Startup Investment Guide for Kuwaiti Investors

Two weeks ago I was in talks with a person (that I greatly appreciate) to help them out with their new fund. They wanted to invest in startups and my job was as an advisor in the fund. While I really liked the initial idea and the people behind it, we disagreed on the strategy of the fund and how everything should work.

I had my own investment thesis that I developed myself. I’m no investment expert, I actually never invested in anything before except for a couple of bad stocks that went bust!! But hey, I still worked in Private Equity, passed CFA level II and did my MBA in one of the top 10 schools in the world and been a full time entrepreneur more than 5 years now 🙂

Anyway, as most of you know I like to share my crazy ideas, and here is why I decided to share my amazing TOP SECRET investment thesis:

1- It will start an interesting discussion.

2- It will help others to think of their own investment strategy.

3- Some of you might actually get excited and start investing himself/herself.

4- Might open new opportunities.

I constructed the theory based on two main factors:

1- The type of Startup

2- The problem they are trying to solve (is it local, regional or global)

After that I applied many factors based on my personal opinion and experience. The factors used to create the thesis:

  1. Type of startup
  2. What a startup need to succeed
  3. Does the startup has potential to grow globally, regionally or only in Kuwait.
  4. Startup stage
  5. Acceptable valuation range
  6. Potential exit
  7. Potential return
  8. Potential acquirers
  9. Probability to succeed 

After creating the thesis I converted it to a guide (aka a cheat sheet) that any Kuwaiti or GCC investor can use. I preferred to use specific numbers and narrow ranges to be more practical. However, these numbers can be far from reality, but it should give you a good sense on what to expect when investing in startups. Again I used so many assumptions to arrive to some of these numbers, so please don’t use this guide as something written in stone.

Here is a link of the full guide in Google Sheets:

https://docs.google.com/spreadsheets/d/1NjL5Hm2kXpGAU7HiWKDnHboxPY9NTLuAJi5YPeZFjJ8/edit?usp=sharing

Please feel free to write any comments in the sheet, will be interesting to get your feedback. Below is further explanation of the guide.

1- The Pure Tech:

These are startups that are building pure technology and the team should be heavy in technology. These startups usually focus to solve a specific problem for businesses or regular people. Usually these startups comes in a shape of a web app or mobile app. An example of these companies will be something like Google, Microsoft, Salesforce, Mixpanel..etc.

These companies usually charge in a monthly basis or per usage (aka SaaS startups). Usually minimal human interaction is required and often the customer doesn’t really care where the startup is based. A pure tech startup needs to be close to a pool of talented programmers.

Pure 2

2- The Marketplaces:

A marketplace connects buyers to sellers. These startups don’t really have a product to sell, they sell other people products or services. Example is Uber, Airbnb, talabat.com and fishfishme.com.

Lots of ground work is usually involved here and the startup needs to be close to it’s sellers and buyers.

Marketplace 2

3- The E-commerce:

Either you sell your own branded products or a third party products. Will still see new e-commerce companies emerge as long as we have new platforms coming up. Also we get to see some clothing brands that do online only. E-commerce startups need to focus on their product, UX/UI and marketing.

E-commerce websites need to be close to their suppliers, customers and investors.

Ecommerce 2

4- The Hardware:

Hardware startups develop physical technology. We rarely see these startups in Kuwait and the region, but if we do usually they do well. Why? I think a hardware startup get better media coverage and it’s cooler than a software startup. Also usually they solve a local problem ignored by giant global manufacturers, thus very focused and relevant to the local market.

I have few example of these in the region, but to give you an idea a Saudi women created an electronic coffee maker Yatooq. Kuwaiti Sakhar computer was also considered a successful hardware company back then (I feel very proud about Sakhar being Kuwaiti!).

Hardware 3

5- The Social/Content/Media Startups:

These are startups that fall into the social network, content publishing and user generated content category. I usually underestimate these startups, but I see them do very well. I think mostly because of their social and viral element embedded in most of these apps. Some of the success startup that comes to mind are Nabd and Mojaz. 

Social 2

I probably missed some types of startups, such as gaming startups for example. But, I guess you can easily apply the concept to any startup type. 

Fund Structure:

 

Fund size: US$3M-5M
Number of investments: 30 – 40 investments (remember only few startups succeed, high risk high return game)

Duration of the fund: 5-8yrs
Fund deployment period: 3 years (target of 10 investments per year)
Focus: GCC startups (locals and non-locals)
Your job as an investor: help in fund raising (connecting with other investors) and finding potential acquirers.
Duration to make a decision : 1 month (from first meeting to wiring money). However, Round 3 investments should probably require more diligence.
How to get deal flow: Start by co-investing with well know angels in Kuwait. Then co-invest with well known VCs in the region.

Sorry for the long post. But, thought will be interesting for some of you. I can go on and on talking about this, but I’ll keep it till here and wait to here your feedback. Please share this with your investor friends and encourage them to give their feedback as well!

Dana Alfaraj: Why did I choose to work in a startup right after the graduation?

2016_06_27_dana_alfaraj_ghinwa

After 23-year-old Kuwaiti Dana Alfaraj graduated from the American University of the Middle East in January 2016, she decided not to go with the flow and take some job in a public sector, but to start her career in a startup. She holds a bachelor’s degree in Industrial Engineering and is currently working as an intern at Ghinwa, a startup that won the first place at recently held MIT Enterprise Forum Arab Startup Competition.

StartupQ8: What (or who) motivated you to start your career in a startup and not in a public sector? When did you decide to do so?

Dana: Ever since I was young, I lived an ordinary life like any other teenager. Half way through college, I had a turning point because I realized that I don’t want to live the routine life anymore since it is not who I am. I have many ideas in my mind that I have the potential to accomplish, but I never had the courage to take action. I shifted my perspective of life and I started liking change and taking the risk of trying new things.

My mentor Mohammad AlMunaikh, who is the CEO of Ghinwa, had a huge role in motivating me to enter the world of startups and stepping out of my comfort zone. Before graduating in a month or two, I made up my mind to go for it. In both cases, if it turns good or bad, I’ll learn something from it. So far, I love it and believe that I fit there perfectly because I’m learning a lot in a very short time and I’m enjoying the experience.

StartupQ8: Since the team is based in Dubai, from where do you work?

Dana: I work remotely in Kuwait, but I fly to Dubai whenever I am needed there. In general, most of our meetings are via Skype. Though, there are few meetings that take place in Kuwait. Eventually, when I get the full time job, I’ll be moving to Dubai.

StartupQ8: What is the most challenging part of working in a startup?

Dana: For me, I think the most challenging part is that we are all in different locations. I find it a bit hard sometimes to communicate with the team through Skype or Slack all the time. Although, it is getting easier by time. I also didn’t meet the entire team yet. I would like to meet them and know more about the people I’m working with. This is my first official job and all the members of the team are well experienced. Sometimes, I find it challenging to catch up and be on their pace. The good thing is that I get to observe and learn from their experiences.

StartupQ8: Is there any piece of advice you would like to share with fresh graduates when it comes to choosing private sector over public sector?

Dana: People have different backgrounds and experiences. Some people might fit in the private sector rather than the public sector and vice versa. From my experience, the best advice I would give is to try new things and give it time to discover what you really passionate about to end up in the path that you love. Simply, choose the job that makes you sincerely happy, because it will lead you to gradually succeed in what you’re doing. Make sure you live the journey that you want and enjoy the ride.

We couldn’t agree more with Dana.

How to Make Kuwait a Regional Tech Hub? StartupQ8 Monthly Event Brings the Answers

StartupQ8 event for June was one of the best monthly events we ever had, we can say that without doubt. Not to mention that Mefazec’s coworking space on the first day of June was full of people who wanted to explore the world of startups in Kuwait and how can we make it better.

The event was also a crown of Coded Spring Bootcamp 2016. Co-founder of Coded Ahmad Marafi handed over diplomas to their students with the help of Richard Kramlich, well-known venture capitalist. He is also a co-founder of New Enterprise Associates, a global venture capital company that invests in technology and healthcare.

In the meantime, CEO of fishfishme Abdullah Alshalabi, founder of Lumba, Inc. Abdullah Alzabin, and former CEO of Talabat Mohammed Jaffar as panelists, and Hashim Bahbahani from Coded as a moderator were getting ready to take over the stage and discuss on how to make Kuwait a regional tech hub.

The conclusion of the panel discussion is that building a tech sector is definitely a viable way of moving Kuwait from a country that relies on oil for more than half of its GDP to the place where other sectors are equally represented. We are all aware of the fact that capital is here. We’re also working on a talent and legal structure improvement. The most important thing above all is to make Kuwait friendly place for expats so they can decide on moving and working in Kuwait more easily.

The last but not least speaker was Alvaro Abella from BECO Capital, one of the leading venture capital companies in the Middle East. He was joined on stage by Yousef Hammad. They talked about how entrepreneurs can structure a pitch deck to catch investors’ attention, what to focus on in the presentation, and what content to include. They also spoked about how to choose an investor, and what VCs look for in startups.

That’s all, folks! Follow us on Instagram and Twitter for more events. And one more thing. Keep in mind that our friends from Coded are organizing full-time summer bootcamp and invite you to apply. Hurry up because the deadline is June 13th and you might get one of the two available scholarships!

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