The liquidity is increasing and so is the VC competition. While founders may seem to have more leverage in their hands, for us VCs it’s become very important to set our strategies and stick to them. Don’t rush in finding your next founder.

Ps. Our Laith Zraikat (@laithz) will be attending GITEX next week. Let us know if you’ll be there.

About VC strategies and what the history tells us

I looked at Chris Sacca’s journey with Lowercase Fund I and thought it would be a good idea to share some thoughts with you. Sacca became a brand name when his early investments into Twitter, Uber and Instagram turned out to be really good investment decisions. Sized $10M and with a sole focus on seed investments, his fund had 250X multiple―as Sacca himself noted on The Tim Ferriss Show in 2015. Quick math: an LP that wrote a $100,000 check got back $25M.

But Sacca was sometimes also wrong―he ditched his chances to invest in GoPro and Snapchat. He didn’t invest in DropBox and Airbnb either. “I let the negative case dominate my choice of whether I should invest or not,” he explained on the show.

Lessons learned from Sacca’s Lowercase Fund I:
– Small fund (<$10 mil)
– Very well-connected in the Silicon Valley
– Businessperson at heart
– Had great mentors
– Possessed unicorn radar
– First he was an angel, then he raised a small fund
– Only got involved in deals where he could personally impact the outcome
– Partnered mostly with similar seed-stage VCs

Early-stage investments don’t allow for much massive due-diligence, so it’s all about the VC’s gut, the size of the addressed market, the product and the team behind it. And, importantly, the aftermath following the fundraising. (That’s also at the core of Arzan VC’s strategy.) It’s not much about strategies than about a subtle collaboration between the startup and VC teams and offering a helping hand whenever needed.

We at ArzanVC believe that every good VC needs to do this homework:

1. Take your time in finding the next founder. This often requires a solid network. Reach out only to those founders who really excite you. Outbound sourcing > inbound sourcing. Our team gets emails with pitch decks every day. Around half doesn’t pass through the screening phase and they’re filtered out, which saves time for both parties. Some VCs claim to filter out as many as 99% of pitch decks they receive, which means they’re not working hard on their outbound sourcing.

2. Test your bets. You must learn to make informed investment decisions, and that takes time and experience. Continuous research and critical thinking is a must.
3. Offer value that makes a difference. A good VC must bring value to the table.

What the history tells us:
– Be as exclusive as possible. Like when Sequoia Capital was the sole investor in WhatsApp and multiplied its $60M investment into whopping $3B upon WhatsApp’s acquisition by Facebook.
– Don’t underestimate exponential growth. Let’s recall how Facebook’s very first investor Peter Thiel didn’t participate in the Series A round and thus missed his potentially huge return on investment if he had done so. He thought Facebook to be overvalued at that time, while it was, in fact, undervalued.
– Negotiate the exit. The higher your stake, the more say you can have and the higher return on your investment.

Globally, these are some of the recent VC strategies:
– investing in female founders only
– launching funds and programs for “underprivileged” founders―we see these initiatives specially in the US (e.g. a16z’s The Talent x Opportunity Fund (TxO) or when Softbank dedicated $100M to Black, Latino and Native American founders)
– supporting and mentoring wanna-be investors from diverse ethnic groups

A successful VC strategy goes beyond returns. It’s a matter of both art and science; gut feelings and mindful decisions. And we already know that a good VC needs to offer much more than a cheque. My team and I believe in providing our portfolio companies with structured support: recruiting assistance, consulting, research resources, PR and other value-added services. Rolling up our sleeves is a must.

900 and growing

In a short span of two years, iKcon has grown from a team of just a few members to a team of 900 across the UAE and KSA.

Female Founders 100 list

Mejuri’s CEO & Founder Noura Sakkijha for being included in Inc’s 2021 Female Founders 100 list.

Top big data startups of UAE

Data Magazine featured Crowd Analyzer in its list of the Top 28 UAE Big Data Startups & Companies.

Swvl’s ESGs

Swvl shared its 2021 ESG Report “Right to Mobility” that highlights the startup’s environmental, social and governance-related challenges throughout their journey.

• Sr Product Manager at Zid (Riyadh)
• Sr Digital Marketing Manager at Cartlow (Dubai)
• Product Manager at Taker (Riyadh)
• Influencer Marketing Executive at The Luxury Closet (Dubai)
• Healthcare Data Analyst at KLAIM (Dubai)
• Junior Sales Officer at Armada Delivery (Riyadh)

Happy Halloweening in advance 👻

Hasan

2021 is one of the hottest years to be a VC – or a startup. Regionally, globally… Plenty of investment rounds, exits, new SPACs… so the returns shouldn’t be any different than sky-high, right? Well, that’s what I’ve researched this month…

Who’s gonna return the fund?

This year looks so good in terms of the VC investment raised. How about the VC returns though? Globally, venture capital was the top performing asset class when it comes to PE/VC funds in 2020. In general, though, it’s not easy to access the individual data to begin with. A few may reach up to 700% (7x committed capital), many would be negative.
 
Globally, venture capital returned 28.5% in Q42020 ― the highest return since the dotcom era, and the 1-year IRR of VC funds surpassed 53% (vs. 19% in 2019).

Source: Burgiss; Q4 2020 Global Private Capital Review
 
The best VC times to live in?
If you’ve been investing for the past 5-10 years, your investments are currently maturing, and the returns are touching the sky for few. The lucky investors indeed got a well-diversified portfolio and apply Pareto wherever they go: 80% of good returns come from 20% of your investments. So, as the principle goes, out of 10 startups you invested in, 1 will really explode and IPO/M&A and another 1 will get you medium returns. These 2 stars will basically “return the fund” (and make the LPs very happy). In general (not always the case) LPs are happy when they get a 3x or more return of committed capital, e.g. a $100 million fund will generate a $300 million return. That’s ideal. (The 3x return gets trickier to achieve the bigger your fund size is.)
 
The returns of course depend on the stage. Seed fund returns are riskier but, if positive, they are much more ravishing than other types of VC funds. Seed-focused VCs won’t accommodate to the lower returns of later-stage funds because of the risk they bear. Put simply, seed investors shoot for ~50x or more from one investment, Series A investors eye 10x to 15x and later stage investors seek 3x to 5x.
 
Unicorns x returns
One of the pointers in my research was the market valuation of unicorns, which is, as of April 2021, $0.951T in Asia Pacific, $0.929T in North America, with Middle East & Africa (MEA) at the tail with only $0.021T. (Note that the MEA figure doesn’t include Swvl.)
 
However, the fact that we don’t have that many unicorns here doesn’t necessarily mean sluggish fund performance. With the existing MEA fund sizes, if you invested early, own a decent stake in early-stage companies and few of those companies exit at around $250M, as a fund you can make good returns. So, in reality, you don’t need to have unicorns to be labeled as a high performer. As a comparison, VCs managing more than $1B funds need to have 1 or 2 unicorns to generate good returns – however, those funds are based in more mature developed markets.
 
Moreover, the above data suggests there is much room for new unicorns in MEA. The record-smashing 2020 and H12021 results only confirm that the regional and international VCs investing here are willing to make higher-than-ever bets on the local startups, eyeing more than just “returning the fund”.
 
Variations between global VC returns
During 2010 and 2020, the venture capital was the top performer in the United States and returned an average of 15.15% per annum (while S&P 500 did 13.6% during the same period).
 
From 2007 till 2017, the financial performance of UK VC funds has been comparable to the US with UK performance only slightly lower than US funds of the same vintage.
 
PitchBook looked at 82 VC funds launched in 2010-12. They had a median average annual return of 11% during Q12020 though the very best of them returned more than 50% – those that saw plenty of exits. The worst had a negative 6%. So, the gap between the best and the worst performers is profound. Those funds that had invested in MongoDB, Etsy, Tumblr, Zoom and Uber were among the top performers.
 
A cherry on the cake: some of the funds with a vintage year 2019 are reportedly recording an IRR of up to 119%.
 
Well, I can’t really compare that to our local funds’ IRRs because such data barely exists. Some VCs say it’s confidential, others say the numbers are only estimates anyway.
 
Since one way to assess profitability is by analyzing the exits, we can at least check out the most interesting exits that took place this year and see who backed them:

• Anghami’s IPO – MEVP, SHUAA Capital, Samena Capital, Megladon, Endeavor, Sal&Co (+ others)
• Swvl’s IPO – Arzan Venture Capital, Beco Capital, Oman Technology Fund, Raed Ventures, Sawari Ventures (+ others)
• TreasuryXpress (UAE) – MEVP, Azure Capital Partners, The Luxury Fund (+ others)
• Spotii (UAE) – Daman Investments
• Mumzworld (UAE) – Gulf Islamic Investments, Swicorp, Wamda Captial, Global Ventures, Endeavor Catalyst, Saned Partners (+ others)
• Eventtus (Egypt) – Algebra Ventures, MEVP, Raed Ventures, 500 Startups, Cairo Angels, Daal, Hala Ventures (+ others)
• WaysToCap (Morocco) – Y Combinator, Battery Ventures, Soma Capital, Palm Drive Capital, Amino Capital, Endure Capital (+ others)
• Invoice Bazaar (UAE) – Advance Global Capital
• Ostaz by Synkers (Lebanon) – Phoenician Funds, Crescent Capital, 500 Startups, Dubai Angel Investors, Mulcan International Investments (+ others)

 
And, lastly, I had a look at the strongest vintage years for funds operating in the region:

• 2015―funds with 2015 vintage had invested in Careem, Souq.com, Anghami, Fresha, TruKKer…
• 2018―another great vintage. Investments included Swvl, Kitopi, MaxAB. And these funds keep on investing till now.

 
It would be an interesting exercise to look deeper into all the recent exits and create a mosaic of all the funds involved. Maybe another month. With 30+ exits since January 2021, there will be a lot of name-dropping.

The finalists 🌍

Our latest investment – Klaim – won the UAE round in KPMG Private Enterprise Tech Innovator 2021 competition. The finals will be at Web Summit 2021 in Lisbon, Portugal this November. We wish you the best of luck, Klaim!

1 million orders in 1 year

Within 12 months of operations, over 1 million orders have been placed on Retailo‘s app across MENAP’s region.

Onto Pakistan

In line with its expansion plans, TruKKer acquired TruckSher, one of Pakistan’s leading and most innovative digital land freight platforms.

Zid Pay

Zid launched Zid Pay to address the most urgent challenges faced by online retailers and to bridge the gap between payment providers and retailers.

Fintech innovation after covid

SubsBase was recognized by Plug and Play Tech Center as one of the “The 13 Fintech Payments Startups That Are Changing the Way We Pay”.

• Logistics Manager at Fatura (Cairo)
• Key Account Sales Manager at TruKKer (Cairo)
• DevOps Engineer at Qoyod (Cairo)
• Head of Sales & Growth at Retailo (Riyadh)
• Logistics Manager at Citron (Dubai)

Enjoy the weekend!

Hasan

This month I decided to grab a Zoom coffee with Taker. Its founder Abdullah Alsaadi spoke to me about how they’re re-empowering restaurants and why Taker is keen on collaborating with its competitors. More below.

We’re still not yet over the fact that Swvl is the region’s first $1.5B+ tech startup to go public on Nasdaq… and I believe we will certainly see more similar SPAC listings in the future. So, who’s next? Share with me your tips and let’s bet!

P.S. We will kick off the 2nd round of our Seed program with #RIYADH_Seed_02 (September 19-23). Startups from Saudi 🇸🇦 register here.

Taker is taking it to the next level through its open platform

Hasan: Taker is an online ordering system for restaurants – and much more. Can you tell us what Taker brings into the market?

Abdullah: Taker’s product offering can be split into 3 components: It has the ordering component, which includes website, application, social media channels, etc. The second component is growth – strategy, marketing tools, etc. The third component is logistics and it can be broken into 3 different models: outsourced, in-house and hybrid logistics.

At Taker, we say that we don’t just give you technology; we don’t just give you an application―we do give you that of course, but we also become your growth partner and provide you with support services. Why? Because we want to avoid a situation when you go online and unfortunately fail.

Hasan: How was the past year and a half for Taker? Did it surprise you? Did you take advantage of it?

Abdullah: We had anticipated the move towards having control back in the hands of the restaurants. The restaurants lost this control years ago in the favor of food aggregators. When we launched Taker, we knew there would come a point when restaurants would begin planning to retain that control again. Our initial anticipation of this move had been for 2022-3, but covid has speeded up that process, which ended up being in our favor. It basically saved us 1-2 years. So, today, restaurants are much more aware of the importance of being dependent on themselves and having their own digital channels.

Hasan: How are you getting ready for whatever comes next?

Abdullah: We love competition. We want competition. We believe we cannot solve the problem by ourselves―no one can―because the problem is much bigger than we think. It comes down to education, operations, logistics… Also, we would really like to collaborate with our competitors, because Taker is present in a new market category and we want to make this category bigger.

Also, most of our competitors (we don’t have many) think that in order to solve the problem you only need to provide a website and application, but this doesn’t work. You must have more to offer in your package. What is the biggest problem we’re trying to solve today? It’s not an application or website; it’s logistics. If we can solve the logistics issues perfectly, then the problem will be solved. That’s why we have TakerGo, which is our logistics arm.

Restaurants using Taker are spared of many headaches and burdens; they no longer need to go and negotiate with every single logistics company; we got that covered in our agreement.

One of our early goals was that we wanted restaurants to enable delivery with zero CapEx. Second, the solution had to be scalable and, third, it had to have a high success rate.

In order to solve the driver availability problem, we looked at the aggregators and their success rate. We found out everyone has a failure rate (which is normal). However, the aggregators’ failure rate was about 15% (i.e.,15% of all orders failed to be delivered), sometimes it went up to 60% (on Eid holidays, etc.). So, we built the product in a way that made all the companies work as one pool of drivers, which has helped us to increase the delivery success rate up to 97-98%. In fact, some of our clients have a success rate of 99.5%. And we keep working on further improving the delivery service. We didn’t only solve the problem faced by restaurants; we also solved the problem faced by delivery companies. That’s TakerGo.

Hasan: Since you mentioned the success rate, what is your personal secret to success? What’s your philosophy?

Abdullah: Our vision is to create a balance point in the market. I always tell my team: “We are not in the business of selling apps; we are disrupting the market and we have to give the control back to the hands of restaurants.” We don’t believe that aggregators will vanish; they’re here to stay. We are realistic in our planning, we have always managed the expectations of our clients and we got a great team.

There’s one thing I would like to stress again: we really believe in collaboration with other players in the market, and that’s why we’ve decided to have Taker as an open platform and to give access to 3rd parties’ innovations. We welcome anyone to build on top of our platform or simply integrate (i.e., delivery company/service integrates with TakerGo). Being an open platform is very important in achieving our main goal of creating a balance within the food delivery market. And, obviously, we cannot do everything by ourselves. It doesn’t matter how strong we as Taker are; the problem is much bigger and we can’t do it alone.

Hasan: We’re excited to be part of your journey!

🔥 Most funded

According to Forbes Middle East, iKcon was among the most funded startups in the first half of 2021, making it one of the hottest startups in the region.

🔥 Top 101

FlexxPay made it to the top 101 UAE FinTech startups.

Cartlow -> B2B

Cartlow launched a B2B wholesale marketplace for retailers and wholesalers to source pre-owned and discounted inventory, which includes overstock, returned, refurbished and liquidation inventory.

At the ministry

Repzo signed an agreement with Jordan’s Ministry of Digital Economy and Entrepreneurship that will help them to implement plans and export corporate services and products to new markets.

🏋️ The Olympics buzz

Crowd Analyzer put together the top insights from over 2M social media activities related to Tokyo Olympics.

• Head of Customer Experience at Gameball
• Sales Manager at Retailo (Riyadh)
• Shopify UI/UX Developer at Citron (Russia/remote)
• Outbound Telesales Executive (OTE) at FlexxPay (Beirut)
• Chef De Partie (CDP) at iKcon (Dubai)

So, who’s gonna be the next Swvl of the region? 😉

Hasan

Did you also notice the incoming international investors who are injecting big amounts of money into our local startups? We wonder what these foreign millions mean for the local market ― if anything at all… Some good food for thought in this month’s newsletter.

We are becoming mature, ladies and gentlemen

$654 million. The volume of venture investment in the Middle East in 2020. That’s what made it a record year.
$959 million. The volume in H1 2021. Almost a billion dollars was poured into 241 startups across the region. The record volume of 2020 was surpassed.
$415 million. The largest ever investment into a MENA startup, announced on July 1st (Kitopi). So far, the total investment volume for 2021 is $1.38+ billion. What’s next?

Well, our local startups definitely don’t suffer from lack of capital these days. We see deals happening on a daily basis because the process got faster. Everyone you want to pitch to is available on Zoom in a matter of days, sometimes even hours.

But what does the recent influx of big, international VC money into the region mean? Let’s take a quick look at some of the recent deals (timeframe April-July 2021).

• the region’s largest pre-Seed round to date (Telda) (also the 1st investment of Sequoia in the region)
• the region’s largest Series A round to date (Tamara)
• the region’s largest ever startup investment to date (Kitopi)

The fact that the international investors no longer only eye the region from the outside but they’re increasingly participating – if not leading – the rounds means that the market is certainly attractive and poised for growth. And maturing.

These investors may not have had an active strategy to focus on the region in the past, but they’re surely working on it now. And, while previously they’d be deploying in Series C or later, right now they’re shifting their attention towards earlier rounds. They’re also focusing on co-investing along with local funds because this will help strengthen their footprint in the region. Kitopi is the first investment of SoftBank’s Vision Fund 2 in a MENA-based startup. The first of probably many more to come.

What should be in it for the startups (apart from money) is an access to a large pool of global managerial (and C-level) know-how. What should be in it for the market in general is a more informed valuation and, hence, better valuation validation. Or is that my wishful thinking? In my previous experience, I have seen international VCs investing small tickets (relatively) with very minimal due diligence. This can hurt the ecosystem.

We can all agree that the recent big rounds are skyrocketing the total value of investments in the region, and I noted above that the presence of international investors should render a better valuation validation, but – food for thought – could these new players actually be contributing to the already-established precedence of overvalued rounds?

Also, the big rounds may push some startups very high up while leaving others on the ground. This could cause less competitiveness in the ecosystem as the startups with smaller valuations might not be able to keep up with the chosen few in the long run. On the other hand, if a startup raises more capital, it will be forced to grow much faster to reach the expected valuation by the next round, and that may cause unnecessary pressure on the team. In an opposite scenario, when the startup doesn’t get the luxury of big cash injection, the team will work harder to enhance its tech and core offering.

In all cases, the growing presence of international investors in our local waters is a sign of maturity of our ecosystem. We’re at the end of our teenage years.

Swvling in Saudi

Swvl expanded to Saudi Arabia, which makes it its sixth market following Swvl’s success in Egypt, Kenya, Pakistan, Jordan and the UAE.

Yumm awards

MUNCH:ON was awarded ‘Best Food App of the Year’ by Entrepreneur Middle East.

Fashion awards

Mejuri was named Accessory Designer of the Year at the Canadian Arts & Fashion Awards (CAFA), the biggest night for Canadian fashion.

On Asharq News

Fatura‘s Co-founder & COO Ahmed Anwar spoke to Asharq News الشرق  about Fatura’s expansion strategy and the upcoming milestones.

Main sponsors 😎

Qoyod partnered with Riyadh Chamber of Commerce & Industry as the Main Sponsor of Riyadh Commerce Magazine (June 2021 issue).

• Country Manager at TruKKer (Muscat)
• User Acquisition Manager at Tamatem (Amman)
• Product Manager at Qoyod (Cairo)
• Performance Manager at Swvl (Cairo)
• Sales Lead (Sr Corporate Sales) at Swvl (Cairo)
• Growth Specialist at Fatura (Egypt)

Enjoy the Eid break!

Hasan

It’s all about tech startups in Palestine this month. A very dynamic ecosystem that’s growing in the shadows of its neighbors. Rewriting the headlines out there. Did you know they have quite a strong healthtech and agritech base?

Palestinian tech startups 101

Youth unemployment in Palestine will likely peak at 50% in this year’s PCBS census. That’s half of Palestinian youth (18-29y) being jobless. Many of them are university graduates who usually don’t have any other choice but to start their own business and become self-employed. Luckily, there’re quite a few support programs, catalysts and incubators available to entrepreneurs who need help to start off. But, as we know, there’s never enough of such support.

What’s remarkable about the Palestinian startup ecosystem is its large presence of highly educated, young founders and high proportion of female founders in particular. It’s also quite fragmented (geographically) and this impacts the interactions among players. A recent report states there are no more than 300 tech startups, another source says 50, while our research discovered 73 active tech startups. These discrepancies portray the dynamics and volatility of the market.

The local ecosystem has been growing in the shadow of its neighbors (or sometimes merely surviving). At least virtual ideas know no physical army checkpoints that daily restrain most of the local businesses, their owners and staff. (Although, before 2018, there was no 3G service, which slowed down even the virtual advances.)

Yet the recent outbreak of violence shook the already fragile foundations of the local startup scene. Many businesses lost offices, equipment… and the most valuable: staff.

International institutions have pledged support to reconstruct Gaza’s infrastructure and continue building the local digital economy. This includes a $30-million grant from the World Bank.

Due to financial and import-export difficulties and restrictions, most Palestinian startups must work with what they have at hands: solutions, infrastructure and funds. Some say it’s still the best to get funds from Triple Fs: friends, family and fools. Well, it’s time to add new letters.

Since most local startups provide solutions to everyday needs, they are not able to focus on business opportunities that lay beyond. Covid-19 helped boost the local e-commerce and pushed many businesses to start offering online deliveries for groceries and electronic appliances for the first time. It’s a win-win for both retailers and consumers thanks to the rising internet and social media usage.

A great number of the 73 active tech startups addresses healthcare issues – be it through telemedicine (Tebfact, Tanaffas), appointment booking system (Doctor On Time), prevention of chronic diseases (Wikaya, Dawsat) or cancer treatment technology (SynergyMed).

Startups focused on agriculture, environment and energy are fairly abundant, too. We came across businesses providing a solar energy system for housing (SunBox), clean water (Mayet Al Ahel, Blue Filter), fertilizers created from CO2 emissions (Greeners), water networks monitoring (Flowless), the first plantable plastic in the world (WhiteSapphire) and enviro-friendly construction materials (Greencake). Plus, in April, 23 green startups from Palestine were selected by GIMED (a “Green Impact” program for the Mediterranean region initiated by EU) to receive training and assistance. Bravo!

Areas that hold great potential for growth are supply chain & logistics, transport and edtech.

Years ago, the founder of lingerie e-commerce Kenz Christina Ganim said that there’s a new startup on the scene every month because Palestinians don’t want to read only headlines saying “Another new attack” but also “This Palestinian who succeeded”. More so now, in 2021.

What the local startup scene needs is:

• Better mentorship
• Greater support & capacity-building for the young talent
• Stronger tech infrastructure
• Increased early-stage funding (early-stage funding reached only $10,960 per startup in 2017-H12019)
• The ability to secure offices in other nearby countries to ensure stable operations in tough times. This entails government support in different logistical matters.

In our research, Palestinian tech startups cover businesses founded in Palestine and/or businesses founded by Palestinian entrepreneurs and operating in Palestine.

Starring on CB Insights

FlexxPay appeared in CB Insights’ State Of Fintech Q1’21 Report. (And so did we 😎)

It was a feat indeed

Retailo spoke to Bloomberg Asharq Business اقتصاد الشرق about their founding achievements.

Conferencing in Dubai

CarSeer participated in the 3rd International Insurance Conference InsureTek Middle East 2021 held in Dubai.

Whatsapping with clients

Need to improve your WhatsApp communication with customers? Zid will tell you how.

Reverse is the way forward

Cartlow writes about reverse logistics in June’s issue of Logistics News ME.

🧘

Stress management tips by Classcard.

Latest Jobs @ArzanVC Family

• Marketing Lead at Retailo (Riyadh)
• Operations Manager at Retailo (Riyadh)
• Technical Support Specialist at CARSEER (Amman)
• Flutter Mobile Developer at CARSEER (Amman)
• Data Engineer at Zid (Riyadh)

How’s your June going so far?

Hasan