Claudine Emeott (Salesforce Ventures): We invest with the same core strategy as other Salesforce Ventures funds, meaning that we’re looking for enterprise software companies that can integrate their technologies with our platform
01 Mar, 2021
Riyad Abou Jaoudeh is Managing Director at Middle East Venture Partners VC (MEVP). He has more than 6 years of strategy and management consulting experience in the telecom and media sector in the Middle East. Prior to joining MEVP, Riyad was a Senior Associate with Strategy& (formerly Booz & Company). Riyad also helped launched an e-commerce platform focusing on toys, was country manager for Qatar at Careem, and launched a mini-burgers restaurant in Beirut.
It was a funny story because I did not make that decision. This opportunity came to me through my network. I went to do an MBA at the Wharton Business School, University of Pennsylvania, and about a year and a half later I was at the alumni event for the School and met there Walid Mansour, who was – and is – a partner at MEVP. We started a discussion, and then eventually the topics grew into the startups and entrepreneurship. And one day he asked me, “Why don’t you join us people, we are looking for an associate”. Initially I thought it was not for me – I was looking at consulting for Telecom and the media. Eventually he asked a few more times and I thought, “OK, it is good, because I was always interested in entrepreneurship, in startups, and I like to think about, and read, and do, so why not?” In my free time I started a company before. It wasn’t a tech company, but a restaurant. Also I helped my father, who has a retail company, to launch an online business. So, I joined MEVP. Obviously, at Wharton I’ve majored in entrepreneurship and took a lot of classes on these topics. I would say that the preparation was there, but I was never thought about it, it just came as an opportunity to me.
We look for startups to invest in two ways. We may go and find startups within verticals we like – we do mapping, we look at the global change, look for transformation from offline to online, finding the next verticals being transformed. We identify the models we want, we look at various places of origin. That’s how we found Nana in Saudi Arabia, which is an online platform for grocery ordering and delivery. Sometimes startups come to us, and we look if we like them: do we like the team, the vertical, the market, etc. It always starts with a team – do they have right background, what they have in terms of experience. If someone has an experience in the Telecom or the banking industry, we check does the rest of the team have important abilities and skill sets. We look at the market size to define how big is an opportunity, how big it can be if things happen very well. We look at the barriers to entry and unique selling proposition of the startup, what they can do that nobody else can do easily. And then we look at the business model of the business and unit economics, deciding how much money it may need to grow. We like business models that are easy, that create value for stakeholders and can grow quickly. Finally, we look at action – how big is it growing out,are they doing well their performance. We look at other things, like technology, too, but for me these are the most important things.
When we start a fund, we’ve created a mandatory criteria, like verticals we are after. However, things evolved. For the latest fund we’ve identified 7 verticals we’re interested in. But as we progress, various startups come. It’s hard to define the world, you know. Sometimes things are in between sectors, sometimes things are in sectors you don’t think of, so we did every opportunity, we cannot exclude sectors, just spaces, except the ones that we are confident we don’t want to invest.
Our fund is focused on the Middle East, North Africa, Pakistan plus Turkey region. We invest in North Africa all the way, to Turkey, to Pakistan and everywhere in between.
This fund is a Series B fund, but Series A and Series B are fluid terms. Everybody has their own opinion on these stages. It varies by region, it varies by sector, it varies by startup. What we like right now is to put $3-5m in rounds, and $5-10m when the companies have already achieved product-market fit. This is very important, meaning they have a product, they know what their market is and they know that their product is the right product for that market. Basically, they need money to grow. We do not invest if the company still altering or testing the product – that would be Series A. Earlier, at seed stage, people don’t have a product at all. We invest in those companies who reached their product-market fit and want to grow and need money to grow.
We review around 600 to 800 startups per year. I would say I review 100-150 startups. Most of those are just stacks I review in 15 minutes, and that’s it. To pursue some of them I do a phone call with entrepreneurs. With some of them I arrange one, the first, meeting, with some I do several meetings. I would say that, eventually, I take about 10 startups a year for full due diligence and meeting with investment committee. The team invests in around 6 to 10 startups a year from those 600-800 inflow ones. Some of them are non-Tech, some are outside our region – there are a lot of reasons for not investing.
We spend a lot of time marketing ourselves as a fund – by attending events, by writing content online, by being present on social media, like LinkedIn and Twitter. We give talks and sessions on events, we do interviews. We also spent a lot of time in accelerators, incubators, we mentor, we network. We create a brand for ourselves as well as we meet people personally. LinkedIn is a great source, we get a lot of inflow through it. Over the years we invested in more than 50 companies, and it is also our network: these startups make connections and bring us deals. Those are ways to reach me personally – people who know me, people from ecosystem, like professors at university, lawyers, bankers, etc. But also we actively scout for deals – we read about what’s going on in our verticals online, again, we go to events and meet people there, go to startup-pitching events, etc. As a team of 15 people, we cannot cover all our region, we need to use an extended network around us. I would advise entrepreneurs to try to reach for investors, not be afraid to call them, or email, or send the LinkedIn message, or go to a friend for referral. Be brief, be to the point, attract the attention of showing important things. You can always find all the information you need.
I’m a fan of Steve Wozniak, because he’d built that product by himself. Everytime I read the story I’m amazed by Steve Wozniak having created Apple II and Apple I by himself. He wasn’t motivated by money or anything else. However I have to give Steve Jobs the credits for building the business, so I’d rather invest in Steve Jobs than Steve Wozniak.
Usually we like to review a short deck before meeting the entrepreneur. This would save time for everybody to see whether this is a deal for us. Usually I review a presentation in 5 to 10 slides, do a first meeting or a call. For me those are the same – I don’t prefer meetings over calls. Then we go in more details over the business, the motivation, the founder; we try to understand the business model and competition. And then we are asking for more data, like metrics and KPI – for historical metrics, how do businesses was and is performing, go over the KPIs. If we like what we see, we start the proper due diligence process, asking for things like the forecast, the tech-stack, the team, the information on the sales process, we go into deeper economics like customer acquisition costs, etc. We built an investment memo and with all that information go to investment committee, which is the last gate for us. When we go there we would already have agreed on the deal. If the committee agrees, we make standard due diligence – legal and financial. We bring external experts for review of the legal standing of the company, go over checklist on the legal structure issues. Usually startups have small issues, like employees without or with expired contracts, maybe some address issues. We go over bank reconciliation to make sure that the data they provided us is real. Simultaneously the lawyers prepare closing documents, like share subscription agreement and shareholder agreement, along with other documents like CEO contract if it’s needed. I review the shareholder agreement and share subscription agreement, and everybody sings on it. Then we wire the money and close the investment. Generally it takes 6 to 12 weeks to reach the investment committee and 8 to 12 weeks to close an investment. At least 3 and up to 6 months.
From our latest fund we are going 3 to 5 million USD. We may invest less, say 1 or 2 million. In a single company we may invest much more, like $15m, but in subsequent rounds, so we must be ready to reinvest in the company, because existing shareholders are expected to reinvest into the company, as time goes by.
It depends on the stage of the company and the amount invested, but I would say anywhere from 15% to 30%. Usually it is up to 25% or so.
It also depends, but usually at least 4 times. Obviously, in reality the things vary.
For me, personally, it is someone I can not work with – a founder with whom we disagree all the time – on some basic things or, sometimes, on founders salary or his involvement. Sometimes you just don’t get along well. I see an investment as a long-term commitment, like a marriage, so you need harmonious relationships between founders and shareholders. Another thing is a founder’s commitment to the company, because sometimes they have a lot of other projects, or require a very high salary or money. Those are signs that founders don’t put their solo commitments to their companies – why should we? Another red flag is economics. They say that startups should spend money to acquire – yes, but also you should earn money, your economics should be healthy, meaning for every dollar you spend you need to return $2 to $3. A lot of people either do the math wrong or lie to themselves, because they’re hoping that the thing will go better, or they miscalculated things. You have to look very carefully on economics, especially at customer acquisition costs. If a business spends too much and doesn’t return on the investments, it is a red flag. Look at what is going on with your business and don’t lie to yourself, be very careful about what is going on and what’s your dynamics, otherwise you’ll never make money and keep losing your customers.
Of course. It always happens. It’s really hard to make a decision and invest – you have to convince yourself, you have to convince other coinvestors to join, and you have to convince someone to buy your share at the end. These decisions are not easy to make, and you always doubt yourself, whenever you invest or don’t invest. It’s very easy to make the decision not to invest. I’ve made wrong decisions before. Still I don’t expect that our fund will invest in every winner in the region, however if we pick up some of the big winners at the region, we are fine. We are expected to lose money on some deals, but we are also required from our investors to hit a couple big deals and earn money.
Depends on the definition of “unusual.” For me, investing in a company in Pakistan that is doing motorcycle ride-hailing was pretty exotic for some people. It took awhile to familiarise with motorcycle ride-hailing concept and how it can become profitable as well as familiarise with general Pakistani ecosystem and market. As you know this is not the easiest market and the firmest market, especially if you’re not from there. We didn’t have a network there, we didn’t know other investors. We started going down there, we met the founders, we liked the team, we observed them. It took us about a year and a half and eventually we invested there. That company grew 4 times in just one year, and now we’re doing a big round with a big international investor, so I’m very happy with that investment.
There are two Industries that are very tricky in the tech world – Education and Healthcare. If you look at the macro numbers, you will see huge spendings on education and health care. However when you look at technology companies, you’ll find technical difficulties, because there are either regulation or difficulties in acquiring customers. For example, in healthcare there are different stakeholders – hospitals, insurance companies, doctors, patients, etc. And a lot has to come right for your product to get monetized, it’s not easy. Same things in education: there are too many regulations, too many stakeholders, too many differences, say, between public and private schools – lots of things. I would not say we will never invest there, just we are keep looking, we haven’t made a very strong investment recently in those industries. Personally, in this region I wouldn’t do investments in Hardware and Robotics. I think, the ecosystems in Hardware and Robotics in the Middle East and North Africa are really behind. It is hard to source components, it’s hard to find vendors, to find the right skills. I would be really cautious with investing into these verticals here.
This has not happened with our portfolio yet, however I see that it could be. And I agree that sometimes combining forces and teams can have synergy and a complementary set of skills. It could be an opportunity, especially if companies are operating in different markets or in adjacent geography. However we have not done it. Startups undergoing merger is not an easy thing. I would be conscious, but it could be an opportunity.
My favourite book for startup founders is The Hard Thing About Hard Things by Ben Horowitz, who is the cofounder of Andreessen Horowitz fund. What I like about it is that it is not an inspirational book or how to lead a managerial life. It is about the hard decisions any leader can take, especially in a startup, like firing your best friend or saying “No” to the opportunity and closing the business. It is very well written, full of examples and is the most real book I’ve ever read about the entrepreneurship. Other books I like are biographies of the founders. Recently I read the story of Netflix, called That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Marc Randolph. I read about the creation of Amazon. I read a book about Uber (Super Pumped: The Battle for Uber by Mike Isaac, Holter Graham, et al.), which is very good. It takes an aggressive leader like Kalanick to make it: he fought with government, he fought with taxi unions, regulators and eventually made a multi-billion dollar company. And I have to give him a credit for having enough drive to create such disruption across the world. I don’t think any company that involves so many people and detail ever grew so big so fast. This is not the software business, it is much harder to put into movement.
I want to leave along some cliches, like Google, etc., and talk about current startups that will dominate our nearest future. I’m a big fan of Shopify – a startup from Canada with a German founder who is locationed there. I think it will make it easy to do e-commerce globally. Another company I really like is Slack. It can become a collaboration platform where the work happens. I believe that if founders are ambitious enough, they can create a collaboration work environment beyond the messaging and basic video chat. And finally one area that is going to develop, is protein and meat production, where people are doing not plant-based protein, but lab-produced protein. I think, this one will definitely change the world, because today it takes a lot of resources to make one kilogram of meat – in terms of water, energy, feed. I’m sure that the lab-produced proteins will have a huge impact on the world.
It may be compared to the game of ship battlefield. You have to make guesses without knowing exact information hoping to win. Also VC is the complex game of resources, of collaboration, where you take chances and make big decision. I’m not sure, that there is anything exactly like that.
Yes, I actually like what I do. In the beginning it was hard to make decisions, to navigate in the world of startups, but now I really enjoy every day of my job. I like the time I spend with the entrepreneurs, learning about new businesses. I like to work everyday in different sectors. I like helping startups. A lot of things in my job are difficult, however I enjoy it.