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 Falcons: A Path To The Oasis For MENA’s Thirsty Startups

In December 2015, 500 Startups unveiled 500 Falcons, a regional micro-fund that covers the MENA region (Middle East + North Africa).

Even before launching the fund, which has a target size of $30 million, 500 Startups has made “about 30 deals,” said Hasan Haider, 500’s MENA venture partner.

As in other emerging ecosystems, few investors in the region have experience with startups, but through engagement and networking, Haider’s working to cultivate a deeper bench of VCs and angels.

“One of the things we’re doing with any LPs in the fund is actively looking to syndicate and co-invest with them,” said Haider. “By showing them some deal flow and giving them access to good deals that we’re investing in, we’re hoping that will encourage more people to invest.”

Last December in Bahrain, 500 Startups produced Premoney MENA, a one-day conference for accredited investors interested in building venture portfolios. Approximately 200 – 300 people attended, said Haider.

To build on that success, “we’ll probably be doing something else within the next year in terms of investor education,” Haider said. “We’re also trying to send people to the VC Unlocked course at Stanford, where we usually have quite a large component of people from the Middle East.”

Formerly a banker, Haider set up Tenmou, one of the first angel investment groups in the region in 2010. “As a result, I know other people in the ecosystem fairly well, so I do get a lot of referrals from other VCs. We have a pretty strong and solid network,” he said.

There just isn’t funding available for these startups, so whoever’s able to expand most efficiently will be the one who succeeds.

Dropping Oil Prices Spur New Investment Initiatives

Since 500 Falcons began building its portfolio, “a lot more VC funds have come online and there’s been some government-led initiatives across different countries in the region aimed at increasing VC and angel investment,” said Haider. The global drop in oil prices has definitely led to “a shift in focus,” he added.

“Countries like the UAE and Saudi realize that they need to shift their economic output from oil to knowledge-based stuff, so they’re starting to look more into startups,” Haider said. Although the sudden collapse of oil prices has led to economic and political uncertainty, “it’s positive, in that it’s shifting the thought process away from oil and manufacturing,” he noted.

Since the shocks to the energy sector, the number of new accelerators and networking events increased sharply, said Haider. “There’s also a bunch more Series A funds that have launched in the last year or so, and there’s more attention from government.”

MENA’s nascent ecosystem is underserved by many of of the companies offering products and services that most of us take for granted. Because Amazon and eBay don’t operate in the region, “I still see a lot of opportunity in ecommerce; payments, infrastructure, and logistics,” said Haider. “We still see a lot of potential in Arabic language content, media, video, and education,” as well as increased interest in hardware.

ShopGo, a MENA commerce platform, is one of the 30 companies in Haider’s portfolio. CEO Mohanad Ghashim is from war-torn Aleppo, Syria but started his company in Amman, Jordan. Like online bookseller Jamalon, another portfolio company, ShopGo also received funding and mentorship from Oasis500, an accelerator created by King Abdullah II of Jordan.

500 Falcons company Wuzzuf, Egypt’s top online job site, received $1.7M last August, one of the country’s largest Series A deals last year. Haider said offshore investment is starting to manifest, but local funders are starting to get into the game.

According to the MENA Private Equity Association, fundraising for 2014 reached 1.2 billion, its “highest level since 2008.” Most funds flowed to the UAE and Saudi Arabia, a reflection of uncertainty created by instability in the region.

Many startups have bootstrapped themselves to profitability and after that, start to go and raise funding.

Founders Seek Sustainability, Not Exits

The differences between MENA and Silicon Valley are myriad, but one of the most striking differences is the way founders approach entrepreneurship, Haider observed.

“A lot of startups that are forming are intended to create stable businesses, whereas in Silicon Valley, they probably will be burning through a lot of money in search of growth,” he said. “A lot of MENA startups are thinking about how to make themselves sustainable.”

Without a strong funding ecosystem, “exits from acquisition are few and far between,” said Haider. “There’s been a lot more in the last year than there historically have been, but it’s still not very much.” As a result, “many startups have bootstrapped themselves to profitability and after that, start to go and raise funding to ramp up growth.”

For example, Haider has seen several startups also act as dev houses and hire themselves out to make websites and apps for clients. “A lot of these founders are creating real businesses that they want to grow and eventually see some exits, but we don’t know when the acquisition activity is going to start picking up significantly in the region.”

Regions like India, the US and Europe often see many companies competing for a share of a single sector, but MENA “is still too young for that kind of overlap,” said Haider. “We have different events and ticketing companies for Egypt, Jordan and Lebanon,” but each one is focused on “dominating their markets, and then expanding onto other markets afterwards,” he explained.

A lot of startups in the region don’t have the money to burn like the guys in SV do, so they’re not spending too much money on extras.

Because MENA founders don’t have ready access to VC, they don’t emulate Silicon Valley startup culture, said Haider. “I think the main thing is that a lot of startups in the region don’t have the money to burn like the guys in SV do, so they’re not spending too much money on extras” like snacks and exercise balls, he said.

At the same time, “working in a startup isn’t a preferred job choice for most people, so most of the work environments are fun, to some extent,” he added. “They’re different to work at than other places in the region, but I don’t think they’re as extreme as Silicon Valley.”

What’s the most obvious difference between MENA startup culture and Silicon Valley?

Why are there so many women in tech in MENA?

“Why aren’t there more women in tech in Silicon Valley, I think is the question.”

“We have a better gender balance in the region than you all do,” said Haider. “Our PreMoney conference we had more female speakers than we’ve ever had in San Francisco,” he boasted. “In terms of the startups we’ve invested in, I think there’s a 50/50 female-to-male founder ratio that we see. The gender issue here isn’t really that big an issue.”

Why are there so many women in tech in MENA?

“Why aren’t there more women in tech in Silicon Valley, I think is the question,” he said. “For us, there’s no bias against women setting up startups,” although a woman’s agency “really depends on which part of the region you’re talking about,” he acknowledged. “Saudi is more restrictive, but even despite that fact, there are still a ton of women entrepreneurs and founders setting up businesses there and building significant things.”

 

Photo: Dom Sagolla/Flickr