Uncertainty x (Innovation + VC) = FEAR
Jamil Shinawi
A Deeptech Rebel against the status quo, Investor @ ACTUAL.VC, Founder @ AHOY
Hi, I’m Jamil a founder of a ground breaking and innovative startup in MENAT known as AHOY
You know, when you are a serial anything you don’t just see a lot, become better, agile with hardship and notice the trends.. But you also become more cynical, so you can take what I have to say here the way you want; either this is a cynical and self-proclaimed entrepreneur who says he is a serial one..?OR
Maybe this is some food for thought..
FEAR ??
I’m starting a series of articles to discuss the axis of originality for tech startups which is compromised of:
1- Innovation
2- Money
3- Uncertainty (which is both internal from 1 & 2 above, or external like regulation/market/pandemics and economy)
Today we will discuss FEAR, but before that, I will just lay the groundwork of how the ecosystem has been in the past 10-12 years:
Summary of VC mandate in MENAT 2010 through 2022
I remember (and confirmed my memory using archive.org) the way back machine this represents the majority as per most VCs sites in MENAT:
2010-2013:
We want to scale up great ideas and founders (we need guarantees or collateral) - early stage with big %
2014-2015:
We are looking for startups with IMPACT (short lived) - later stage +ve CF
2016-2017:
If you got an app that sells convenience and charge 20% with good GMV and you copied a model that worked else where - early stage?
2018-2019:
A combo of all off the above but you need to be like careem’s founder an ex-consultant or an ex-unicorn employee - post revenue
2020:
we are not investing during lockdown but we are meeting on zoom to pass time cuz we lonely and want to take notes
2021-2022:
Things are uncertain, we want to invest in proven models with rich/ivy legue/ex-unicorn/ex-consulting privileged founders or you got to be the first to copy a western unicorn (preferably from the valley) - first cheque or co-invest with someone we look up to
VC outside MEANT look at MENAT startups and say:
“we will co-invest if you got a gang of local institutional investors and VCs backing you”
Because they gain comfort from someone with boots on the ground who had a visual and kicked the tired (aka Due Diligence) which is almost rarely the case.
Most startups in MENAT are copies of boring stuff, those with originality are dying in the crib and the odd one wins (and wins big) but still a miraculous occurrence.?There is no shortage of talent and they flock away sometimes.
Ok this is the end of the summary!?
Cheer up, it is not all bad… let us go ahead!
Analysis:
The mandates are hype sensitive, and influenced by VC in the valley… just like how the startups are copied from there!
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Now, if I’m not wrong, in VC you do invest with a known risk and a somewhat path to making money and profits.. You create a balanced portfolio of everything in the risk profile.. You make a value judgment and invest and try to help the founders without stepping onto their toes and make it a win. At least a really good one should win out of 10 so if we as a VC deploy 10 Million and have an average ticket of 1 million. Then one of them gets us that x80 multiple then we are in the gravy and safe from the red, our LPs are happy and our VC fund honeypot gets filled in easily again and we go bigger next time.
This is not happening,?
What is the reality is that we want to be greedy, lazy (not earn our fees), and play it safe so we go and invest in typical ideas and over inflate them to match the global eco-system valuation.. (well, a 路易·威登 knock-off purse is not as valuable as an original I assure you, lol you know that now don’t you.. even if the GMV/how much it could fit is the same) then when the bubble burst we sit and wonder why there was a bubble to begin with?
Ok let’s go and capitalize on this and go shopping for original 路易·威登 hand bags at 50% of the price… clever right??
(Well, shame on you I say)
Investments into innovation
But then, when a new innovative idea and team comes into the scene we shy away from investing in it? because it has not been done by others.. It is a risk, we can not benchmark the valuation, why is there round bigger than the typical X series.. NOT ONLY THAT… we will taddle tales and share notes and agree that no one makes the mistake of investing in them.
Well dear investor and VC analyst allow me to tell you that even if there is a benchmark for a round size, it is built upon the law of majority.. and they are all knock-off LVs (so it is a knock-off price sensitive market then huh)
Sector mapping is obsolete when real disruptive innovation is present, innovative and disruptive ideas change lives and economies let alone sectors. (I heard back from a VC once after 8 months when they finished their sector mapping, I thought they decided to ignored us ?? yet I can’t believe that is a good utilization of resources in that VC)
In another case, one fresh and enthusiastic new VC with a recent trip to the valley comes in hot and heavy, they are still high on dopamine from the trip and have touched, smelled and feast their eyes with innovation first hand, they come and see these NOTES by other VCs and decide.. I’ll ignore this and I’ll do my homework… I’ll ignore the benchmarks because there is a precedent to this with a few innovative startups globally as this one claims they are… This looks like the stuff I saw in the valley But I don’t know how to value them!
Yes they offered a safe note with a cap, but also the cap is kinda of a valuation too.. Maybe discount and no cap… ugh.. there is so much deal flow for me to co-invest with other VCs and stay safe.. I’ll just pass and copy a random reason from my generic list.. ugh, if they moved to the valley it would be so much more plausible to invest in them.. I’ll be prosecuted by the peer pressure if I did anyways, the optics wont do me a favor being new around the scene.
Dear Mr/Miss VC, you get a wishful whim now saying, (my next fund I’ll be more rooted and I’ll invest in innovation) then you find yourself tied to your old tricks and lost the team that can invest in innovation, you don’t get the flow either, your IC and LPs don’t feel comfortable with it… But also, in the future, your dry powder will run out and LPs will not be able to see any difference between you and the next VC, they will go based on reputation, degree, or the one that invested in a transaction that moonshot later on..
SO WHY DO WE GET HUNG UP ON VALUATIONS?
It is not the lack of financial modeling, fair assumptions and instruments of legal workings around this… Nor the absence of value or potential nor belief in some ideas and founders..
The reason is: FEAR!
Yeah fear of:
A- Peer-Pressure (the optics of going on a whim by a note sharing industry)
B- Uncertainty (THIS IS THE MAJOR ONE)
1- When a founder starts with a very innovative idea that could disrupt and get that x80 multiple:
They start with zero certainty - yes, contrary to popular belief no founder woke up with an epiphany and had even 50% certainty… They start with a team and bootstrap, maybe find an early believing angel… Until they become more certain with the product and have a vision and builds up the courage to go out to the world and investors with it..
Innovation and uncertainty go hand-in-hand I assure you, from a long career of tech and tech commercialization I can promise you that! The innovator is usually borderline crazy and rarely come from the direct sector they are disrupting… Innovation is multi-disciplinary!?Can not have a uniform process, refuses benchmarks and is outside our comfort zones as creatures of habit.
Innovation is a rebel!
2- When a VC invests in an innovative idea it is the same kind of uncertainty, this is why you deserve that pay-day, a pay-day is not a prerogative if you invest.. it is however a probability and that is a good amount of uncertainty that no one can guarantee.
The value judgment is made on hunch rather than logical reasons… the VC has to believe and have faith in the founding team and the vision and some kicking of the tires DD on the tech and go for it… that is if their Investment Committee isn’t a bunch of sticklers then that VC firm is done for…
Conclusion:
SO - We can deduce from 1 and 2 above that there is a considerable level of uncertainty here
And that is fine, leave the semi-certain stuff for PE and be a real VC.. or change your name and mandate and stop misleading and wasting founders and LPs time and money respectively.
I advise you to read a book by the amazing Prof. Nathan Furr whom I’ve learned so much from in some of INSEAD Executive Education courses, this book is called “The Upside of Uncertainty” which you can buy here from Harvard Business Review ’s store:
(I’m not sponsored, asked nor paid to mention this)
I’ll make sure to post my review once I’m done with the second read of the book.. I loved it!!
I hope if you already hate/love me then I’m sure you’ll be looking forward to the next article
Till then, keep an open mind, comment what you think… and look out for the next drop
Product - Strategy - Innovation
2 年..Fear and Greed propensity? I'd say.. just as everything evolves in cycles.. two things come to mind in this fearsome one: 1/ there's assuredly a need for some sort of correction, as many startups (just as around 98%), simply don't get it through, and many quickly turn more focused at excelling at the raising-funds-to-burn-game rather than actually driving the value that customers would love to pay for. 2/ It's hard to beat the global index, it takes a special rigor and focus (aka, proper DDs) from VCs to be able to spot the innovations that are worth investing in, and actually do. I guess that's one reason only a few standout.
Head of Product ? Fractional CPO ? Bootstrapped a B2B SaaS product from idea to 7 digit revenue
2 年Interesting take, and a great article Jamil! I've seen this happening for myself. But comparing the current landscape with the Valley, it just doesn't give enough justice - it's like saying Al Ain FC and Real Madrid FC are both playing football, why isn't Al Ain at the level of Real Madrid. What the US have there is a long and very well established culture of innovation, pushing and supporting innovation in everything they do. In other parts of the world (not specifically only MENA), others are trying to copy that way of thinking, with different levels of success. In my personal experience, I saw that it helps to narrow down and target VCs that have some degree of knowledge to the domain where the startup activates; if there's even a bit of common context, then the level of fear starts to decrease (while confidence increases). Again, I don't think it's just a MENA problem - the Valley to set very high standards, and it's hard even to copy the same standards. For example, in the UK, only 8% of the VCs have first-hand experience with working in a startup -- while in the US, 60% (yes, that's sixty) of the VC do have. That discrepancy has some insights, and you as a startup founder might understand that differently than a VC.
I help neuro-divergent coaches and consultants create their signature system and get paid their value.
2 年If you are not safe enough to take meaningful risks, you risk everything. Copying is the lowest form of creativity. The highest level of creativity we could call genius. The ‘problem’ with genius is that it looks and feels like nothing else. Which is often scary for those who come into contact with it. I think this is why there’s an opportunity for truly innovation entrepreneurs to tell the strategic story of evolution. Those with resources to invest need something to lead then into a new era. That new era is on the way, perhaps it is already here. It’s up to visionaries to come to the current reality and lead the few who are open to listening with a compelling story.