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
Wael Amin is a Partner at Sawari Ventures, a VC firm that invests in seed and growth-stage companies in Egypt, Tunisia, and Morocco. He is an experienced entrepreneur who at the age of 18 had co-founded ITWorx, which became one of the largest and most influential IT companies in the Middle East.
I started off as an entrepreneur myself. I started my first startup when I was attending college at 17. Then, a year later, once I graduated, I started my second company, ITWorx. This was a software and services company that became the largest IT service provider in Egypt, and at some point – in the Middle East. I’ve remained as a founder and CEO of ITWorx for 20 years, at the end of which we had become a one thousand person company with subsidiaries in 12 different countries all over the world.
This experience at ITWorx shaped my views on the potential for technology to impact the world, economies, wealth creation, societies, but also the importance of capital in this process. Because with ITWorx we were fortunate to raise a number of rounds of financing and I was able to experience firsthand what it means to be properly capitalized vs what it means to be undercapitalized. And that sort of formed my worldview on the potential of the technology, but also the impact of marrying capital with patent and technology.
In December 2014 I’ve decided to leave my job at ITWorx and joined one of the pioneering venture capital groups in Egypt called Sawari Ventures and work with two other partners to raise the Sawari Ventures North Africa fund as a way of helping others and leveraging that expertise to create more value and have further impact.
Our first fund is Egypt, Tunisia and Morocco. That is our initial mandate for at least three countries. In our work at Sawari, we felt that these were the three countries with the most pronounced imbalance between talent and capital, three countries that had really tremendous talent, not just in quantity, but also in quality, and very-very little early-stage risk capital or venture capital.
First, we are a growth-stage fund, so we are looking for companies that have achieved a certain amount of traction and are now looking to raise between 1 to 4 million dollars to go to the next stage of growth. That is the stage we are interested in.
We are also looking for startups that we can help the most. We are three partners, and each of us is an expert in a couple of industries: use of technology in health, use of technology in education, fin-tech, use of technology in smart management, energy, IoT and smart cities. These are the industries that we naturally look at because these are our own areas of expertise and we really like to be able to offer a startup, not just the capital, but also know-how assistance.
If someone meets the geography, the ticket size at the industries that we look at, it’s a startup we are going to take a look at, that we are going to at least go through a pitch deck or ask them to come and co-present to us as partners. We cast a relatively wide net.
In this business, I feel it’s important to keep an open mind. Because the whole idea is that we are financing innovation, and essentially innovation means risk, it is something that has never been done before or that is being done in a new way. In light of that we cast a wide net, we are looking at a lot of ideas with a lot of team considerations and lots of business models. We try to keep an open mind.
One of the things that I’ve learned in my years at Swari is that there is no one model of what a great startup looks like or what makes a good startup. Some startups will find and achieve success by excelling at the strategy and vision, others – by excelling in execution, others will achieve success by excelling in culture. There are many different facets and many different ways startups can be configured for success.
Personally, I like to see a startup that at least understands, has a theory of why it is going to be successful, so they have the self-awareness to understand what they’re strong at and how that can be used to create success.
I think, between Egypt, Tunisia, and Morocco right now we have more capabilities on the ground in Egypt. We have the means, the bandwidth, and the personnel on the ground to be very actively scouting and exploring. Unfortunately, in Tunisia and Morocco, we are just getting started, so we have been guilty of being more reactive to inflow.
We like to take a look at accelerators – that is an important source for us. In certain industries, in certain areas, we like to find out what universities are doing. In Fin-Tech we work with central banks and regulatory authorities to look at things like sandboxes or other types of programs that they are running.
There are many different sources. We’re kind of lucky because the demand is far bigger than the supply of capital, so when someone has an investible business, it’s immediately known. The ecosystem is small enough so that everyone knows that this company is getting cashing or is achieving success. So these three countries are at the size where identifying and sourcing is not very complicated.
We have been in operation for a little more than a year now, and during that period, we have looked at about 600 opportunities.
One company that immediately caught our attention and we considered remarkable is a company called SWVL. This was our first investment out of the fund. A young entrepreneur who had taken a look at what Uber was doing and said: “I think there’s a better model suited for developing countries, which is similar to Uber but uses buses.” So, you have an app, say, you want to go from point A to point B, and then it issues your boarding pass and says: “You walk for 5 minutes to the virtual bus stop, and then the bus is going to pick you up and is going to drop you off next to your destination”.
For us, even if it was this entrepreneur’s first startup, he was able to convince us of the business model, the technology, the opportunity, how the competitive strategy against Uber and Lift would be, we financed SWVL in three different rounds so far. This three-founder team has gone on to raise almost 100 million dollars of venture capital so far and we totally expect this to be one of the first unicorns out of Egypt.
It’s not a showstopper, we will entertain teams that are based on a single-person startup. In my opinion, starting a company is a very difficult, effort-consuming and long-term endeavor, and I believe that you’re much better off if you have one or more co-founders along this journey to complement each other, to share the load, to lift each other up when things are not going well, etc. So my personal opinion is that it’s much better to have a co-founder but again, we don’t consider this as a showstopper, we look at how the company configures itself for success and either we buy that as a whole or we don’t.
We like teams that understand their strengths and weaknesses. We are looking for self-aware teams that have a realistic view of what they know and what they need to improve, what they need to do themselves and what they need to outsource etc. That’s an important quality to have in a team.
We also like to see teams that understand that doing something great takes a long time and a long commitment. We often read these stories about amazing successes that have happened in the startup overnight, but in practice and in reality, it takes a number of years to do something amazing. And we want teams that come with realistic expectations of the amount of time and effort they are going to have to invest in their companies.
So, really, the fastest we have been able to do from the first meeting to check signing has been three months. We would like to go even faster but 2019 was our first year and we are still learning ourselves on how to do that better.
Our due diligence approach is risk-based, so the investment team would identify what the risks are in the transaction, and different industries would have different risks, different companies, different stages and different subsidies to a company. Then, invariably, we hire the best service providers in the business and give them our risk assessment as a sort of starting point on what areas we think they should focus on.
I think 2 million dollars is a sort of a sweet spot. We have the ability to then follow on in future rounds for the company, so we can go up to 6 or 8 million dollars in a single company but we start off generally plus or minus to that 2 million dollars.
Sawari Ventures invests in growth-stage companies, the companies that have achieved certain traction. Then we have a small allocation of 10% of our fund that we get to Flat6Labs as an investment in it, and then Flat6Labs, in turn, invests in early-stage or seed-stage companies. So we have a structure where we do the large companies ourselves and then we almost outsource the smaller companies to Flat6Labs to make growth investments. Because investing in idea-stage or seed-stage companies is a completely different game than investing in growth-stage: different processes, different patterns, different speeds. So for seed-stage companies, Flat6Labs offers an extensive program of training and mentorship, a co-working space for the startups to work. It’s a very hands-on experience for the growth-stage tickets that Sawari Ventures does. We take a slightly different approach when we mentor the founding team, we sit on the board, we are there for advice when we are asked to. We provide certain guidance on exceptional events like the Coronavirus, but it’s not the hands-on creating program or education program the way Flat6Labs does it.
The absolute showstopper for us is essentially ESG issues: environment, social and governance issues. If we find companies that are not aware of their environmental impact or are taking advantage of it, that’s a showstopper for us. The same applies to social issues. So, companies that do not respect their workforces or are taking advantage of their workforce, don’t think about their workforce issues, are turned off. As well as governance: companies that are not respectful to their minority investors, that do not keep the interest of their minority investors in mind when they are negotiating with us, this is another big turn-off. These are the big red flags.
We have these situations when we want to get into a deal, and then we are not able to either because we disagree on terms and conditions or our competitor beats us to it, or, maybe, because we were too late to move, and we have regretted that. That happens a lot more frequently than us rejecting a deal and then regretting it.
When we reject a deal, we reject based on a certain hypothesis that is never around the risks. When you work in the venture you already know that you are investing in risky assets and you already know that you are dealing with unknowns that could go both ways, that you are taking a risk and you’re making a bet on something that could succeed or fail, and you have a sense of what the probabilities of success are. So we do not regret making an investment and then fail just as much as we do not regret not making an investment that then succeeds if the sort of hypothesis is the way we have read it. I think, we go back to the drawing table and redo our calculations if something succeeds or fails because our entire hypothesis was wrong, we didn’t understand the business model, the market the way we should have. Not that we have understood it correctly, and then it turned out well or turned out well.
We haven’t made so many investments in the first place. We have announced three investments, we have made a couple more that are still to be announced and then we have a few points on pipeline. So we haven’t made a large number of investments, and, thankfully, we haven’t regretted any of these investments. And we haven’t regretted any of the investments we didn’t make.
If there are regrets, these are investments that we would’ve liked to make, but either we were too slow or we got beat by the competitor, or we disagreed on terms.
The most unusual startup we supported is a company called Si-Ware. This is a company with a team of scientists who for many years have been working on the miniaturization of machines. They take machines and then use specific physical and chemical properties to miniaturize those machines, make them much, much, much smaller.
What they have eventually been able to do is take a scientific device called a spectrometer which is the size of a printer and costs, let’s say, 200 000 dollars. You can find a spectrometer in any for example lab that does medical analyses, if you go to get a blood test or if you go test food for safety. But these guys have been able to reduce it, so it’s the chip the size of the camera on your phone. They’ve reduced the size several orders of magnitude.
Now, with this sensor on your phone, you can do what you used to have to go to the lab to do. The cost of having this on your phone is maybe 0.001 of the cost of buying a fully-fledged device. And the interesting thing is because this is a miniature, it’s not a different way of measuring things, it is exactly the same thing but smaller. There’s no need to invent new protocols, education programs, experience to use it. Anyone who can use the big machine can use exactly the same know-how knowledge, tables, protocols, standards, benchmarks on this miniature machine.
That’s the most ground-breaking startup we have ever invested. The first time you actually see it in action it’s mind-boggling. And this was not two engineers who graduated yesterday and came up with this idea, this is the result of many PhDs working for 15 years on this.
This is a bit specific to me, because as Wael, I really like computer gaming, I’m a big gamer myself. Unfortunately, a lot of the gaming projects we see tend to get linked into gambling eventually or have the potential of getting linked into gambling, if it’s e-sports or whatever. It’s not the sector that we expect to be able to invest in and it is a very, very difficult industry to succeed in.
I know what we would do hypothetically. We would go to the startup that we think is the best platform to aggregate this and look if we want to raise money to acquire it whole or partially, startups and other complementary companies, and then roll them to integrate them into a single entity, we would be happy to look at the plan to finance.
That’s what we would do hypothetically, practically this has actually been relatively unusual for our ecosystem so far. But what we would do is we would go to the most promising of the platforms and say “We are happy to invest if you’re looking for this consolidation or if you take it for yourselves to do this consolidation”.
For example, the company we were talking about, Si-Ware. It’s something that does not exist today – there is no competitor product that this is going to displace, just the idea that as an end-user you could, e.g. test your own blood – there isn’t exactly existing demand for that, but it is sort of self-evident that should it be possible, that there would be tremendous demand. It’s one of these things when the demand is almost obvious, but it’s not existing because people are not even aware that that is possible. So that is common, yes.
In our previous fund, before this one, we had a pile-up fund using our own money, and in that instance, we invested in a company that was doing a certain artificial intelligence project. Because of the nature of the project we understood that this company would never generate revenues, however, it is highly likely that Microsoft, Google, Apple or Amazon would buy them out for the technology. It is very hard to commercialize horizontally enough, but it’s a lot of value to another technology company like Apple or Google, or Microsoft, and eventually, we exited this company by selling it to Samsung who bought it and integrated it into what later became Bixby on the Samsung phone.
So, this is a for-profit company that we invested based on IRR, but we knew well that this company would never have the means to sell directly to commercialize their product. So their only avenue to generating returns would be to impress someone else with the power and the technology and have them buy it. And this is what they did.
But if your question is “Have you done CSR-type investments or investments that enable the ecosystem but are not in the ads of themselves return-seeking?”, then no, we don’t. We have a very strong stance against that. We are 100% for the profit. If our partners want to get back to CSR or whatever, we ask them to do that with their own money, not with the fund.
In the startup circuit now there is a lot of well-known books and blogs, movies that people go and see and talk about startups or about business models, or even podcasts that are a big thing now as well and a great source of information. But also I feel that today’s founder has the opposite problem. You’re bombarded with all of this information from all of these channels, popping up on Twitter, in podcasts, and that blog that you read before you go to bed. My advice would be is to do the opposite, to make sure that you are getting the time to unplug away from all of these, to find a sunny place and the open air to sit and actively think outside of all of these other voices telling you to go this way or that.
I would name Amazon, Apple, and Google.
Clearly, this is a crisis that generates opportunities. This is a very very serious situation and it is going to change the face of the Earth the way other major plagues have done. And this also changes human behavior and creates endless opportunities. Especially for the types of companies we invest in that use technologies, the Internet, online presence. All of these industries have massive opportunities now. I do not need to tell you that every online supermarket on the face of the Earth now is failing because they are not able to meet the demand. Even Amazon Fresh is not able to meet the demand. It’s a very-very serious crisis that creates tremendous opportunities.
I’m lucky because I’ve only been in this career for the past four years. I’m 45, so for me, 4 years is not a long time, and in that sense, I feel like I’m just getting started in the venture space. I’m learning new things every day, I’m meeting new challenges every day, I love where I am.