the panel on How to maximize diversity & inclusion in investment.

More women-led startups? It starts with parents.

62 investments out of 795… < 1%
$51M out of $3.92B… 1.3%

That’s a snapshot of investments into MENA’s women-led startups in 2022.
The gender gap in funding is a global problem. It was 2% in the US in 2021 and 1% in Europe in the same year. Although it’s a fact that founder teams with women are more likely to exit and have a higher IRR (112% vs. 48%).

So why can’t we reduce the gap?

1. Women get less VC money because there are less women founders in general (an ownership gap) – that’s a wrong assumption. IFC says that 1 in 3 of the region’s tech startups is founded by women (a higher % than in Silicon Valley).
2. Women-run businesses tend to provide only women-related products and services. Another wrong assumption.
3. Some investors lack interest and/or knowledge in a particular sector/model – and that applies when a VC doesn’t have enough women on the team who can relate to that model… A platform accelerating women’s career growth may not be fully grasped by men because we (men) don’t face the same career challenges as women.
4. Though there are women-led startups, they can’t raise because they lack certain skill sets and abilities to deliver. Low financial literacy and inability to find the right co-founder could play a role, too. However, luckily for all of us, none of these is a dead-end reason.
5. Up to 57% of STEM grads in Arab countries are women (much more than in unis in the US/Europe), though many of them end up not pursuing their careers. They stay at home either by choice or due to cultural, social or family pressures. But no one should dictate the limits of women’s roles in a society.

The change begins in our mindsets. And the mindsets of parents who need to make sure all their kids get an equal chance at anything, including founding a startup one day.

As investors, we should ask ourselves: Do we have enough women on our own teams?

Apple’s Tim Cook recently admitted there are still not enough women at the table at the world’s tech firms (including Apple).

Answering with Arzan VC in mind, my response is Yes. Arzan VC team is ~44% women representing 4 nationalities (super proud of this).

Investors need to look inwards and start at “home”: Let’s have more diversity in our structures and in decision-making roles… but only as long as these new hires fit in based on their abilities and skills; not because “we need to hire a woman, so let’s do it”. The fact that our team is so diverse only proves that the talent pool out there is equally diverse.

Next: Are we assessing female founders the same way as male founders?

At Arzan VC, we do not have mandates to invest in women-led startups. We approach each startup with the same checks & balances. So far we invested in several women-led (co-led) startups: Citron (Sara Chemmaa), Merit Incentives (Julie Barbier-Leblan), Mejuri (Noura Sakkijha), Cartlow (Nour Sleiman), Munch:on (Dana Baki) and Fatura (Salma Barkouky).

Investors should not discriminate any founder/team based on their gender, race, ethnicity or religion. We must assess them only based on their talent, skill set and ability to innovate and solve a particular problem.

I don’t believe we should force ourselves to invest more money in women-led startups just because there’s a gender gap. Creating a VC fund for women-led startups or setting up mandates on allocations – these are actions that are “forced”. And rather than forcing, we need to focus on the root causes of the gender gap: mindsets.

There are people around us who still prefer to invest in men-led startups, because they believe men are better than women, but there are also others who think the opposite. We shouldn’t think in either direction. Both are wrong. We should only discriminate by skill sets and abilities.

The low investment in females is not a failure of females – there is nothing inherently failing about any gender. If there are not enough women entrepreneurs to choose from and fund, then the issue is in the lack of support for women to become entrepreneurs in the first place.

Obviously, improving the skill sets and abilities of startup teams is something that we all need to focus on as an ecosystem. IFC organized a training/networking event in Dubai earlier this week for selected 100 female-led startups and 10+ VCs/accelerators (She WINS Arabia), and our Asia was representing Arzan VC. In the future, I wish to see every large event (like LEAP or Gitex) having a panel dedicated to female entrepreneurs – so that there’ll be attention given to female founders at large events and real synergies can happen; rather than organising just standalone female-focused events.

If we allow our minds to think outside the gender/cultural/ethnic differences and if we improve access to mentoring and networking for all – then something good will happen.

+1 acquisition

Paymennt.com got acquired by Hala. Both are our Fund II companies. Mabrouk guys!

+$3.5M for Gameball

Gameball closed a seed round of $3.5M – we participated along with 500 Global, P1 Ventures, Launch Africa, SEEDRA Ventures and others.

Saudi unicorns

TruKKer and Zid are part of the Saudi Unicorns Programme by Blossom Accelerator, which will help regional start-ups achieve billion-dollar market values.

18🤩

Mejuri opened its 18th store – in Montreal.

Goodbye to screenshots

Nearpay customers can now receive their receipt instantly through NFC.

• Growth Lead at Retailo (Riyadh)
• Technical Lead at Zid (Egypt)
• Partnerships Manager at Qoyod (Riyadh)
• Product Sales Manager at Merit Incentives (Dubai)
• Digital Marketing Director at Cartlow (Cairo)
• SaaS Sales Specialist at Repzo (Amman)
• UX Copy Writer at Money Fellows (Cairo)

Happy national days to our dear Kuwait 🇰🇼

Hasan

Our 2022 Wrapped is certainly more insightful and fun than Spotify & Anghami combined 😛

I guess what we treasure most about 2022 is that it was kind enough to let us attend physical events and gatherings🙏

Let’s unwrap?

2022 Wrapped

This is how the ride began.

… and that’s how it’s ending.

Region in 5 points:
1. Despite the global funding slowdown, our region outperformed last year. MENA-based startups were injected with 22.01% more funds than in 2021.*
2. BUT. Valuations reset continues. Globally, declines in mid- and late-stage valuations further accelerated in Q3’22. However, seed stage valuations (<$2.5M round size) remain 37% above 2021 levels.
3. Bootstrapping strategies made a comeback.
4. M&A on fire: 74 MENA-based startups got acquired since January’22 (vs. 42 in 2021).**
5. Lessons learned: NO to overhiring.

Arzan VC in 5 points:
1. We prepped for the launch of our 3rd fund: Arzan VC Fund III 💰.
2. Our portfolio grew to 46 startups (3 of which are warehoused for AVC III).
3. In total, we invested in 9 startups in 2022 (3 of which were follow-ons).
4. We hit 9 exits since inception (~20% of our portfolio).
5. Team-wise, Captain CFO Adeel Shahid joined us aboard.

Ready for the next ride🎢 ? We are.

* Data as of 16 December 2022. Source: Racha Ghamlouch’s amazing Digital Digest
** Data as of 22 December 2022. Source: our in-house research

MENA’s top 50

TruKKer, Zid, Lucky, Retailo and Money Fellows were featured in Forbes Middle East as MENA’s 50 Most Funded Startups in 2022.

🎁

CB Insights gave us all an early Xmas gift with 120+ maps of tech markets. Featuring Haseel, iKcon (REEF), Lucky, Merit Incentives, Cartlow, Money Fellows, Qoyod, FlexxPay & Onfleet.

Best workplace

Qoyod was ranked 18th best place to work at in the Middle East for 2022.

Paris in January?

Citron will be exhibiting at MAISON&OBJET in January.

+1 photo with Khazenly team at their new office and with a new logo 😉

• Sales Account Manager at TruKKer (Cairo)
• Inbound Sales at Zid (Kuwait)
• Procurement Specialist at Qoyod (Riyadh)
• Talent Acquisition Specialist at Money Fellows (Cairo)
• Junior Accountant at Lucky (Giza)
• Junior Accountant at Cartlow (Dubai)

Happy holidays, careful on the ski slopes and see you in ’23,

Hasan

This period before we say our Goodbyes to the old year is always a rollercoaster, but this year it’s all another level because every day we have a chance to sit down for a bit (a long bit) and feel *united* with the whole world. No matter who’s playing, there’s always a team to cheer for, and that’s just beautiful.

Today is all about tech associated with the Qatari World Cup – both inside the stadiums and beyond them.

Unbundling the World Cup… and Qatari tech scene

$300B went into this Cup and that figure includes the tech spending, too. For many reasons, this is the most tech Cup ever. It uses AI to check on all the fans around the 8 stadiums, predict and tackle overcrowding and keep the stadium temperature under control. Plus, there is network of 15,000 cameras with facial recognition tech. This may be on the creepy side… But in general, controlling the crowds is important to prevent chaos, because chaos at a packed football stadium is the last thing anyone wants…

AI is also deployed during matches to help match officials make better offside decisions with the help of 12 tracking cameras mounted below the stadium roof as well as 29(!) data points on each player. Oh, and there is a sensor at the centre of each match ball, which submits ball data 500 times per second. Just wow. 😶

Since the 2018 World Cup, match referees have been relying on VAR system (Video assistant referee) developed by Hawk-Eye Innovations Ltd. It helps them make decisions about goals, penalties, direct red cards and even mistaken identities of players. And when it comes to the players, for the first time ever they can track themselves through the FIFA Player App, which monitors their on-field performance and offers player-tailored insights shortly after a match is over. (So they can keep replaying those goals on repeat :P)

Outside the stadiums, tech is also thriving. Let’s break down the many ways tech is accompanying the hundreds of thousands of fans in Qatar these days.

7 distinct categories, but the list is far from complete. Consider it as a teaser of Qatari tech startup scene. Bear in mind that when compiling the list, I thought of services that World Cup fans would require or need most during their stays.

Esports – and sportstech in general – have obviously gained on importance and Qatar Sportstech is the country’s leading sports accelerator program supported by QDB, Ministry of Economy and Commerce and others. Its alumni are both local and international startups.

When it comes to food, the pockets of F&B businesses in GCC should swell by $6B, most of which will go to Qatari businesses, followed by Dubai (a popular stopover on the way to Qatar). Virtual kitchen operators have felt the most impact in Dubai and their major target are the fans who enjoy watching at home.

And for those tired of Airbnb lofts – would you rather spend the night on a cruise ship? No problem, you can choose from 2 floating hotels.

What shall I add?

Hats off, Qatar.

Image credit: FIFA

+ Poland + Kazakhstan

TruKKer expanded its operations to Poland & Kazakhstan, the two key logistics centres in the EU and Commonwealth of Independent States.

Fintech PSP of 2022

Paymennt won the Fintech PSP of the Year award at the Gulf Capital SME Awards.

Mona Kattan’s closet revealed

The Luxury Closet launched its Celebrity Closets series. The first episode is about Mona Kattan’s closet and the series is featured in PEOPLE Magazine.

deliver now

Armada Delivery partnered up with Otter and this integration will help restaurants in KSA and Kuwait automatically request delivery couriers for their D2C needs.

10M

Lucky has hit 10 million registered users. Here’s to the next 10M!.

• Business Development Manager at TruKKer (Riyadh)
• Business Development Manager at Cartlow (Riyadh)
• Business Development Executive at SubsBase (Cairo)
• Customer Success Executive at Gameball (remote)
• Senior Quality Assurance Engineer at FlexxPay (Beirut)
• Quality Assurance Engineer at Classcard (India – remote)

KSA : Mexico is on tonight. That should be interesting.

Hasan