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Thu 28 Aug 2014 01:32 PM

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Trust me, I'm an investor

Tamara Pupic analyses a few examples of what investors often offer to local start-ups

Trust me, I'm an investor

It’s just the nature of the game that entrepreneurs run around pitching their start-up projects to as many people as possible hoping they will get an offer to which they will say: “Yes!”

In this constant battle with time, competitors, and more importantly with their own fears, they are far too often exposed to quick and emotional decision-making leading them not to say “no” when that is the only right answer. No matter what.

While the UAE continues to be a popular destination for fund managers, two recent conversations about the country’s start-up investors, the ones the region is so proud of, made me think who we would find if we peeked into that well-heeled circle, what they actually offered to start-ups and at what price.

First of all, although they seem to be everywhere, the exclusive group is not that big. At least the figures say so.

A recent review of the private equity and venture capital arena in the region by MENA Private Equity Association showed that the total number of investments decreased to 66 in 2013 from 101 in 2012, a drop of 35 percent.

However, although the research also reported a decline of 14 percent in the amounts funds raised, the average close per fund increased from $43 million in 2012 to $74 million in 2013.

What is this consolidation trend among funds telling us? It shows that those who are actually willing to invest, group together and offer bigger amounts to start-ups. And what about the others?

In the region’s relatively new start-up culture, I often hear that the lack of later stage companies is the reason why there are more individual investors at an earlier stage than later. That’s the usual answer to the question why there’s a lack of funding beyond series A.

If so, agreed. Let’s then focus on seed-level funding and see what the experience of the local early-stage start-ups is. What do you usually offer to call yourself an early-stage start-up investor?

“They were two guys that had an idea, and when they first came to my office they didn’t know what they were doing,” a businessman told me in a recent interview, talking about a local start-up that was doing exceptionally well at that moment.

“I saw that their model would work. And, honestly, I did not support them financially, I supported them in means of my knowledge because I felt they could do something. And look where they are today.”

And, honestly, I wonder whether the start-up’s name, at that moment quite well-known, would have been mentioned to a reporter on the day when the two guys had come to his office.

Another example comes from a Dubai-based entrepreneur who recently told me that he had been approached by an investor offering him advice provided that he included and promoted him as a member of the start-up’s advisory board.

Not only was the entrepreneur patient enough to listen to the generously offered advice but he was glad to inform the wannabe investor that all of that had already been implemented and published on his website, which also had no ‘Advisory Board’ category on the ‘About us’ page.

Other stories refer to investors sharing their big ‘Silicon Valley examples’, and asking for 50 percent of a start-up’s equity for only $25,000 or similar.

I’m sure you’ll all know many more similar examples.

If we want to build a proper start-up ecosystem, offering guidance, mentoring and providing access to network to start-ups has to go hand in hand with actually investing money in them.

And it doesn’t stop there – you, the investor, also need to be there for them, return their calls, make introductions, do the important business development talks, spread the word, keep an eye out if you see something good in terms of a trend, and many more.

For all of that to happen, you first need to be honest – have real money, real network, and offer real advice in real time.

To conclude, we can agree that the region really is a hub for investors, with the honest ones grouping together and investing cautiously.

It is also a land of opportunities where real entrepreneurs need to be cautious and learn to say ‘no’ more times than an average and eager-to-succeed entrepreneur usually does.

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