After spending most of the last five years being involved in the startup ecosystem between the US and the Middle East - very briefly as an operator, but mostly as an investor - it has recently become more apparent to me that the relationship between many startups and investors in the MENA region is sometimes broken and can be counter-productive.
Although this is natural in such a new and nascent ecosystem, the continuing of this relationship in its current form can be very harmful to all parties involved in the long term as it can misalign interests, lead to legal action and even destroy companies completely. Through this brief piece, I offer words of advice to both entrepreneurs and investors that can help them lead better relationships with the hope of promising outcomes for all.
TIPS FOR ENTREPRENEURS
Starting a company can be an emotional roller coaster with lots of highs and even more lows. Nevertheless, entrepreneurs should always:
- Really understand who your investor is. Different investors have different expectations. An angel investor who puts USD 50,000 into your company might be happy with a 2X return, but an institutional venture capitalist who needs to pay his/her own investors (LPs) back first (with a hurdle sometimes) might not be.
- Understand exactly how your investor can help and be clear with them from the start. Make sure to surround yourselves with a diverse group of investors and learn about their backgrounds, skills, expertise. Remember that one size doesn't fit all.
- Don't be a yes-man/woman. Just because an investor suggests something, doesn't make it right. Listen, absorb, think and then react to what you believe is best for the company. Avoid "feedback-whiplash." Don't be afraid to argue productively.
- Deliver good news fast, but deliver bad news faster. Don't sugarcoat any circumstance.
- Know when to ask for help.
- Don't undersell the risk of investing in your company. Startups are risky no matter what stage they are in. Make sure your investors (especially non-professional) understand that they are more likely to lose money than make it. Nothing is a guarantee.
- Under-promise, over-deliver.
- Investors are not your personal banks. Investing doesn't mean they will bankroll you through all circumstances.
- Communicate in the right doses. Not communicating is bad, over-communication is equally bad.
- Communicate in numbers. Data is more powerful than words.
- Do your due diligence on investors. Ask the investor's portfolio companies about them.
- Make investors' lives easier. Be ready for due diligence and have everything ready. Early stage investing is not rocket-science - its gut intersecting with pattern recognition.
ADVICE TO INVESTORS
On the other side of the table, investors should also:
- Be transparent with startups. The business isn't a game for entrepreneurs; it's their life and well-being. Respect that and respect their time.
- Don't oversell your value add.
- Don't ask for a board seat just because. If you can't add value on a board level, get off it!
- If you are on a board, try to have more effective board meetings. Most board meetings I've attended are a waste of time. You need to help the entrepreneur.
- Don't be greedy. A founder that loses 60% of his/her equity for a lousy USD 100,000 investment in its first round of funding will not be motivated in the future. Unless you think you can run the company yourself, don't forget to motivate the founders.
- If you're a VC investor, don't mislead entrepreneurs if you don't even have a fund to invest from (or if you're a "Zombie" fund).
- Understand your role with companies. If you are not an operator with industry-specific experience, focus on helping with high-level strategy, recruitment, follow-on funding etc. Remember, you are not the CEO.
- Respect confidentiality and avoid "salon talk" about private matters.
- Don't confuse disagreement with ego. Just because an entrepreneur argues with your opinion, doesn't mean they don't respect it or are being arrogant.
- Don't overwhelm companies with your advice. Give the entrepreneurs some space when they need it.
- Answer your emails. Even if it's a simple two-word "not interested" response, just do it.
- Don't hide when things go wrong. That's when entrepreneurs need your "experience" the most.
Namek Zu'bi is the founder and managing partner at Silicon Badia, a group of venture capital funds based in Jordan and New York City and a member of the Accelerator Technology Holdings global family of funds. Zu'bi's broad experience ranges from technology development, product management, business development, enterprise sales and global venture investing across a variety of industries.
© Zawya 2014
