What a difference seven years can make. When Walid Hanna founded Middle East Venture Partners in 2010, his first fund was sized at $10 million, with just 12 companies in its portfolio.
Now, seven years and several funds later, MEVP has $120 million in assets under management and is targeting a $250 million fund with about 25 potential investments.
For Hanna, this drastic change is no surprise – it’s simply the result of the region’s young, digitally savvy population creating what he terms “a virtuous cycle” for venture capital.
In this environment, companies can grow quickly – both in size and in value – before cashing out.
Speaking to Arabian Business at MEVP’s quiet and cosy loft office in Dubai Media City, it’s clear that Hanna is a long-time veteran in the world of venture capital, a man whose CV includes a stint as CEO of Dubai International Capital’s venture arm, the Arab Business Angels Network (ABAN), and also the investment-management team of Abraaj Capital.
He recalls that the scene that MEVP entered in 2010 was “very different”. Referring back to that time, he says there were considerably smaller amounts of money to invest, and that, in any case, companies that weren’t ready for success.
“We were really one of the first ones in this VC space. The number, the quantity and the quality of start-ups that we used to see at that time was small, and also very poor in quality,” he explains. “Seven years later, at the end of 2017, the numbers are completely different, and the quality is also much higher.”
He explains how not only are the numbers are very different, but also the speed at which start-ups grow.
“Everything has multiplied and you can say it has become a virtuous cycle. The ecosystem has multiplied by 100 in seven years.”
In September, this “virtuous cycle” saw MEVP team up with Mohamed Alabbar (who is a large stakeholder) to launch its third fund, MEVP III, with a target size of $250 million. In a statement, MEVP noted that the fund will invest in early-stage and growth-stage tech companies across the Middle East, North Africa and Turkey.
According to Hanna, the growth of the funds – from the $10 million MEVP I to the $250 million MEVP III – is rooted in the changing demographics and digital literacy of the region.
“Today, people are spending six, seven hours a day on their mobiles, and they’re the consumers. They consume content, they buy stuff and they sell both digital and physical goods online.”
He says how the company’s growth in the past seven years – from 12 companies to more than 25 potential investments and 25 times the capital – since starting back in 2010 makes him “fairly positive” about the VC industry. “We invest in internet businesses and it’s very encouraging.”
While reaching a stage at which a $250m fund is perfectly doable may seem like a remarkable change, Hanna is careful to note that it was all very much part of MEVP’s plan from the outset.
“Our ambition was to create a big asset management firm for this specific asset class, which is VC. We were hoping to get to where other emerging markets got to,” he says.
“You have to start with a small fund when the ecosystem is small. Now we know there are three, four, or five other funds competing with us today that have big numbers as well.”
He is quick to note, however, that MEVP is still the largest independent VC in town.
“We’re independent, and we’re there for the bottom line. We’re there to invest in start-ups, grow them, exit and return healthy IRR (internal rates of return) to our LPs (limited partners).”
To date, MEVP has invested in 43 companies that range from e-marketplaces to financial technology firms and even a biotechnology company.
Hanna says “a few” of the companies that MEVP has invested in have been exited and investments cashed out. According to Hanna, MEVP’s complete portfolio represents the diversity and potential of e-commerce and technology in ways that few would have considered just a few years ago.
Giving examples of this diversity, Hanna recalls one of his favourite success stories: Shahiya (Arabic for “my appetite”) is a user-generated, Arabic-language cooking website that grew to become the largest of its kind in the region.
In November 2014, the business was sold to Cookpad, Japan’s leading recipe site for $13.5 million – six times MEVP’s investment just two years earlier.
In this case, Hanna points out, regional success quickly led to success around the world.
“The interesting part is that Cookpad were on a consolidation spree on a global level, so they acquired the Spanish equivalent, the Indonesian equivalent and the Arabic-language equivalent.
“By building a MENA market leader in any vertical, you will be acquired. That’s exactly our investment philosophy,” he says. “In whatever vertical we look at within the tech sector, we want to build the number one company.”
Hanna proudly lists several other “number ones” within MEVP’s portfolio: Altibbi, an Arabic-language website similar to WebMD; Anghami, an online marketplace in which music labels and artists interact with consumers; and Lamsa, a popular website in the children’s “edutainment” space.
While Hanna is overwhelmingly optimistic about the possibilities for growth in a number of tech verticals, in the short term he doesn’t believe the time is right to invest in two of the most hotly-discussed technological developments of the day: artificial intelligence [AI] and blockchain.
“The reality is that it’s too early to talk about these innovations in this part of the world,” he says. “It’s unfortunate, but we barely have one of each in our 43-company portfolio. There’s always a lag between the new initiative and the investment-ready start-ups.”
Hanna says that despite the lag he is “very bullish” about the verticals. We’re in hunting mode,” he says. “We’re scouting for good deals but haven’t been lucky yet. It will come. We’re confident about that.”
His confidence is partly driven by the UAE government’s unique approach to new possibilities, which it heartily embraces, as exemplified by the Dubai government’s official Blockchain Strategy and the UAE-wide AI strategy. It should be noted that MEVP’s one “play” in the blockchain realm is with a company incubated by the Dubai government’s Future Foundation.
“The UAE is probably the only place on earth where the players are not just those in the entrepreneurial ecosystem. It really is a top-down approach by the government,” he remarks. “And thanks to this fact, the ecosystem is thriving.”
Despite his optimism, Hanna admits that, in some ways, the MENA region – particularly the GCC – still has significant room to improve to close the gap with other parts of the world.
“It’s about quantity, quality, and time. If we had research and R&D centres within universities, we would gain in all these areas,” he says. “The best entrepreneurs we invest in today are an average of 38 years-old.
In the US, it’s much younger than that. Why? It’s because they [the entrepreneurs in the US] have R&D centres, grants and funding. They’re part of larger accelerators like Techstars and Y Combinator that we don’t really have.”
Hanna conceded that good accelerators are coming on to the scene, “but we’re lagging behind by many years... The number of computer engineers and computer science graduates out of the UAE and Saudi Arabia is negligible. You find much more in countries like Egypt and the Levant,” he adds. “In the GCC, it’s definitely not good on that side. What usually happens is that we import those brains.”
Hanna points to Stanford, Berkeley, and the University of California in the US as models of what the future can – and should – look like. “There’s a hub there, and the clusters they’ve created to become global innovation hubs is something that we should be doing here in the UAE. There’s a lot to do.”
In early December, MEVP announced its first – and to date only – MEVP III investment, in Dubai-based One Click Delivery Services. The last-mile delivery start-up connects drivers, points of sale and a call centre with businesses in need of efficient delivery services. The size of the investment has not been disclosed. Hanna says that two new investment deals will follow in the next of months.
“When you start a new fund, we don’t invest big tickets from year one. It goes in tranches. Typically, year one of the investment period of any new fund is for small deals, and probably younger companies. Why? Because we have four years in the investment period to invest and re-invest.”
While Hanna says that MEVP III might do some Series A round investments – referring to a company’s first significant round of VC financing – in the second, third and fourth year, the fund will exclusively focus on Series B, the second round of financing.
“When you invest in Series A, you would expect a seven-year holding period, on average. When you invest in Series B, you could exit in five years,” he says. “That’s our plan.”
Among the keys to success in venture capital, Hanna says, is trust. In MEVP’s case, investments are made only after months of tracking and following a company.
Of nearly 900 companies that MEVP screens a year, it invests in only about seven.
“We have to get comfortable with them and vice versa. You cannot meet somebody and just sign a cheque. It doesn’t work like that.”
Hanna jokes that it is much like any other relationship. “There’s a period of following, then we date, then we get married.”
Just as important, he adds, is patience. “You cannot just flip a company. It’s not a stock that you can buy and sell the next day. I wish it was as volatile and liquid as Bitcoin,” he says of the riches that early investors in cryptocurrencies have quickly acquired.
“But in our case you have to build, you have to hold, you have to be patient. And then you exit, and get your return.”
But this also makes it a driver for long-term, sustainable growth, and also “a beautiful game” where the managers and the investors are perfectly aligned. “I think the stars are aligned in the VC space, and for us in particular.”
In early December, MEVP announced it made an undisclosed investment in Dubai-based One Click Delivery Services, a last-mile delivery start-up.
Using its technology platform, One Click is designed to allow businesses in various verticals – such as food delivery, apparel, and parcel delivery – to deliver items without having to manage their own fleet of delivery drivers. The delivery service features GPS location tracking, route optimisation and automated customer notifications.
One Click has its own – and growing – fleet of drivers, and has to-date delivered over one million orders. According to MEVP, the company is growing at 36 percent month-to-month, and is currently eyeing expansion into other cities within the GCC.
According to One Click, the company will use its new capital from MEVP to accelerate its growth plans, build the team and work on developing its proprietary technology.
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