Angels Shall Watch Over Thee…

DUBAI

Every entrepreneur while conceptualising and chalking the road ahead for a startup sincerely wants an angel that complements the vision. But what if this angel or your association turns into a nightmare? Think!

Khaleej Times does not vouch to give you risk free advise, but can help you infer from some of the case studies and what angels feel about the budding startups too, it always helps to look at other side too, no?

The UAE offers a ripe environment for startups to attract angel investment, with private wealth expected to reach $1 trillion by 2020, according to the Boston Consulting Group (BCG). This only makes the role of angels pioneering as well as long-term from seeding to exit.

Startups can apply for funding directly to VCs and angel networks from MAGNiTT — provider of data and analytical reporting for the Mena startup ecosystem. The platform has over 500+ self registered angel Investors.

Of the startups looking to raise on MAGNiTT, about 46 per cent of startups are keen to raise funding of less than $250k which is considered as an angel round. Many of these startups are in fact pitching and applying to VCs.

Given the high level of risk involved with investing in early-stage businesses, it is important to look for either entrepreneurs with a proven-track record in delivering their set goals, or those budding entrepreneurs who have passion, vision, and are well-advised. In essence, you are investing in the entrepreneur’s ability to grow his or her idea into a viable company.

“Angel investors also look for companies that demonstrate evidence of a validated product, a scalable business model, and a large addressable market,” informs Ghada Abdelkader, manager — corporate development and investments manager, Crescent Enterprises.

Like venture capitalists (VCs), angel investors need to see something promising in the future of the business. Therefore, investors are more likely to invest in a business with a viable financial roadmap that proposes an attractive exit strategy and a sizeable return on investment.

Philip Bahoshy, CEO and founder, MAGNiTT, said angel funding is one of the critical building blocks for the startup ecosystem in Mena. Angel investors not only provide capital but knowhow and networks while their startups is on path to growth.

While the active angel groups help provide education and opportunities for startups to pitch there is not enough of them across the region. “Across Mena there is room to educate on what angel investing is, create policies and incentives for angels to make early stage investments and to better train startups to pitch to investors to explain their business to become VC ready,” adds Bahoshy.

Munchbox, business development director, Mahmoud Adham, opines that different angels have different strategic approaches to how they select startups to invest in.

“As for startups, I can only speak from our experience. It was basically, the track record of the angel.

The most important factor is can you communicate openly and comfortably with them? You will go together through ups and downs, if the communication is healthy, then everything else can be managed,” he said.

“We at Munchbox were matched with our investors through a pitch day in which several startups pitched their business models to them. How did we know of that pitch day to start with? It was through a connection from entrepreneurs organisation who recommended us.”

Look at another case study of Hello Chef, a self-funded venture. Why self funded? Ahmed Al Akber, founder, Hello Chef, says he didn’t consciously avoid being externally funded — it just happened that “we needed to move fast and decided funding the business ourselves” would be quicker.

“Some say there is something scary about going all in like that — but this gave us a ‘no way back’ attitude that really helped us achieve a lot of our early wins. It gave us focus and helped us prioritise. We didn’t need a large sum of investor money at the beginning to play with as I’m sure we would have blown it on unnecessary things that customers wouldn’t have appreciated anyway.

“Along the way we had firm offers from a couple of angels that we turned down as we simply didn’t see a fit with our goals. Yes, perhaps in the near future. We have ambitious goals and know that at some point we may need help,” he said.

Al Akber cautions and says that it is best to work with investors who will provide strategic value, rather than simply money. “This goes down to what your goals are: if you want to build an amazing business, you’ll need more than just money — you’ll need mentoring or access to a network of people that can help you. If you simply want to sell off portions of your business to the highest bidder, then that’s a different route.

Finally the Angel speaks.
Dubai Angel Investors (DAI), a member-led investment company made up of around 70 like-minded individuals invest in seed and early-stage technology companies with high growth potential. What makes DAI different is that they are not a fund. The members of DAI range from experienced Angel Investors and Partners in VC Funds to executives of successful companies.

DAI typically deploys between $50,000 to $100,000 in each of the companies they invest in but members can, and frequently do, personally invest alongside DAI. This usually leads to investment amounts of $100,000 to $250,000 in a first round.

Kushal Shah, senior partner at Roland Berger’s Dubai office and a managing partner for the Middle East, who is also on investment committee of DAI, says, avoid angels that are going to be over interfering, high maintenance and probing in every area — especially if they don’t provide any support other than cash.

“Consider Angels that have done it many times before, or are part of Angel groups that provide a support structure beyond an individual. Finally look for Angels that have knowledge of the “vertical” the start up is planning to disrupt,” adds Shah.