Morrad Irsane and Sherene Lee, the husband and wife duo behind Melltoo, a peer-to-peer marketplace for secondhand items with escrow payment and door-to-door delivery, offer revealing insights into the need for thinking agilely when building a digital business in the region.
The Melltoo app was launched in 2014 as a mobile classifieds platform that incorporated standard social features. Adopting a user-first approach, the co-founders developed an in-app chat to allow users to communicate and conclude deals directly, but not before their privacy was guaranteed and the safety of their contact details ensured.
However, the young business lacked a system to prevent the often poor item delivery transaction between clients, leading to their frustrating experiences. The co-founders acted quickly, admitting that the app actually was not an improvement significant enough to ensure smooth sale and purchase of goods between regular people.
“We started out with an idea that was a moderate improvement over current alternatives,” says Lee. “It turned out that a moderate improvement was not enough to get people to change their habits and switch from what they used to do to something new. As a start-up, we must not only solve a problem, but solve an important problem in a way that represents a 10x improvement over current alternatives.
“The real problem with peer-to-peer buying and selling is trust.
“In October last year, we launched Melltoo Pay&Ship SECURE, which puts trust back into the marketplace with Melltoo acting as the middleman. Buyers pay Melltoo, we pick up and deliver the item, and release payment to sellers once the transaction is completed.
“Since then, things have really started taking off. We have built something that people genuinely love. I am constantly surprised by how engaged and involved our users are.”
The Melltoo app has had more than 600,000 downloads, recording more than 100,000 monthly active users who spend on average 12 minutes per day in-app. The co-founders claim that the app has facilitated over $1 million worth of transactions in the first half of 2016 alone.
Lee explains that raising funds proved to be another obstacle to the growth of their business due to regional investors preferring to invest in real estate and F&B outlets rather than tech start-ups.
However, with the decline of investment returns in traditional industries due to F&B outlets saturating the market and real estate supply exceeding demand, she adds, investors have started diversifying their portfolios.
“Traditional investors, such as private equity, sovereign wealth funds and corporates, have started investing in start-ups. However, these investors come with baggage and are looking for start-ups that have revenue and a clear path to profitability.
“I do not mean this as criticism because market realities are different here than elsewhere and investors have to act accordingly.
“Unlike Silicon Valley start-ups, we cannot pursue a “grow at all costs” strategy if we expect to raise money in the region. Regional start-ups should be careful that their growth is sustainable or at least takes them to sustainability. Even if seed stage investors are willing to fund growth without revenue, they know that there is a limited capital at later stages for a start-up with no revenue.
“When we first started, we were not focused on profitability so there were some painful and costly mistakes along the way. However, we quickly understood the funding landscape and we are now on a path to profitability.”
Melltoo has raised $790,000 in funding to date from Middle East Venture Partners, Dubai Silicon Oasis, and Raed Ventures, among others, the co-founders state in an email. They are currently raising a bridge to Series A round, which is expected to take them to cashflow breakeven by April 2017.
Irsane echoes his wife’s concerns about the the risk-averse attitude of local investors, advising start-up founders to develop their monetisation strategies quickly. “In the UAE, there is an ecosystem of start-ups and start-ups that make money off other start-ups,” he says. “There is a growing number of investors, but only a handful are actually part of the ecosystem. By this, I mean that most investors do not actually participate in the ecosystem, they do not engage with the start-ups and it is questionable how much they engage with one another.
“Investors and start-ups are separate camps like oil and water. This lack of dialog actually stunts the growth of our ecosystem. Start-ups don’t know what investors want and investors don’t have a way to evaluate start-ups beyond decks and spreadsheets.
“An ecosystem is built on networks and relationships and the lack thereof results in distrust and fewer deals being made. Debates between start-ups and investors at conferences don’t help. Start-ups in the UAE learn more about investors from TechCrunch than from investors themselves. That is not a good thing since local investors have different considerations for start-ups given market realities.
“Investors are rational players just as start-ups are, but if neither camp understands the other, our ecosystem will never progress.”
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