By Tamara Pupic
Yousef Hamza, an angel investor and partner at Envestors Mena on how to build an entrepreneurial ecosystem in the UAE
In the process of mapping the universe of angel investing in the UAE, one company stands out. Not for the speed at which it writes large cheques, or newspaper headlines about lucrative exits, but for its commitment to the UAE.
Yousef Hamza, partner at Envestors Mena, a Dubai-based corporate finance advisor and operator of an international network of sophisticated investors, explains that the essence of his work as a leader of an angel investor group comes down to the concept of Majlis.
Converging on a Majlis with family and friends had served the same purpose long before the term angel investor was coined on Broadway in the 1970s. “If you think [about] where Dubai started, the concept of Majlis is ingrained into our blood, our DNA,” he says.
Majlis, an Arabic term meaning ‘a place of sitting’, is often used in the context of ‘council’ to describe various types of special gatherings among common interest groups.
Hamza adds: “Back in the day in Dubai, everything was a Majlis. If you think [of] how the UAE united, HH Sheikh Zayed went from the emirate to emirate to sit down in a Majlis. And the Majlis culture is one of the best assets of Arabian culture, the UAE culture.
“It is that getting down every week, with your peers and just openly talking about everything.
“The society today is so global and so fast [whereas] here, you go, see them, see their kids growing up slowly, you’re humbled, you’re brought back down, you create great relationships with people.
“And remember business is about people so when you’ve been with these guys for 10, 20, or 30 years, it becomes very easy to move forward, you end up trusting them.”
The honest dedication to building the UAE, Hamza continues, has been evident among expats as well, especially those who have proven, by their long-time residency and working in harmony with the government and the community, that they want what is best for the UAE.
“I know very few people from that time who aren’t trusted, aren’t looked after, and aren’t successful in some way because they started in that family culture,” Hamza says.
One example is David Moleshead, a fellow of the Institute of Bankers in Scotland with over four decades of experience in investment and international banking in the UK, Europe, Asia and the Middle East, and the founder of Envestors MENA in 2008.
A high-profile post at HSBC brought Moleshead to Dubai in 2000, and when the dark days of the financial crisis hit, he focused on the recovery of the emirate’s economy by supporting its very basis - start-ups and SMEs, more fragile than ever at that time.
One day, when Moleshead had just started working on creating a business angel network in the emirate, he entered a lift at The Capital Club Dubai with a young Emirati lawyer and started chatting about the need to provide structure to the invisible and ill-informed angel investing market.
“Don’t hire me, you don’t have to, but I’m still joining you tomorrow,” Hamza told him, and exited the lift as an angel investor. Although they did have a meeting the next day, it only led to Hamza resigning from his post at an Abu Dhabi law firm.
And he has never regretted moving into the SME ecosystem, having advised over 3,000 entrepreneurs and assisted them in legal matters, strategy and fund raising.
“Law has heavily helped and still does heavily help because one of the biggest problems entrepreneurs face is good and affordable legal advice. That’s what we provide here with our in-house legal team,” he adds when we mention his law degree from the University of Cardiff in the UK.
Joined by Kashif Arbab, the group’s third partner and CEO, Moleshead and Hamza work on investing in high-growth companies seeking funding from $300,000 to $5 million.
However, Hamza explains that within their group, which consists of experienced investors, family offices and investment funds, they’ve found their “sweet spot between $500,000 to $1 million or $2 million” due to the recent emergence of many new players in the ecosystem - accelerators that offer smaller amounts to newly-born start-ups and venture capitalists who start at upwards of $5 million.
“In 2008, during the crisis, we operated more as a consultancy,” he explains. “We really started our fundraising in about 2010 or 2011. So in the last four years, I would say, [we’ve funded] 20 companies. On average, it’s about four to five companies a year.”
With the requested amount falling into their range as the first criteria for taking a proposal into consideration, the next one is geographical location. If a start-up is not located in the UAE, or in certain cases the GCC and MENA, the venture’s team is directed to one of the group’s offices in Monaco, Jersey, London, or Hong Kong.
Excluding the real estate and military sectors, Hamza explains they are interested in supporting new ventures from all other parts of the economy if aligned with the current market trends and investors’ preferences.
Lately, he says, they’ve been focused mainly on online platforms and innovations. “It can be offline as well, but as long as it’s an innovative model to an old problem,” he adds.
From 40 to 50 applications per month, only one or two are taken through the preparatory process, which includes the Envestors team undertaking full due diligence and issuing investment notes.
However, the three partners don’t save their limited time and energy when it comes to helping entrepreneurs. “We usually contact everybody, give them about 30 minutes during which we will give them a bit of advice,” he says. “Sometimes it’s at least a phone call, but we like to meet every one of them. We like to meet as many as we can.”
As with many other angel investors, they also prefer high growth companies with strong management team and a proven track record. However, rare are those who provide more insight into the smaller elements of their decision-making process that might prove more important than the content of an entrepreneur’s business plan.
Hamza explains that when meeting with them a start-up founder needs to be ready for prime time. “When he steps into the room, that’s when we know, kind of, whether we are going to go for it,” he says.
“A couple of things that we sense instantly is how you enter the room. Do you enter with your head down, chest out? Are you looking at the people in the room? Is your mouth closed? Are you smiling?
“And then his pitch, what is he focusing on? If we don’t know exactly what you’re doing in the first 30 seconds of your pitch, we’re no longer interested to invest.
“Entrepreneurship is not just an idea or an ideal ‘I want to be my own boss’. It’s a lifestyle, and as such you have to eat, breathe, and sleep being entrepreneur. It doesn’t just mean standing up for yourself or coming up with great ideas, networking. It goes down to the very heart of who you are.
“It means you are the product, which means that you have to perfect yourself in every way that you can. You have to get yourself in shape mentally and physically. It’s about discipline.
“If you can, as an entrepreneur, kill your ego, that is the most important thing, everything else will flow from there.
“As investors, we read people very well, and we can sense a lot of these things very early on. And if you have so many people to choose from, you have to choose basically the best.”
Discussing entrepreneurs’ pitches, Hamza says: “This is either on a one-on-one basis or on a one-to-forty basis over dinner. It depends really on the entrepreneur or what kind of stage he is at. We, as the partners, also invest in these companies individually.”
A study of returns of angels connected to angel groups by the Kaufmann Foundation showed that there was no guarantee of a good return on investment - one-third resulted in zero return, one-third offered a one to five times return, and only about one-third of the investments ended with strong exits.
Hamza points out that all 150 to 200 of their active investors, who invest between $100,000 and $250,000, are willing to help avoid negative outcomes, but the responsibility is on entrepreneurs.
“It depends on an entrepreneur and how smart he is to maintain good relations with investors,” he says. “Although I know hundreds of people, I’m not sitting here with all of them on top of my head and the second I see you, I’ll say: “Go see this guy”.”
While start-up investing often appears as an exercise in patience and tolerance, one misstep can wipe out a year’s worth of effort. “Remember, investors aren’t just banks,” Hamza says. “They’ve worked very hard to get where they are. So expecting them to just give away money is not realistic. There’s a lot of fear, emotions, yes, but also a lot of appreciation for the hard work that you’ve put into to get that money.
“You’re like ‘I’m giving $100,000’, but that’s the whole last year of my life. I worked to save up to invest in you. So I’m giving you a year of my life. There’s a lot of that and, you know, they [investors] are people too.”
In order to increase chances for better financial returns, investors around the world have started grouping to benefit from pooling deal flow, capital, domain expertise and investing experience. Angels in groups can have a 2.6-times return in three and a half years, a 2007 Kauffman Foundation study showed.
Speaking about the growing investment community in the UAE, Hamza says: “The investor community is relatively small; we all know each other. So,I guess relationships are being built between us, which is good because it’s becoming more of a community.
“Previously, investors were completely segregated. Now I’ll know if one of my friends in the investor community, or somebody whose judgement I trust, has put money into something. We’ll then jump on board.”
No matter how many people an angel investor is surrounded with, sometimes it takes a failure to learn how to do it well. Hamza explains that despite many successful deals under his belt, it is his mistakes that have provided invaluable lessons.
When asked how he got over his first few failures, he says: “Actually, you don’t. You never get over those few failures, but you keep them for the good reason of driving you forward.
“Some people stop and that’s the last thing you should do. All that failure shows you is that you have to pay more attention and that you have to learn more. You’re not good enough. And no one is perfect, no one will ever be perfect; It’s just the nature of the game.
“My first investment, when I joined, wasn’t very good. Now all the investments that I make are all returning back money that has covered the failures by three, four times.”
However, the turning point to regain his confidence happened when he declined to invest in a Dubai-based company for various reasons, one of which being the fear of previous failures. After two and a half years, the company’s valuation went up from $10 million to $1.5 billion.
“I realised that not investing can cause more damage than failures,” he says. “Now I’ve created a larger portfolio of investments so some will still fail, I’m sure, but others will make up for it very quickly.”
To empower and inspire entrepreneurs, Hamza is also a mentor at Seedstartup, a Dubai-based incubator; involved with INJAZ, a member of Junior Achievement Worldwide; and part of Dubai+Acumen, the UAE-chapter of the international organisation that tackles poverty by investing in companies, leaders and ideas. He is also a frequent lecturer at universities and government conferences.
This vast experience and engagements have provided him with a bird’s eye view of the entrepreneurial ecosystem in Dubai. “Things that are missing are, I would say, lawyers for SMEs. There’s a whole other skill set [needed] to be able to genuinely work with micro-size enterprises (MSEs). That’s a whole different lawyer that you need with a different price point. We do provide that.
“Then just knowledge sharing. I think there’s a huge gap between those people who actually have knowledge and those who actually need it.
“All the advisers and speakers out there are people who have been here for a few years, and they try to educate those who have just joined. It’s basically the blind leading the blind.
“You do need a lot more Emiratis who have been here a lot longer, who know the system a lot better, who know the intricacies of people and how to deal with them. What is the most needed in the UAE is that there needs to be a bridge between them and entrepreneurs.
“So I think that education is the biggest missing piece. If you had that, finding funding, getting advice, setting up, everything would be easier for people.
“But that’s not as easy as it sounds.”
With the fast-growing economy and attractive job opportunities, the emirate’s population is constantly growing, which has made the commitment to building the community more important than ever, Hamza says. “And a lot of people come here because they see Dubai as a hub to make as much money as they can and run away,” he adds.
“In the back of my mind is always ‘How many more months are you going to be around?’ That’s always the question. Have you come to gain or do you genuinely want to build the community?
“And we find those people who want to build the community, and we bring them into the circle of the people who are here.”
For the aspiring entrepreneurs among them, Hamza advises creating “something that has long-term value that will help build the community,” and concludes: “Be humble, always be flexible, lose your ego and always seek advice.”
For information, tips and advice on setting up a new business or insights from those who have taken the leap into the world of entrepreneurship, click on the Arabian Business StartUp section.