Full speed ahead

Early optimism of investors is key to a successful enterprise

by Livia Murray

“Local investors whine about entrepreneurs. Usually the real challenge in most markets is that the investors don’t have their act together, the investors don’t take risks and the investors don’t know how to build their own ecosystems.”

Hearty applause followed these words, spoken by Dave McClure in his keynote speech at ArabNet’s Digital Summit in Dubai. But he quickly added a caveat: “Investors aren’t the only ones to blame; entrepreneurs screw a lot of things up, too.”

McClure is an entrepreneur, angel investor and founding partner of global seed-stage venture capital fund and accelerator 500 Startups. He is also behind the initiative Geeks on a Plane, which organizes international tours for startups, investors and executives to learn about and visit high-growth technology markets around the world.

McClure’s balanced statements pin investors and entrepreneurs as having equally important responsibilities to work toward the success of a company. But risk-averse investors need to play their game right — in his keynote, he went on to stress that a successful ecosystem requires early access to capital and early investor optimism.

He points to Estonia as a prime example, where early investors in Skype took a large risk very early. Though investing early does not always garner the same success across the board, McClure cites early optimism as a key factor that breeds trust in an ecosystem.

In the MENA, this optimism will likely have to come from regional investors. Panelists at ArabNet’s “What’s Hot in Web and Mobile” discussion agreed that foreign investors were somewhat skeptical of investing in regional internet companies because the region has yet to see a breakout hit. They were also doubtful of the companies’ ability to scale internationally, since many regional startups are copies of international counterparts. While this might attract regional venture capital because of startups’ proven business models, it limits their potential for international growth. VCs therefore need to encourage entrepreneurs to think globally. “Not just a blanket for this region, but something that will make fundamental global change,” said panelist Ben Parr of VC firm DominateFund.

Early optimism, however, appears to be lacking among MENA investors. And while there is a lot of money, regional investors are still too shy to take the kind of risks that could result in explosive success.

The dearth of optimism ends up killing both sides. Too little money for an entrepreneur, paired with large stakes of equity for a cautious and controlling investor can end up stifling a business rather than giving it space to flourish. “If you squeeze the entrepreneur out of equity, he will be demotivated and the [venture capital firm] becomes the owner, which lessens [the entrepreneur’s] chance to make a profit,” said Hervé Cuviliez, CEO of digital media company Diwanee.

It seems that the region’s best option is to establish good practices among local investors. At a panel on “The Rise of the Big VC,” Habib Haddad, serial entrepreneur and CEO of Wamda, recognized some qualities that make for good investors. “A great VC invests and keeps injecting capital in the long run,” he said. VCs should make sure the financial needs of the entrepreneurs are met, such as finding follow-on funding, while leaving the entrepreneurs do their thing, he said, “not to own the entrepreneur.”

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Livia Murray

Livia covers business, finance and economic policy for Executive.

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