Is it June or July already? It’s getting harder to keep track of time…

Corona, go… and from this line until the end of the newsletter, we are going to discuss the business as usual. It’s not ignorance, it’s overcoming the present moment. Even more; it’s imagining the future. Our team put their heads together to share with you MENA’s M&A of tomorrow and the day after—maybe realistic, maybe not. If you can dream it…

 Will 2020 give MENA its first super app?

Having a dry-powder in your hands is definitely a wildcard in the current times. And while some valuations are dropping, this is a unique chance for some swift M&A deals for those who spot the right opportunity out there. So, perhaps, it doesn’t come as a surprise that the tech M&A activity reached the highest levels since 2015. We are not even halfway into 2020 and the ‘Big Five’ (i.e. Alphabet, Amazon, Apple, Facebook and Microsoft) has already announced 19 M&A deals, out of which 5 belong to Apple alone. The competition in the tech sector is definitely weighty.

 Where does ArzanVC’s Team see the biggest potential for M&A? Remember that we don’t attempt to imply here that companies within the below sectors need some sort of saving. After all, 2020 is already poised for M&A and we see it as a good tool in general.

While we are witnessing more vertical M&A in MENA, Eyad argues it’s yet too early for such moves. He thinks that it still makes more sense to have horizontal rather than vertical deals. The first step could be an in-country M&A that would gradually consolidate smaller players into one bigger platform. Many MENA startups—no matter how big—do need more global scale to make themselves attractive enough to international investors. Laith, on the other hand, suggests that this may be the right time for ride-hailing companies to enter new verticals. And Hasan thinks that COVID-19 made startups realize their weak points, hence M&A activity might be used to elevate those weak points and emerge stronger. 

1. food delivery/e-commerce – food delivery platforms are the no1 place to go to right now. While some well-established food delivery players may be offering a wide variety of food delivery services, they may want to focus on specific outlets to increase the scope of their offering.

2. ride-hailing –ride-hailing companies may consider entering new verticals, out of which logistics (delivery, parcel delivery) or even food delivery appear as plausible options to increase the startups’ growth potential. While ride-hailing may have been paused for a moment, these new segments can provide the companies with a better balance and a new impetus in general while making use of the existing assets and brand name.

3. fintech/payment processing – many POS SaaS platforms can be ready for a merger in order to consolidate their footprints. We see the potential especially in the Gulf area.

4. health tech – given the boom in online mental health services, general health platforms could consider acquiring specific platforms with a niche focus on certain areas such as online therapies.

5. copy-paste startups – many of the startups we have in MENA are basically concepts that were initiated in developed markets and regional entrepreneurs simply copied them. Sectors like grocery delivery, e-commerce or fintech are a playground for a lot of startups that practically do the same thing but each in their own respective country, which represents, in global terms, a very small market. By forming one regional player, they would not only increase their loyal customer bases but also unite into a fairly massive regional platform. Sounds good enough, right?

There is another concept that Hassan El-Keyi pointed out: the possibility of the first super app in MENA. There already exist few semi-super apps, which are apps offering various services in different segments such as transport, food delivery and, for example, a mobile wallet.

And how does he envision the first MENA super app coming to life? Well, most probably a well-established international super app like the Chinese WeChat or possibly a US counterpart would enter the MENA market through mobile carriers, mobile wallets and semi-super apps in general. In the East-West dilemma, China appears to have more experience in building super apps (e.g. combining e-commerce/messaging with mobile payments) than the US. Exciting least to say.

Imagine a well-established telecom operator or ride-hailing business acquiring a digital payments startup. Or a regional retail giant acquiring a retail tech startup. Or an offline hypermarket consolidating the digital grocery market. Or a major pharmaceutical company getting their hands on a health tech startup…

P.S. If you have a minute, tell us your personal M&A dreams.

The word of the COVID-19 crisis is adaptability. Business areas such as groceries delivery, online ed-tech, streaming and online comm platforms are at low risk, while ride-hailing, essential e-commerce and logistics are at medium. High risk zone entails of travel e-commerce, booking apps and non-essential e-commerce. But we must not forget that the survival of each and every business depends on how flexible it is to adapt and withstand the crisis. 

 Family Postcard

Forbes published a feature on Mejuri’s mastership of disrupting the jewelry industry. Read CEO Noura Sakkijhas’ insights here. 

🚛 TruKKer+Saferoad

TruKKer and Saferoad Information Technology signed in a new partnership agreement to provide joint services and make Saudi road freight even more efficient and safe.

Latest Jobs @ArzanVC Family

• Senior Software Developer at Cartlow (Dubai, UAE)
• VP of Engineering at POSRocket (Jordan)
• Digital Growth Hacker at Repzo (Jordan)
• Global PR Manager at Swvl (Dubai, UAE)
• Graphic Designer at Swvl (Egypt)  

Don’t stop dreaming.

Hasan

Do you already see the sun rays that pierce through clouds after every storm?

They are always there, waiting for us 🌤️

And with that in mind, we reached out to a couple of founders to check on how they’re sailing through the rough corona seas. Last month we analyzed the overall endurance of business sectors, and today we will dive deeper to see how startup founders think, how their businesses adapted and what they can teach us.

More good news from ArzanVC’s Family will follow. Hold on tight to your boat’s helm! 

Copy the way I cope

Crises are part of life. They force us to think, rethink and make things better. It’s a rule that crises always give rise to something good. Even John F. Kennedy said: “When written in Chinese, the word crisis is composed of two characters—one represents danger, and the other represents opportunity.” And that’s what we @ArzanVC really believe in.

But what do founders believe in? We asked them. We were in touch with founders from multiple sectors—Algodriven (automotive tech), Almentor (edutech), Teela (essential e-commerce), The Luxury Closet (non-essential e-commerce), Tons (groceries e-commerce) and ViaVii (travel e-commerce)—and these are their insights and words of advice:

Adapt. Act quickly. Innovate. Whenever possible, all teams opted for working remotely, as the rest of the world did. Some of the founders experienced unprecedented demand, while others had to find alternatives to delivering their offering. Algodriven had to fast track new features to enhance their products and offered extended payment terms. Similarly, Almentor had to customize new products to manage the very high demand for the e-learning services. Teela saw it as an opportunity to expand and grow the market share. Tons chose to control the number of orders and slowly grow the capacity while onboarding new stores. The Luxury Closet made sure to implement a healthy supply and demand and stress-test financials. ViaVii was the first to launch online authentic cultural and artistic experiences, which gave them a leverage over international competitors. “We translated going into self-quarantine to a fun, entertaining and educational experience,” said ViaVii.

What are the most important attributes of a startup right now? Speed. Some founders believe that this is a unique opportunity for startups as many governments and corporations realized that it’s startups who can help solve nation-wide problems. Or world-wide. Empathy and communication are also crucial. “We’ve tried to engage all our stakeholders, from employees, to customers and investors so that we can work through the situation together,” explained Algodriven. “Establishing clear communication will help businesses win people’s confidence,” added The Luxury Closet. Teela thinks that having a vision is the key: how do you envision your business after the crisis? If implementation is slowing you down, an alternative route, according to ViaVii, can be a beta.

And the founder’s personal advice? We all have to keep our heads above the water level and stay positive, but don’t forget to always plan for the worst. Countries around the world have started lifting their restrictions. According to Tons, “companies who endure this situation will be more resilient and valuable going forward.” But “don’t jump on any opportunity and lose your original path. Maybe you’re benefiting now because you built the infrastructure to serve the right model, so stick to your model and don’t lose focus with the temporary, and maybe distracting, market needs,” warns Almentor. Teela has another view: “Maybe it’s the time to start a new venture, launch a product or a brand. And while people are staying home, they’re willing to try any product that is delivered to them.”

Who knows; maybe now is the right time to make your big move! Plan well and execute by day.

TL;DR (too long; didn’t read) 
We were in touch with the founders of Algodriven, Almentor, Teela, The Luxury Closet, Tons and ViaVii. According to them, the current times are favoring those who act quickly, innovate, customize and stress-test. What matters is speed, empathy, communication and vision. And don’t just jump on any opportunity out there. Plan well and execute by day.

 Family Postcard

ArzanVC’s family post office was very busy the past month and we couldn’t be any prouder!

Our Eyad AlBayouk participated in an online discussion by Qoyod (April 16^th), giving advice on how to invest during corona times.

LUNCH:ON has partnered up with Gulf For Good to allow all the app user to donate to children in Nepal, Tanzania, Uganda, Peru and Lebanon and keep them fed, hydrated and educated.

Swvl has collaborated with Egyptian Food Bank (EFB) to support day laborers during the holy month of Ramadan.

Meanwhile, Repzo is offering Jordan’s supermarket, cafe and restaurant owners their very own application where customers can order their fav food, drinks and meals safely and securely from their homes.

UAE’s iKcon introduced various additional safety measures, including an additional layer of protective plastic packaging for all deliveries. Also, all bike riders are no longer allowed to enter iKcon premises to keep them separated from the in-house staff.

And finally, with all the teaching/learning happening online, Reportcard’s student CRM with an integrated online collaborative classroom becomes definitely handy! Reportcard also hosted a webinar on “Teaching Online with Zoom”.

 Latest Jobs @ArzanVC Family

 Those of you who recently had to downsize your company workforce, don’t hesitate to contact us and we will help your former employees to find a new job in other startups.

 Rehydrate during the night and stay positive. Better times are just around the corner.

Hasan

No Fool’s day this year.

If you’re reading this on your phone, at least we took you away from your laptop cameras and back-to-back online meetings.

We decided to have a look at the endurance of businesses during these tough times. There are numerous businesses that are doing pretty well right now, to the point that they can’t meet the demand. (And we are not referring to the producers of toilet paper.)

We will also bring you some good news from ArzanVC’s Family. Because what the world needs right now is more good news.

 Black swan is a test of adaptability 

You heard it. We are living through the biggest global crisis since 1945. It will set the tone for the years to come. And maybe even decades. Some say that the crisis may lead to a new way of economic thinking. It most probably will. And to new (or enhanced) and more flexible business models.

 The word of this crisis (and any crisis in fact)—whether for us citizens who have to abide by the rules and restrictions of our governments or for the companies and businesses in our local and international environments—is adaptability.

 And who can adapt best? The businesses that are flexible. We have entered a work-at-home economy, which favors companies that can come up with solutions no matter if the life moved out from offices to our dining tables and living rooms.

 We are noticing uniquely innovative and collaborative actions, with many businesses shifting their modus operandi to adapt to the market demands. This black swan event definitely favors businesses that possess strong organizational agility and alignment. And above all, online players clearly have a top leverage right now.

 In the diagram below, we have included a few examples of local companies (MENA) next to their sectors.

 Disclosure: Some of the companies belonging to the high risk zone of the diagram might not really be affected negatively if they are able to adapt.

 We placed the restaurants delivery platforms into the low-to-medium risk zone. These companies would be expected to do great right now, but the curfew that is set by some governments puts a restriction on when the orders can be made. Customers may also think twice of the extra expenses (cooking at home may be cheaper), and the issue of hygiene during food preparation could also be of concern given the pandemic. 

 Why is ride-hailing at medium risk? Passenger rides are down (for example, they equal 0 in Kuwait). However, if the business model is flexible, the companies can wait things out. Plus, IntiGo (Tunis) is now providing grocery delivery and concierge services, and Lyft and Uber are also considering the same and medical supply. 

Essential e-commerce at medium risk while non-essential e-commerce is at high risk because the consumer choices have been primarily redirected to necessities like staple goods. Yet shopping for home gym equipment, books, toys and games may make a good impact.

We also think that social media may be little squeezed due to decline in advertising spending. Though the current user’s usage is massive.

On the contrary, communication & teleconferencing tools (vs. in-class teaching, office meetings etc.) are booming. WFH is safe and it reduces employers’ costs. Many Gulf countries lifted bans on Zoom, Skype for Business, Microsoft Teams and others. Slack shares jumped up by 26% this year, while Microsoft Teams’ DAUs reached 44 million (vs. 20 million in November). And despite the rising demand, Zoom’s call quality has not degraded!

As we are now embracing e-baskets over regular trolleys, online grocery delivery platforms face a doubled or tripled surge in online orders. Additional onboarding of thousands of shoppers and support staff is a new trend as well as safer and contactless delivery procedures. The increase in demand is unprecedented yet definitely a “good” problem to have right now!

And we cannot forget the crucial role of online streaming platforms – movies, series and podcasts alike – that are giving us and our kids a huge helping hand during these quarantine and self-isolation times. In fact, there is so much streaming that the providers had to reduce the quality to SD (primarily in Europe) and ask people to be more data-spending conscious. By the way, Disney+ launched in Europe in the best time possible!

Although this unprecedented growth of new customers and service users may cease once the crisis is behind us, we believe that it will ultimately change certain consumer habits. Just notice the growth of the online grocery stores: many of them gained the trust of their customers only thanks to COVID-19. And that trust won’t be temporary!

Is this the new normal? Will we see more online conferences, bigger online grocery orders and cloud kitchens rivaling the conventional cooking outlets? (Hopefully; we made a recent investment in one cloud kitchen start-up.)

The truth is, many of us desire to have 24/7 goods and services, and the crisis has only pointed out that our day-to-day actions and transactions do not necessarily require in-person, physical presence.

📣Call-out to founders: Share with us how you are adapting your business to the crisis. We would like to include your stories in our next newsletter.

TL;DR (too long; didn’t read) 
The word of the COVID-19 crisis is adaptability. Business areas such as groceries delivery, online ed-tech, streaming and online comm platforms are at low risk, while ride-hailing, essential e-commerce and logistics are at medium. High risk zone entails of travel e-commerce, booking apps and non-essential e-commerce. But we must not forget that the survival of each and every business depends on how flexible it is to adapt and withstand the crisis.

 Family Postcard

Flexxed up

 Cartlow has secured a six-digit USD figure in its first round of funding from Arzan VC, Vision Ventures and a group of angel investors.

And Lunch:on now provides free & contactless home delivery of its 25AED lunches from 200+ restaurants.

Latest Jobs @ArzanVC Family

• Business Development Manager (Corporates) at LUNCH:ON (KSA)
• Engineering Lead at Crowd Analyzer (Egypt)
• JAVA Engineers at PointCheckout
• Director of Operations at TruKKer (KSA)

 Corona Essentials

• If they can survive 1 year in the space… notes on self-isolation.
• Feeling anxious? Snapchat launched a Here for you tool.
• Once you’re done with Zooming and Slacking for today, throw a Netflix party!
  
  

  ---

  Black swan, it’s about time you fly away!
  And the rest of us—let’s try to do WFH and social distancing for a little longer. 

Hasan

End of radio silence.

This is not a hacked newsletter. Nor have we relocated our offices to another planet. In fact, we grew into a truly regional VC, having on-ground presence in 5 countries across the MENA. Plus, we did our first closing for Fund II in August and made a whopping 4 new investments. Did I mention we grew our team to 8 members? Okay, enough of the news shower.

Amman hosted us for a few days this week for some team-building fun. You can see sometimes we also cook other things than sizzling deals! We also organized Founders’ Coffee & Chat – a casual meetup with a number of startups in Amman to brainstorm ideas and expansion. Well-spent time indeed. We already miss the laughs.

Now—first things first: Arzan VC’s top 10 trends for 2020. Then we will show you what’s the magic formula of growing a sustainable business.

Let’s go!

The 10 for 2020

 Any profits in 2020?

Welcome to the Family 

I don’t know what it is, maybe it’s the energy of spring but this month has been full with positivity and great progress. That’s why we have a bunch of great news for you this month! But before we jump in, we are excited to announce that partnered with the Saudi Arabian General Investment Authority (SAGIA) in another step towards taking our portfolio companies regional!

That being said, we also have potential pre-seeds in mind. We know that the cost of starting a business is expensive, bureaucratic, and difficult to raise funds or find the right talent or mentors for it. That’s why this month’s piece will be talking about common mistakes pre-seeds do and our advice to avoid them.

Let’s dig in!

The Bread Starter

They met with you, they heard your pitch, they are on the verge of funding your company, only they backout at the last minute. Bummer right? If you’re wondering what might’ve changed potential investors’ minds (or our minds), it could be one of these reasons, 

Your cap table is all over the place
As an Investor, we want to understand who is already on your cap table. My team and I might steer away from investing in a startup if we find that there’s, 

a). An inactive co-founder on board. It looks bad to us knowing there’s someone already onboard who’s not fully invested in their capital, so why should we?

b). Family members. Raising capital from family around you is great but problematic, especially living in a collective society where the line of differentiating between family and business is thin.

c). Founder shares. Even though common shares are usually associated with founders of the startup, sometimes they try to sell common stocks to potential investors as well. And while some investors accept taking common stocks, we generally insist on preferred shares simply to protect our investment.

Our advice? Diversify your cap table with people who can help you grow and buy out your inactive cofounder(s), don’t take family members onboard unless you’re 100% sure business won’t turn into a family matter and make sure that any cash invested into your company is converted to preferred shares. And who can adapt best? The businesses that are flexible. We have entered a work-at-home economy, which favors companies that can come up with solutions no matter if the life moved out from offices to our dining tables and living rooms.

Let’s talk mentors & advisors
For pre-seed startups, advisors can be particularly useful for tasks such as building out a company’s network of fundraising options, yet we’ve noticed that pre-seeds tend to, 

a). Compensate advisors with common shares with a range of 3% to 15% per advisor vested over 3 years. Yikes! This high cost can be avoided by paying advisors with an equity stake that ranges from 0.15% to 1% of the outstanding common stock of the company (on a fully-diluted basis). 

b). Have too many advisors onboard without having a clear role for each advisor. So you got rid of inactive founders, why are you keeping the burden of having to pay someone who isn’t adding anything beneficial to your business? Each advisor should fill a specific gap in your experience. Set clear commitments and expectations.

c). Get advisors who do not invest in them. Advisors shouldn’t just give consultation but must also have skin in the game. They should invest some money, something to reflect their belief in the business, no matter how small. 

Our advice? Pay attention to how much you’re putting into your advisors and don’t go overboard, only hire advisors that can give clear consultations and fill your current gaps, and look for advisors who don’t only look at you as a client but actually believe enough in your business through investing in it.

Well, overall poor fundraising decisions
Some minor slips that founders don’t put in mind can cost them a lot and eventually not getting the funding they need, some examples include, 

a). Not building traction after pre-seed. Founders of startups assume that maintaining the same market size that got them their pre-seed funding is enough to raise another round. Wrong. As a VC, we don’t just want to see consistent traction but an increase in attracting a bigger consumer pool before we invest hundreds of thousands of cash into a startup. Look into marketing your product or service or do a revalidation before meeting with VCs for your seed round. 

b). Taking too long to raise by talking to juniors/associates. Go with investors who show that they understand what you’re doing. Try to talk to a partner first. Don’t talk to every VC on the planet.

c). Lack of research. Before approaching the VC you want, make sure you know everything about it. When we invest in a company, we look into every nook and cranny before we invest and put our money into it and we expect you to do the same. We do this because once we invest, we are staying with you for a long period of time and will have an affect on every future round. 

Our advice? In order to continue raising funds for your startup make sure to continue building your traction, don’t take the shortcut, instead, try talking directly with the partners of the VC, and choose your VC wisely through extensive research.  

Family Postcard

Bling bling! ✨✨
Amazing news from direct-to-consumer jewelry startup Mejuri, raising $23 million in Series B. Congratulations!!

Do you see us now? 🔍
The World Economic Forum and the Bahrain Economic Development Board (EDB) have partnered and selected some of our portfolio companies shaping the Fourth Industrial Revolution. Can you identify them?

Touched by royalty 👑
In a pleasant surprise, Queen Rania paid a visit to POSRocket to give her support.

Till next time, stay hydrated and Ramadan Kareem!

Hasan