By Tamara Pupic
Dave McClure, founding partner of 500 Startups, opines on the investment landscape in the Middle East
“Nobody gets points for predicting that a start-up is going to fail,” said Dave McClure, founding partner of 500 Startups, a Silicon Valley-based global venture capital seed fund and start-up accelerator, mentioning a popular saying in Silicon Valley.
McClure shared his views on the entrepreneurship ecosystem in the Middle East in an on stage interview with Christopher M. Schroeder, author of “Startup Rising: The Entrepreneurial Revolution Remaking the Middle East”, on the first day of the GITEX Global Startup Movement.
“There is no extra credit for pointing out to somebody’s faults,” McClure said talking about today’s tech investors in an interview with Arabian Business StartUp on the sidelines of the event. “You should try to figure out how they are going to win, not how they are going to fail.”
McClure continued by voicing his concerns about often dysfunctional investor–entrepreneur relationships. “When we see investors talking down to entrepreneurs, or acting like they know more than entrepreneurs, or complaining about talent in the region, we kind of feel like that this is not very advanced behaviour,” he said.
“It makes us think that they really do not know what they are talking about and that they do not know what they are doing. If you [an investor] want to make yourself look important when compared to an entrepreneur, honestly, that is easy. I do not see it here more than in other markets, but as much as in other markets, and it is kind of annoying.
“You want to find people who are successful and gracious.”
500 Startups manages over $250 million in committed capital out of four main global funds and 13 region- and sector-specific microfunds. Since launching in 2010, the fund has invested in more than 1,500 technology start-ups, including Credit Karma, Grab,Twilio, Udemy, Ipsy, TalkDesk, and Intercom.
In 2012, 500 Startups set up an office in Bahrain to explore investing in Middle Eastern tech ventures. Since then, McClure explained, he had witnessed local investors and entrepreneurs building less professional, but more parent-child type of relationships.
“However, in Silicon Valley that is not always true,” he said. “Actually, a lot of the investors there tend to think that entrepreneurs can teach them, and that the expertise, at least in the technical domain, is more advanced on the entrepreneur side.
“In some sense, investors are like doctors because the first thing is ‘do no harm.’ You want investors to be helpful, not harmful. I think that investors should understand that probably what is clearly valuable to start-ups is their money while their expertise is maybe helpful as well. However, they should be careful that their expertise is not harmful.
“It is also about whether they have expertise and knowledge to offer to someone who is building a start-up business. Sometimes that is true, but just because you are rich or just because you have had success in your earlier business does not always mean that this translates into a lot of experience to give to other people.”
Last year 500 Startups established 500 Falcons, a $30 million fund, to make initial investments of about $75,000 in young MENA technology companies. Bahrain-based entrepreneur Hasan Haider, who serves as a venture partner for the new fund, was quoted as saying that they would back as many as 300 companies.
Furthermore, 500 Startups recently signed a memorandum of understanding with the Qatar Foundation for Education, Science and Community Development, a Doha-based private, chartered, nonprofit organisation, to jointly provide seed funding, training and mentorship to start-ups across the MENA region over the next five years.
When asked to explain how the 500 Startups team chooses with whom to partner, McClure said that learning about a potential partner’s “one big success story” was not enough.
“When you hear people say that, you should ask them about their third most successful investment,” he said. “First of all, do they have one?
“It is because they might get lucky with their number one and number two success stories, but if they have a number three story or a number seven story, then it is not so much about luck.
“So, I always want to hear more about the overall distribution of wins in the portfolio and their approach to that, and not just about what is the most famous thing that they have done.
“Sometimes it is not only about picking the winners, but how you structure the operation of what you are doing, what is unique about your access to your deal flow, how you select your companies, and what you bring to the table for these companies.
“It is also about maybe not taking credit for being the world’s best investor in everything, but trying to identify where you have a unique domain expertise and where you can add value.“
Held alongside GITEX Technology Week, the GITEX Global Startup Movement, the world’s first, most global, week-long start-up showcase, was attended by more than 420 start-ups and 1,200 tech founders from nearly 60 countries.
Great Article and observations.... Entrepreneurs in this region come in all sorts of Ages, Nationalities, and run the gamut from around the world. I have been to numerous pitches and seen some of the potential investors try to destroy the pitch. Anyway, great article but this region is so so different from my days in SV and NY. The value of the underlying Intellectual Property is always marginalized. VCs should help and guide the Company to be ultimately successful and the investment increases.