B (3:31)

And from there ended up sort of.

B (3:37)

Figuring out, okay, there's all this deal flow that is starting to emerge across the rest of the MENA region. Like our mandate was Bahrain only, which is a tiny little market.

A (3:47)

Yeah.

B (3:47)

I was seeing deals from Jordan, from Egypt, from the uae and I was like, okay, well I want to do something with all of that. And so ended up going on a journey to try and learn a bit more about venture capital to Silicon Valley. That was an interesting experience. My first trip was my first meeting. I was wearing a full suit and then the guy across the street from me, across the table for me, was wearing a T shirt and jeans. I was like, okay, I'm definitely overdressed for this market. I really don't understand. So I started learning quite a bit. And then while there, I met the founder of 500 Startups, Dave McClure, and then ended up sort of joining forces to launch 500 in the region. So I became the managing partner for 500 Startups in Luna, launched the first sort of international fund that was focused on the seed stage here in the region.

B (4:42)

Our fund's done pretty well. It was a 2017 vintage. We did 181 investments. We were the most active investor in the region by far and really helped sort of kickstart a lot of the new startups that you're seeing start to emerge in mena. Essentially. I've been the crazy person that believed in this market in this region before anyone really thought about, you know, MENA was, it wasn't even an afterthought. No one, no one thought about Saudi or the UAE like in 13 years ago. And then from 500 we fully deployed that fund. It's done pretty well. We, we ended up deciding to launch plus VC ourselves. We're kind of using the same playbook that we were running there. So it's a broadly diversified portfolio at seed stage. It works really well for an emerging market like ours. And, and yeah, that's, that's how I ended up where I am, I guess.

A (5:35)

Yeah, I mean, so I think double clicking on a couple points. I mean, I think it was really interest.

A (5:40)

To expand globally. So tell me, kind of some of the learnings that you learned with, you know, taking a franchise that's obviously well established and then, you know, kind of hyper localizing them for the markets that you were. And it was that in, was that in Saudi? Is that where you guys launched specifically?

B (5:57)

Actually, so I'm, I'm based in Bahrain and so it's kind of where we launched. It's a, it's a small market, but it has a really good sort of human capital base and it's easy to get across the rest of the region. So we ended up really having a very regional focus from day one. We have team members on the ground in the UAE and Bahrain, in Egypt and Saudi, which are the key markets. But also we're quite active in places like Qatar and, and Kuwait and Jordan and Morocco. So.

B (6:29)

We had to localize quite a bit. The mean region was, was very nascent in 2017 when we started investing there. We didn't even have like a first generation of entrepreneurs that had had big exits yet. It was really sort of the first gen that we were sort of supporting and getting started. So there were things that were, you know, common knowledge in Silicon Valley that just weren't really things that were expected or understood here. Like growth hacking, growth marketing, you know, data driven growth wasn't really a thing. And so we had to sort of bring that understanding into the region.

B (7:05)

We had to sort of mobilize capital around us as well because there was very little investment activity then. There's a handful of funds. There was no real LP activity at the time. So we really were trying to build really a whole funding ecosystem from scratch alongside us. Because just us by ourselves just wouldn't work as a single firm.

A (7:27)

Yeah, no, that's helpful. And what, you know, what specifically did you guys, you know, use as a strategy to kind of build that community there? Sounds like there was already a tech ecosystem there. Were there already at that time like the other large accelerators like Tech Stars and Y Combinator or were you guys one of the first?

B (7:47)

No, yeah, yeah, there was no one in the region. Like we really were the first. Like it was, it was kind of very virgin territory in the region. That's amazing.

A (7:57)

So how you know, well, like, tell me about the first cohort. Like, I mean, how, how did that feel? Kind of getting that first cohort stood up? Like, did you guys do like a three month cohort and then like a demo day at the end?

B (8:09)

Actually. So the first thing that we did is we were like, look, we're, we're going to be investing first and foremost. So it wasn't linked directly to the program, so we started investing active. Checks at the, at the time, seed rounds were maybe 2, $300,000 in total. Average valuations were 1 to 3 million dollars. Like that was, that was what we were investing in. And there was just very little capital available. So just being an investor was enough to catalyze a lot of activity. And then as I mentioned, like one of the areas where we found was lacking was just an understanding of growth and how to scale and how to build sort of that. So instead of running a full accelerator program, we ended up with our partners in QSTP running a very, we called it dojo program. It was a growth focused program. It was a one month, super intensive, just trying to figure out how to scale and grow these businesses with knowledge that's pretty successful and works quite well in Silicon Valley and can we apply that to the region? So we flew in mentors from the Bay Area and ran it for a month and that was actually pretty good. We saw massive transformation in the way that the founders were thinking, the way that the companies were being tracked for growth, what their target targets were. You know, they started to become a lot more data driven than they were prior to that. And so it wasn't a full accelerator program. We didn't start doing that until probably two years in. But it was really trying to bridge a bit of a knowledge gap there.

A (9:44)

Sure, that's, that's really interesting. So yeah, I didn't know that you guys started with kind of just actively investing. So that just obviously built a lot of awareness because they're like, wow, there's some type of capital performance provider. Yeah, if not the only one. I mean, who were the other? Was there an angel ecosystem there at all? Like, was there like, you know, smaller, high net worth individuals that are backing.

A (10:06)

Okay, wow.

B (10:06)

Okay. So the thing is, when you go to the larger, like the people that have money in the region were mostly large family offices that were made their wealth either trading or real estate or construction or industry. Right. So they, we didn't have people that had created wealth in technology or startups or anything like that before. So we didn't have that cycle of angel investors yet. And as an asset class, it would just look so weird compared to what these people were, what the families were, were used to investing in. They're like this, this angel investment thing, like, wait, I'm putting all the money in but I'm only taking a small stake. Like that's not, that was like the opposite of what they were doing before.

A (10:48)

So they were talking about almost like the buyout model where it's like, hey, you know, if I'm giving you 20k I better own like 50 of the company or something like that.

B (10:55)

Basically yeah, they were, they were investing like $200,000, taking 80, 90% of the company.

B (11:02)

And so it was a whole like.

A (11:03)

What were the sizes of these companies though? Like were they, you know, what was the revenue levels of these companies? Put in $200,000 into a company and you're getting, you know, 80%. I mean, are these, you know, how big are these? Like super.

B (11:17)

They were small. Like the thing is the startups at the time were tiny. Like they were scratching 5k a month and revenues, things like that. So it was really nascent and I guess it's kind of made sense for the time. But the market evolved quite quickly. After we started investing for more of a Silicon Valley Mindset In 2017, the market started to pick up. We started to see some large exits as well. So there was an exit of Talabad to Delivery Hero for $200 million that triggered a lot of interest. And then souk.com got acquired by Amazon for like $700 million I think it was. And then Kareem got acquired by uber for about $3 billion. So it started to avalanche that, hey, this people can actually start making money. And a lot of the, the like there was a random activity of angels and a lot of the ones that did put in small checks into some of these deals, their friends were like, wow, how that's amazing. Like you made so much money. Like how do I do that? Let me get involved with that. And so in, you know, probably around 2020, we started to see a lot more activity from the angel sort of the high net worth individuals started to build to, started to feel like, okay, this is somewhere that we can actually invest and make money and let's do this more.

A (12:42)

And then did you, and then when did you guys, did you guys ever end up doing programming in the future?

B (12:47)

Yeah, so we did start running accelerator programs I think in 2019, I think is when we started doing it. So it was, it was well past the thing. But yeah, honestly, like accelerators, I, I didn't, I didn't think the, the investment model behind an accelerator here in the region made a lot of sense. Like there wasn't a large pool of applications every single batch. So you, you had like a pent up demand for the first batch and the second batch. There weren't a lot of companies that were emerging third batch, even less. So it just didn't make a lot of sense as an accelerator program. So that's why like AT plus we're like, look, our investment decision making is really driven by, really think these are great founders. We want to back the best founders in the region. The accelerator thing doesn't really matter to us. We just want to really back them early and make sure that we can invest in these founders regardless. Because you know, sometimes the selection process for accelerator program not always the best.

A (13:53)

You know, you're looking at what makes the, you know, because a lot of times accelerators, I mean, and this would be interesting too to, to learn kind of like what, what is the decision making criteria with, you know, when you got a thousand, you know, startups, you know, I, I'm kind of familiar with the process of some of them where you got to you know, submit a founder video, which is like a minute and then when you're applying it's like a minute right. Of like a kind of a summary of like who you are, what your product is doing. So you know, how do you, how do you sift through all that noise to pick a candidate and what, what makes a DNA of like an accelerator candidate?

B (14:29)

Yeah, I think, I think probably one of the issues that we were facing is that there's always a pressure to have a batch. Especially if we have an external party that sort of funding that program. You have to have a batch of 15, 20 companies every, you know, six months or so. But in the region we were only seeing probably three to 400 applications at a time. And so we ended up like we had to select like the 5% out of the applications each time and they necessary, they weren't necessarily the best deals. Like it wasn't.

B (15:02)

You know, there's, there's other considerations when you're an accelerator program which is not necessarily driven by can I invest in the best deals that generate the best returns and, and how do you select companies for the accelerator, the best ones just like the way that you would for, from a financial perspective like you're looking for what I look for. When I'm looking at a deal at the early stages, I'm Looking for founders that have a bias towards execution. They just want to get things done. They're going to get things done whether we support them or not. So we might as well be there as part of the journey. And so that's really what we're focused on. Like, we're looking for founders that regardless of what happens, whatever life throws their way, especially in a market like ours, they're just going to keep hustling to get things done and keep executing to get things done. And that. I guess it's hard to figure that out. But, you know, I've reviewed tens of thousands of deals now over the past few years, invested in like 230 of them. I've seen quite a lot. So the, the pattern recognition has become a bit better. I think that's, that's what's working quite well.

A (16:08)

Yeah, no, it's exciting. And I've talked to a lot of founders. I mean, you know, there was a founder recently that I spoke to that, you know, I recommended them to go to a consumer focused accelerator. And, you know, it's tough to raise money. It's a lonely road. Doing it on your own. It's easier, right, because you can just kind of, you're like, why do I need to burn three months? Kind of like getting education and support. But sometimes kind of being in that cohort, you know, there is a network of investors that maybe didn't know before, maybe a founder knows somebody else. So sometimes kind of cascading your network and then also just having a support system definitely helps, but it takes more time and it's definitely more overhead, you know, with that consideration. So I've had founders tell me, hey, you know what? I just don't have time for an accelerator. I don't got time to like, shut up, show up to these sessions and, and, you know, follow all these different, you know, milestones that I have to go through. So those are kind of the two perspectives that I hear. But like, what, what are you hearing, I guess from the investor side, you know, and obviously there's a lot of, you know, labor to, to run the cohort. Right? You gotta, you gotta hire a program manager. There's probably a budget. You need to like, host events. So talk to me about that. You know, just both sides of the table for both the founders and just kind of running, running the cohort.

B (17:31)

I think it really depends on the founder. Some founders really would benefit from going through an accelerator just to sort of get them in the right mindset of, you know, thinking about growth, thinking about execution. Thinking about how to really pitch their company, how to, how to, how to raise money from investors, all of that. So some founders, it's, it would actually be pretty useful for them to go just to get a bit more polished and really understand and build out a network. But some founders honestly don't need it. Like, it's, you know, they're, they're executing regardless. They take feedback when they're given. They learn as much as they possibly can from every interaction that they have. They surround themselves with good people. And so accelerators aren't, aren't for all. Like, it makes sense for some founders, but it makes absolutely no sense for some others. From an investor perspective, the thing to be careful of is I've been at the back, so I see. I've seen how the sausage is made. Demo day is not really the best, best, you know, way to see which companies are actually worth investing in or not. I've seen some of the worst companies that we invested in go up on demo day and shine so brightly and every investor's like, that was the best company in your batch. I was like, it really wasn't.

A (18:44)

So, yeah, I mean, I think there's a difference between being a good presenter and having a stage presence and really having like great product demo and then, and then, you know, maybe not being as in the limelight, but like just having a great business, right? This generating recurring cash flow, you know, and I mean, two, two examples are like Steve Jobs and Elon Musk. I mean they're one of their skill sets that they're both really good at is like product demonstrations and the showmanship. Obviously they both built amazing businesses too, but, but, you know, if you can do both, that's always great. I mean, what, what made some of these companies suck, you know, was it.

B (19:26)

Just, you know, like they just wouldn't get anything done? Like, you go doc, to talk to them one week and be like, hey, listen, you know, what are you working on this week? And be like, oh, we're going to execute this, this and this, and you come a week later and they've basically done nothing. And that's it. Like.

B (19:43)

That'S honestly all we're looking for at the early stages is we're looking for founders that are getting things done day in, day out. They're like swimming, they're continuing to sort of survive and just executing on things. So, yeah, it's just that it's pretty simple. Just are you doing anything or not and is it generally in the right direction, like. Or not? So that's really it.

A (20:09)

Sure. And like, what about the, the differences that you saw from like, you know, the Western founders to the Middle East? I mean what, what industries did they specifically focus on? Were there, you know, kind of trends that you've seen that were kind of unique to the, to the market?

B (20:25)

I think what we're seeing in the region is sort of the first gen of startups. So like unlike in, in, in in the US where you're kind of looking at niches of niches or whatever the newest thing is or super specialized sort of funds in, in the Middle East a lot of the big opportunities still haven't been sort of taken. And so things within E commerce, within payments, within logistics, just transacting online, there's huge opportunities in those spaces. So, so we're still at that first gen of, of you know, seeing what can be done and getting transactions to move online. And then the second gen that we're starting to see emerge really in the mean region was, was a lot of fintech plays over the past couple of years. There was a big focus on, on startups that were enabling various types of debt, payments, whatever. And so fintech started to take a bit of prominence because the banking system here really wasn't structured in a way to support a lot of really small companies and stuff. And then the phase we're at in some of the markets now is we're finally getting to the point where we're seeing great SaaS, businesses being built that are local to local, that are built with Arabic localization in mind, that are really competing on a global scale with product, but really trying to dominate the menu region, which is honestly a big enough market. It's 350 million people, it's a large GDP, it's as big as the US in terms of population. So we're starting to see that sort of phase. We're not seeing a lot of deep tech, we're not seeing a lot of companies that need hardware, biotech or any like. That's still, I think the phase that's coming. But we still have so many opportunities. Just sort of the base layer.

A (22:15)

Yeah.

B (22:17)

That you know, it just, it's, it's like you don't have to go digging for gold. It's just available and you gotta pick it up from the ground. So that's how we're seeing things here. And so the founders, the other thing is the founders are usually like first gen founders. They don't have networks, they don't, they're really just getting started. And these are the guys that are going to start building the foundations for the next generations. They'll be the angel investors, they'll build ecosystems. But right now they're not, it's not like Silicon Valley where, oh, I don't talk to any founders unless they come through a referral from someone I know and trust because.

B (22:54)

They don't have access to those networks yet. So we're starting to build those networks within the companies that we're investing in.

A (23:03)

Yeah, it's helpful. And then where, where do you kind of see the typical outcomes in those regions? Are they ipoing, are they doing, you know, how, and how do you guys feel it's best to, you know, get liquidity, like kind of the exit. So for me, for example, like I've looked at a handful of deals, you know, in, in, in, in Africa and India and sometimes there's attractive opportunities in, you know, secondaries.

B (23:29)

Yeah.

A (23:29)

Especially if you don't really understand like the, the stock market in those areas, you know, figuring out how, you know, how those shares transfer back. And then there's probably forex fees as well. So what's the ideal outcome for, for like the, the investors that are in that space? Is it, you know, cash? Is it cash and equity? All of the above. Are they looking for, you know, their specs? I guess. What are some of the different exit opportunities that you've seen?

B (23:58)

Sure. I mean we're, we're seed stage investors, so our exit is much easier than, than some of the later stage funds. Yeah, we're investing at valuations between 5 to 10 million post. So by the time a startup gets to series B in the region, which is usually around a $200 million valuation, we're already doing pretty well on those investments. And at series B in the region, there's usually quite an active secondaries market where the later stage investors want to acquire as much ownership from the early stage VCs like us. And so we've been able to liquidate some positions. One at 31x cash on cash through secondaries, another one 17x cash on cash. So secondaries I actually believe for us as a seed stage investor is probably one of the great sort of exit paths in an emerging market like ours.

A (24:45)

I totally agree.

B (24:46)

We don't need to hold on all the way to ipo. But what has changed over the past probably two years, I guess, is that the IPO path has opened up in the region, that it never existed. Like if you spoke to me, if you spoke to me like three years ago, I'd be like, there's no chance in hell that any of my startups are ever gonna ipo. And then we, we actually had sort of a couple of landmark transactions. So there was, out of Egypt IPO'd, it was a great transaction. And then jahez and Saudi IPO'd on the new sort of parallel market that they have in the Saudi market. And it, that was just a killer transaction that people were like, oh my God, this is crazy. And so it was a 2.4 billion dollar valuation at exit, like at the NPO and people made a killing.

B (25:32)

So essentially that has actually now become a pretty valid path. From our previous portfolio, we probably have five or six companies that within the next year or two are actually going to ipo, either in the UAE markets or in Saudi. And it looks like a really viable opportunity. But that's, I'm not someone is like, oh, I'm going to invest because I think all of them are going to ipo. I was like, this is a nice, this is a nice thing that I.

A (25:58)

Question, you know, so I guess to double click on my question, you know, why, why exit at the B instead of maybe waiting till like series D? And I guess maybe part of that could be the graduation rate. So like how, you know, how do the graduation rates in the MENA region trans, you know, kind of Compare to the U.S. you know, are you looking at, you know, like, how long does it take to get to the series B, you know, compared to the US markets?

B (26:24)

Yeah, I mean again, it's like a nascent market. Right. So everything is just really, we're figuring things out for the first time for a long. And so, you know, when, when I got a deal that was, you know, for 30x I thought was pretty good, so I was like, I'll take some profit off the table. Yeah, Like I thought it was, it was okay. And so, and it's also just a.

A (26:44)

Great way to just, you know, as you're building that relationship, relationship with lp, is to kind of just show that, hey, you know, I'm delivering some, some returns here and hopefully show some dpi, essentially.

B (26:53)

Right, exactly. So that's, that's the, that was the thesis there. And we didn't sell all of it, we sold a portion and we'll sell a portion on the way up. But the problem is that the ipo, like there isn't a lot of capital available at series C and D in the region. We don't have a, a big private market that'll keep a company going all the way to like, yeah, multi billion dollar Valuations, there just isn't that much capital. We started to see some international capital coming into the region at series B and C prior to the collapse and everything went, you know, to hell in 22. And so everyone retrenched out of, you know, emerging frontier markets like the mutant region. So I don't think we have that capital availability and that depth in the capital markets to be able to stay private past, you know, a certain stage. And so I think we're, we're starting to see, I guess a lot of these startups are probably going to be at, you know, billion dollars, $1.5 billion is valuations that exit at the IPO stage and, and past that stage there isn't private capital that will keep them private at the, you know, billion dollar mark. We, we just don't have that. It's, it's interesting. You're like, oh, the MENA region has so much money. Saudi, uae, whatever. It's not being invested in our markets and it's not being invested in the venture capital space.

A (28:14)

Yeah, I mean, I'll say. Yeah. I mean, and then one other thing is, you know, you know, keep in mind, in the U.S. you know, a lot of these large late stage investors are like, you know, debt providers. Right. So they're massive banks that are providing massive, you know, private, private credit opportunities. They're providing, you know, mezzanine debt. So that's a huge part of the ecosystem here. You know, the, the option to have debt and equity. And you know, I don't know, this might be a little provocative in the Middle Eastern culture, but I know like some cultures, some areas of the Middle east, like they don't, you know, that I guess they're, it's not allowed to have interest bearing products from my understanding.

B (28:54)

But, but there's, there's always other structures like they exist.

A (29:01)

Okay, so can you so talk about that? So like what are some other structures that could be maybe debt focused?

B (29:07)

So there's a bunch of ways that are actually so debt is fine. Like a lot of companies do take conventional debt from that. So, so it's not like a complete taboo. But if you have a personal preference or your investors have a personal preference against that, then you know, there's the cook, which is similar to bonds. There's invoice financing structures, there's fee based structures which are not, it's not interest, but it's a fee that you pay. Oh sure, there's a lot of stuff that you can get, you know, debt products.

B (29:37)

Yeah, it's not impossible. It's like it's there.

A (29:40)

Yeah. So there's ways around. Okay, so that's because. I was just curious because, I mean there could be some. I don't know if it's evolved now to have like more private equity. You know, firms come in that can offer some of those products to just give them some additional capital to scale and get to the next round.

B (29:53)

We started to see private equity players come down into sort of the tech space, but they really don't understand it too well. Well, like a lot of the private equity guys in the region have been either investing globally, you know, middle market, sort of US deals and stuff. So them understanding the region has been a little difficult and then. Or they're like, they just, the startups are just not big enough or attractive enough for them to really like even pay attention. Yeah, but we started to see players like invescore like Jedua Capital, a few of these local players started to pay attention to startups, even Al Jazeera Capital out of Saudi. And so it's something that's emerging. So we're starting to see the series C ish and D ish pools of capital come from more traditional sort of private equity players. But they all have, you know, we'll IPO this within a year or two and we'll take advantage of these ridiculous valuations that we're seeing in the local market. So, so that's kind of the mindset that we're seeing come in at private equity. But at early stages, like they, they don't, they don't get what we're talking about, like at all. Like the private equity guys.

A (31:02)

Yeah, no, understood. No, it's helpful. And then what are some region, what are some sectors that you see are emerging? I know in the Middle east, you know, you talked about investments, not going into venture. Where are you seeing the investments? Mainly prioritize. I mean, I see a lot of stuff in the Middle east focusing on, you know, clean energy, you know, hydrogen energy, impactful investments. So is that what you're seeing? And you know, I guess maybe you could talk about where, where the money is getting diverted to and you know, where do you see some of the startups evolving into kind of maybe be aligned with that.

B (31:40)

I hate it when a startup alliance for where the money is available. Like it's like you should be doing what you believe in and execute, executing on that. Not just, you know, fixing yourself to be able to raise whatever money is out there. We have seen a bunch of pools of like, you know, green energy and stuff start to emerge.

A (31:57)

Well, I guess the only, the only comment to that would be like, I guess maybe not around the money, but like, I guess if you're building the product around maybe the market, like the customer. Right. So I mean, if there, I've seen a lot of like mobility type of companies, you know, kind of emerge in those areas because maybe that solution wasn't there. But that's a good point. Yeah, I mean, I think if the, you know, if there isn't any financing that's available, I guess that could be something to think about.

B (32:24)

No, I, I think like the region is still so nascent. The total amount of venture capital that went into the whole of the MENA region last year was like less than $2 billion, I think. Sure. So it's a tiny, tiny amount of capital that's coming into the mean adventure space. But it's such an amazing opportunity that's actually being overlooked by a lot of the local players because it's just, they're just like, oh no, I'm fine, I, I'll just buy a real estate thing and I'll be fine with my building and the returns there. Just do a, a factory and I'll be fine doing that. So it's like there's not a large, we don't have institutional pools of capital like endowments, we don't have LPS, even, even VC funds. You know, the first gen VC funds were all 20, 30 million dollar funds and started to grow. They outgrew the availability of LP capital. Like there isn't enough capital in the region to get a fund to a 2,300 million dollar vehicle focused on the region with capital from the region, which is quite an interesting issue. Pretty cool to see.

A (33:24)

Yeah, no, it's really cool. Well, you know, Hassan, I really appreciate you taking the time out to, to share all this insight. I mean, I think a lot of us, you know, really appreciate just kind of knowing about that region, the, the origination of how the ecosystem developed. And it was really great just learning more about your, your journey into this space, which is often opaque. So it's helpful to kind of, you know, unlock that and, and just, you know, allow people to, to know more about it. So appreciate you doing that.

B (33:51)

Of course. Thank you so much for having me on. I think the region's super interesting. I've spent 13 years of my life investing in startups here and I think I would, there wouldn't be any other market that I'd be, I'd be interested in investing in other than here, honestly.

A (34:06)

Yeah, absolutely. Well, thanks so much, Hassan, and looking forward to catching up soon.

B (34:11)

Thank you so much. Take care. Take care. Yeah, bye.