Announcing 500 Falcons first closing at $15m out of $30m target

 

Today, I’m thrilled to announce the first closing of our 500 Startups MENA Fund (aka 500 Falcons) at $15M out of our $30M target. While we have been investing in the MENA (Middle East and North Africa) region since 2011, including 55 deals in 32 companies for a total of $6M, this is our first fund focused entirely on the Arab world.

With this new fund, we plan to invest in approximately 100-150 companies with about half of the fund and reserve the other half for follow-on investment in the top 20% of companies. The fund will focus on early-stage startups in the MENA region, MENA diaspora founders and non-MENA founders targeting MENA.

The MENA Team

I’m so thrilled to announce that Sharif El-Badawi has joined the team as a Partner for 500 Falcons.

Sharif El-Badawi
Sharif El-Badawi

Sharif joined 500 Startups as a Venture Partner in February of 2016 while he was still at Google and the Chairman of the leading global non-profit bridging MENA entrepreneurs with Silicon Valley, TechWadi. He left his role at Google after nearly 7 years this past September working with some of the top startups and VC funds in Silicon Valley to focus his time and attention on investing in MENA startups. He’s already been a great help to the startups in our portfolio and an asset to the team. Prior to Google, Sharif was with AdMob, which sold to Google in 2009 for $750 million, and a serial entrepreneur, advisor and investor in Consumer Internet startups since 1998 having jumped into his first tech startup, Website.com. Sharif brings almost twenty years of product, business development, marketing, and sales experience to the 500 portfolio.

We’re also actively recruiting for our team in the region, with plans to have people on the ground in our key markets such as Saudi Arabia, Egypt, and Jordan amongst others.

Who Are We Working With?

I’m pleased to announce that among our LPs for the first closing are 2 highly respected regional institutions, the Qatar Science and Technology Park and the Oman Investment Fund. In these LPs we have found partners that will help us achieve our mission to support and invest in startups and build ecosystems in the MENA region. I truly believe that thanks to LPs such as these we’ll have a significant impact on the regional ecosystem.

Along with our partners at QSTP, we are bringing our Series A Program (formerly known as our Distro Dojo) to the region as ‘Doha Dojo.’ Once a year, we will be working with some of the top MENA startups at the Series A level to bring them to Doha with some of the best growth hackers in the world to help build a growth mindset and support them in their growth. More information on our first batch is coming soon and investor day is taking place on May 23rd in Doha. If you’re a Series A investor and interesting in joining, please get in touch with Ms. Ghada Darwish at gdarwish@qstp.org.qa.

QSTP
QSTP – Partners for our Distro Dojo Program in the MENA region

In Oman, we are engaging on an ecosystem building project in partnership with the Oman Investment Fund through the Oman Tech Fund. This year we’ll be advising and supporting the Wadi Accelerator program in Oman with knowledge transfer, capacity building and a cadre of mentors. In addition, we’re working on a unique event, Geeks in a Wadi, the first event of its kind, with further details to be announced soon.

Oman - One of the most beautiful places in the world
A natural ‘Wadi’ in Oman

Why Are We Doing This?

The region has long faced political and economic uncertainty, and a growing younger population that is looking to take charge and change things with their own hands. These youth have access to the same global wealth of information as anyone else. If they so choose, they’re capable of achieving the same things anyone else in the world is.

The Middle East and North Africa are among the last large regional ecosystems to rise up, and emerging markets tend to leapfrog adoption of innovations and technology at higher and higher frequencies. Being a latecomer does not mean staying behind, and the Arabic speaking world is 500 million strong – young, resourceful, wealthy and a yearning to thrive.

Top 5 Reasons MENA is a Must Bet

  1. Massive 500 million Arabic speaking population
  2. Largely untapped ecosystem/market, internally and internationally
  3. Shift in fossil fuel prices and changing geopolitical forces
  4. Lower valuations and costs of operating a business
  5. Highly educated, competitive and vibrant talent pool

Bonus (coming soon): Surge in investor interest and options for progression from seed to exit

According to MAGNiTT’s State of MENA Funding Report, 2016 saw nearly $1B of venture capital investment into regional startups, a 424% increase over the previous year, and arguably a flat year due to the fact almost all the VCs were fundraising, including us. Sorry founders, but 2017 is looking very strong! We hope that our 40+ deals/year will boost early-stage startup growth and encourage more angel and venture capital to flow in.

I look forward to 500 Startups playing a significant role in building ecosystems across the MENA region, and investing in the best founders solving real problems. I hope that our deal volume and speed will provide at least a small boost in funding activity at the earliest stages and even encourage others to do more deals as well. I’m grateful to the other investors and key stakeholders in the region who are fighting for the same cause. Progression is key for entrepreneurs and they need optionality of capital sources at all stages in their startup and scaling. We’re all aligned in that we want to create more companies and help those companies grow.

Here’s to building world class startups from the Middle East, creating jobs, solving real problems, empowering the youth, women and anyone who wants to effect real change to better their surroundings, and generating a positive return on capital while we’re at it!

500 Startups Gives Flight to 500 Falcons, a $30M Middle-East and North Africa Focused Fund

We are excited to break new ground in the MENA region (GCC, Levant and North Africa) with the announcement of our newest regional micro-fund, 500 Falcons.  

The fund will extend our goal of building a sustainable funding ecosystem in the region by investing in promising new companies and founders. 500 currently has over 30 existing investments in MENA (including Jamalon, Tamatem, Wuzzuf, Fetchr, Edfa3ly, and Shopgo).

500 Falcons will have a target size of $30M USD and focus on seed stage investments between $50,000-$100,000.

We will actively co-invest and syndicate deals with existing funds and angels in the ecosystem, with the goal of investing in 100-200 companies.

Investment areas of focus

  • 12360291_10100803644763280_3150545983364163257_ne-commerce and marketplaces
  • video and Arabic content
  • SaaS
  • mobile
  • fintech
  • hardware
  • IoT

We’ll do follow-on investments of up to $500,000 in the top 20-30% of our companies, with potential additional capital from our main global fund in selected deals.

500 Falcons will be led by 500 Startups Partner Hasan Haider, and in the near future will also include other 500 venture partners in local MENA geographies and markets.

Why 500 Falcons?

We’ve named the fund 500 Falcons as it represents an important aspect of Arab culture. These beautiful, majestic creatures fly fast and agile, exactly like the startups we look to invest in.

Most economies in the MENA region are dominated by the government and large companies, and in the face of a demographic shift, we see an opportunity for this to change. Learn more about why the Middle East needs a funding ecosystem here.

With 60% of the population under the age of 25, the region needs jobs (1).  Startups will lead the transition in economic development for most countries, to go from rentier states to more diversified, self-sustainable economies.

The MENA region represents 20 countries with 410 million people that share a language and culture (2). It generates $3.5 trillion in GDP, the fifth largest country in terms of GDP, just behind the US, China, Japan and Germany (3).

I recently wrote about the importance of a functional funding ecosystem in MENA, where I pointed to the need to focus on building out the funding ecosystem across the region, and support the development of the capabilities of investors in the region rather than just entrepreneurs. 500 Falcons aims to play a critical role in helping that vision come to life.

Where does 500 Startups come in?

Beyond being an active investor and key player in the seed stage, 500 will bridge the gap between MENA and Silicon Valley for both startups and investors.

We also help advise governments and private sector counterparts on how to support and invest in startups and tech.

We will also continue to look for globally-focused startups with traction to bring to our accelerator programs in Silicon Valley, and bring Silicon Valley expertise to the region through our customer acquisition and growth focused Distro Programs for post-seed and pre-series A startups. 

Our Geeks on a Plane tour is also returning to the MENA region on December 5th through the 15th alongside our PreMoney Conference which will be hosted overseas for the first time in Bahrain on December 6.

Yalla help us build the ecosystem!

At 500, we want to bring all players and stakeholders together to develop a robust ecosystem in the MENA region. We need a group of dedicated and motivated investors. We need capable and passionate startups and founders.

We believe in this region and are in this for the long run. 

To learn more about how you can help grow MENA, say hello here.

Notes:

  1. Based on calculations using the underlying country data from the United Nations 2015 Revision of World Population Prospects as of December 2015.
  2. Based on calculations using the underlying country data from the United Nations 2015 Revision of World Population Prospects as of December 2015.
  3. Based on calculations using the underlying country data from the World Bank’s 2014 GDP Rankings as of December 2015.

 

Cairo photo credit: Bruno Girin
Amman photo credit: Hassan Bushnaq
Bahrain photo credit: Allan Donque
Dubai photo credit: Nicolas Lannuzel
Riyadh photo credit:Nora.alsh2
Title Art by Yiying Lu

Why the Middle East Needs a Funding Ecosystem

I am a strong believer that entrepreneurship can bring positive change to a region plagued by economic challenges. For the past 5 years I have been working on building the angel investment ecosystem in Bahrain and the broader MENA region. But while much effort has been devoted to building the start-up ecosystem, there is room for improvement when it comes to the funding ecosystem.

The Backstory

The economic situation in the MENA region today is less than ideal. The World Bank states that the MENA region must create 100 million jobs by 2020 to accommodate the burgeoning youth population below the age of 25. This demographic makes up 60% of the overall population. Oil prices have collapsed, from around $100 to the region of $45, reducing government budgets and income in oil producing states considerably.

As a result, some local governments have jumped on the creation of SMEs (small to medium sized businesses) and entrepreneurship as a solution to these crises (at varying speeds and effectiveness). I believe this is the right path – diversifying the economies of the region so we become less reliant on government jobs and salaries, and lifetime employment in large, usually state-backed, companies.

However, the majority of programs I have seen have positioned entrepreneurship as an option other than employment. While this is an important aspect to building a startup culture and ecosystem, most of the programs are also focused on debt financing and entrepreneurship education, and are limited in their ability to fund and build startups that scale.

The more important, and typically ignored, aspect of building out a start-up ecosystem is the funding ecosystem. Silicon Valley works in part due to the high availability and concentration of capital. In a small area with a population of under 9m people, Silicon Valley leads the world in innovation and building startups that scale massively. IMO, one of the key reasons for this success is the fact that Silicon Valley has a fully functional funding ecosystem for startups.

The  Funding Ecosystem and its Importance 

Silicon Valley’s funding ecosystem includes angel investors, accelerators and seed funds, to series A and B and higher growth funds, Pre-IPO funds and an active base of larger companies acquiring younger, more nimble startups. This funding ecosystem is the key to building a fully sustainable entrepreneurship ecosystem. This is what most government programs in the MENA region have not focused on or achieved.

Let’s use an example: Airbnb. It was started by 2 guys bootstrapping, went through an accelerator program, raised an angel/seed round, Series A, Series B, C etc. It’s now one of the largest companies in the world, having raised more than $2.3bn in financing and valued at $24bn. That startup would not have survived or grown to the size it currently is without a full equity funding ecosystem supporting it.

Now let’s move to back to the MENA region. Promising startups, coming out of great accelerator programs, with strong teams and early signs of traction, have very few options available to them for funding. There are perhaps only six active angel investment groups in the MENA region. Only two or three seed stage funds. A growing number of series A funds have launched this year, and one series B or higher fund. There isn’t enough funding available for startups across the stages of their development, and it’s really the investors that are at fault.

Laying down the bricks

I founded Tenmou – one of the first angel investment organizations in the MENA region – in 2010 in Bahrain. At that time, no one was aware of what equity financing for startups was, let alone angel investment. I studied at various models  of angel groups in other parts of the world, and developed something different – a hybrid model between a fund, a network and a mentorship program. And it worked!

Setting up the organization as a captive fund allowed the group to make quick decisions without having to write individual checks, and it diversified the risk of investing by giving each investor access to the whole portfolio of investments, rather than just one or two.

Additionally, by investing in batches and taking startups through a mentorship program, we provided help and advice where individual angels wouldn’t have due to time constraints. Investors had ownership over their investment decisions, allowing them to develop deeper connections with startups and spiking the likelihood of future follow-on investments.

Today, the World Bank and Babson College uses Tenmou as a case study on models for angel investment groups in emerging markets.

The Recommendation

In the MENA region, governments tend to like big headlines and numbers, but that’s not what we need. We must build out an active group of smaller funds that focus on the seed stage, where many startups can’t find funding. Build out 5 to 10 smaller funds, with perhaps $5-10m in committed capital, train fund managers and help them as they grow their funds and move upstream to later stage investments. Even $25m-$100m invested across a variety of funds would have a significant impact on the regional funding ecosystem.

From my perspective, to help the MENA region overcome its economic challenges, it must build out:

  1. Accelerator Programs – These programs would be the first step for many entrepreneurs to get on the path to funding, investing between $10,000 – $50,000 for small equity stakes. Most of the startups going into these programs will be at the ideation stage or with an early product. We should be targeting around 300 startups graduating from such programs around the MENA region every year,. aboutPerhaps 50% of which would raise follow on funding.
  2. Seed Funds/ Angel Networks – The next step in the funding lifecycle would be angel investors and seed funds, investing between $100,000 to $250,000 once the startups have some early signs of traction. We should be targeting around 150 startups per year in the MENA region getting to this stage. Most seed deals are taking place at valuations between $1m-$2m in the region. Perhaps of them would 20% would raise follow on funding at the series A level
  3. Series A funds – These funds would step in and significantly accelerate the growth of the startups they invest in and would be more hands on – taking board seats and actively advising the founders. We should be targeting 30 startups across the region each year reaching this level. In the region, Series A deals are taking place at valuations between $5m-$6m, but this ranges depending on traction. Series A investors are investing between $2m-$5m. Perhaps 50% of the startups that receive this level of funding would be able to raise growth funding.
  4. Growth funds – At this stage, many more traditional PE funds would be able to step in, investing significantly larger amounts at each successively higher round and valuation. This part of the ecosystem is very nascent in the MENA region, however this should be the easiest stage to raise funds for.
  5. Liquidity/ Exits / IPO paths for startups – This is one of the most important aspects of any ecosystem – when investors are able to get their money back. In more developed markets, M&A transactions done by larger companies in the ecosystem are the most prevalent form of exit. Unfortunately, larger companies in the region have yet to start looking at startups as potential acquisition targets to import innovation and talent to their organizations, and so we’re mostly looking at acquirer from outside the MENA region looking to expand into the region being the primary driver of exits.

 11930786_1485752541746333_1801467745_n (1)500 is joining the movement to spawn a healthy funding ecosystem in the MENA region. We’re bringing together a “Who’s Who” of the MENA region’s major players, from accelerators to angel networks and VC funds, in Bahrain together, for the first time at our Premoney conferenceon the 6th of December. We’re also going to be building out networks and meeting active investors aboard our Geeks on a Plane tour of the region. Destinations include Bahrain, Abu Dhabi, Dubai, Amman and Cairo.

There has been no better time to shape the future of the MENA economic ecosystem. Join me and learn more about how you can rebuild the future of startups and funding in the MENA region.