Business funding in the Middle East: Show me the money

Rony El Nashar on how Seedstartup can help you wit money, mentors and more business tips
By Sara Hamdan
Mon 01 Oct 2012 09:53 PM

Early on a Tuesday in August, entrepreneurs Jack Conner, Ryan Houck and Brandon Collins rehearsed pitches so they would be ready when the time came to secure funding from investors for their start-up idea. Instead of a room full of investors to listen, however, there was a video camera. And instead of a finalised product, the trio’s business is still a work in progress.

They, along with three other teams, are part of an accelerator programme in Dubai that gives funding and mentorship to turn an idea into a commercially viable business. While working on their start-up, they will film themselves giving pitches once a week and then work with mentors to improve. They are practicing for “Demo Day” in mid-September, when they will showcase a solid business that has traction and try to impress investors.

The trio, who have been friends for decades, flew in from the US to focus on developing Steadyfare.com, a website that lets travellers lock in their airfare price months in advance without worrying about price upswings. Houck, 27, who used to work in corporate finance pricing exotic securities in San Francisco, came up with the idea and decided to spend this summer developing it into a structured business with two other founders.

“We were messing around with this idea for a while and then we figured that getting into an accelerator is one of the easiest ways to focus on going from idea to launch,” said Conner, 28, over a coffee at Make Business Hub, a café for mobile workers that will serve as their office for three months. “Most have similar offerings of seed money and mentorship, but we picked this one because it’s in Dubai and we’d never been and our business is rooted in the travel industry.”

Following months of research, the founders of Steadyfare.com began the Seedstartup programme in June 2012. Seedstartup is one of a handful of new accelerators for startups in the region — such as Seeqnce in Beirut and Flat6labs in Cairo. The programme in Dubai provides up to $25,000 in seed capital for a business idea in exchange for a ten percent equity stake in the young companies. Top performers have the chance to pitch for a $250,000 investment after three months of developing the business.

“There are very few players in this part of the world that focus on early stage funding, which means that if you’re an entrepreneur trying to raise money, no one will touch you until you can prove your idea will generate revenue,” says Rony El Nashar, founder of Seedstartup. El Nashar worked as an engineer at a VC-funded startup in Silicon Valley before breaking into the field in the Middle East. In Abu Dhabi, he then served as the director of investments at the Khalifa Fund, which provides funding exclusively for new Emirati ventures, before launching global-focused Seedstartup.

“There are great ideas coming out of the region, but not enough people to fund them at the right stages,” he says. “If we want to see more start-ups succeed, we have to provide the right support.”

During the three months in training, entrepreneurs are exposed to three categories of mentors, including successful internet and mobile entrepreneurs, financiers and angel investors, and product experts who specialise in marketing or social media. Seedstartup is also a member of Techstars, a network of around 50 mentors, which include top executives of major internet companies across the world such as Zynga and Yahoo!.

This is only Seedstartup’s second year.  The first batch started last September, when three teams were selected and two of them successfully received significant investor interest to grow their companies.

The businesses are very diverse. The first was a mobile application called Metwit, developed by two founders from Italy, that allows for social, user-generated weather reports.  When weather updates are tagged on Instagram or Twitter, the user gets notified of a weather change happening just a few hours before it reaches the user.

The second two businesses received significant funding last year. One of them is a Tanzanian company called Rasello that capitalised on high mobile penetration rates in Africa by providing an SMS broadcasting service that connects 300 small business with over 100,000 interested subscribers. The young company eventually caught the interest of Esther Dyson, a prominent American angel investor, among others.

The third company, Exa Technologies, is homegrown. After filming a TV show or an animated series, the material must go through a “rendering” process before it is screened. This can take months and wastes time and computer resources.  This is where a Bahraini team saw opportunity: they decided to use a “Graphics Processing Unit” — which has traditionally been used to speed up processing for video games cheaply — to make rendering video content 112 faster than conventional methods.

“An animator will upload the file and it’s rendered in minutes instead of hours or days,” says El Nashar. “By the time these guys were halfway through the programme last year, they had already secured funds from a regional venture capital firm and quadrupled their company’s valuation.”

This year, word spread and Seedstartup had three times the number of applications as last year. In order to be selected, interested parties must apply as a team — no individuals are accepted.  The company must show a successful prototype or ability to execute an idea.

“So just some dude with a great idea probably won’t get in,” he says. “Ideas are easy, execution is the hard part.  People must come in with something real to build on.”

There have been a number of hurdles along the way.  In order to accept investors, new companies must be incorporated as legal entities. In the UAE, one of the most affordable places to incorporate an internet company is Virtuzone (www.vz.ae), which comes with a UAE visa. The downside is that incorporation can cost up to $10,000 — which is half of the seed money that Seedstartup provides in the first place — and can take months to complete. Incorporation in Delaware or the Cayman Islands, by contrast, costs around $200 and takes a few days for approval.

“Many of our applicants aren’t from here and most are internet-based companies anyway, so we learned the hard way that there are more flexible options for incorporation out there,” says El Nashar. “We want to be able to give our guys their funding right away so they can get to work.”

Opening company bank accounts proved another challenge, which often takes months for approval. Other issues include double costs for shipping and customs in Dubai, as well as expensive set-ups for payment gateways — like PayPal, which is not available in the Middle East — to allow e-commerce websites to charge customers online. “It’s so expensive to set up a payment gateway here — thousands of dollars as an initial deposit compared to a maximum of $20 in the US,” says El Nashar.

“For start-ups that are usually bootstrapped, these costs and structural problems are prohibitive to starting a business.”

As the regional entrepreneur-investor ecosystem slowly matures in the region, however, these issues are coming to the fore and being addressed. A powerful law is in the works to make it easier to set up and finance new businesses in Dubai.

A cultural shift has also taken place in the last three years that has brought encouragement and prestige to those trying to start new businesses instead of accepting traditional career or education tracks.

“If this takes off, I will avoid going back to school,” says Houck, who has enough confidence in his business idea to leave Wharton’s prestigious MBA programme after completing one year.

“It’s a lot of work and even when we came here, we completely scrapped our initial idea and had a heart attack and then redesigned it, but it’s a million times better now. I’ve got faith.”

He’s saving his best speech and confident smile for Demo Day, just a month away.

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Last Updated: Thu 04 May 2017 10:51 AM GST

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