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As a building block of any promising startup ecosystem, angel investing has been a much talked about topic across the GCC region for years. The early-stage startup funding support is vital to the region’s successful transitioning from oil-dependent revenues to a more diversified market, and the growing number of GCC-based angel investment groups serves as a testament that it is no longer possible to hold back the tide of change.
In the UAE, one of the more recently established angel groups –Dubai Angel Investors (DAI)– is a member-led investment company made up of around 70 members, ranging from experienced angel investors and partners in venture capital funds to executives of successful companies. “The DAI model is unique and innovative for the region,” says Kushal Shah, one of the founders of DAI, who is also the Managing Partner at Roland Berger in Dubai. “Firstly, most of the DAI members are seasoned investors and senior management executives of well-known companies. When these like-minded investors came together to invest, there was a natural desire to create an exclusive members’ club for investments. Secondly, members do not make individual investment decisions. Unlike other clubs, we have a captive fund managed by a very diversified and talented investment committee, with rotating members, that drive the decision making via open sessions. Today, DAI is one of the very few angel investing clubs that allow its members to be fully engaged, and get heavily involved in the club activities.”
Kushal Shah at an event. Image Credit: Dubai Angel Investors.
Since its inception nearly two years ago, DAI has received around 500 deal proposals per year, and ended up closing approximately 10 of those per year, Shah says. The process starts with an interested entrepreneur contacting a member of the DAI’s Investment Committee to review and advise on its application. If given the green light, the startup’s application is submitted to the DAI’s Investment Committee for initial screening and selection, followed by voting on whether the interested startup should be invited to one of DAI’s pitch nights, those are usually held on the second Tuesday of every month.
When asked what entrepreneurs should keep in mind when applying to DAI, Shah says, “There should be a market need and customer willingness to pay for their service. That market need needs to be tested through a marketfit process that is iterative and customer-led. Also, the business proposition must be profitable and scalable at relatively modest volumes. The reality is that the MENA is made up of 22 different countries with varying dynamics. A business must show that it can be profit able in each of the countries, otherwise the scalability is questionable. Lastly, the team must pass the stress test, and be able to sustain themselves in a VUCA (vulnerability, uncertainty, complexity and ambiguity) world. This is why investors are more likely to back teams and co-founders, rather than a single entrepreneur, since it is rare that a single person has all the necessary skills.”
Come one of the DAI Tuesdays, and up to four startup teams are given 20 minutes to present their businesses, followed by 10 minutes of Q&A with members of the DAI Investment Committee. “One of the key differentiators of DAI is that we look at investments from across the world,” Shah notes. “To date, we’ve made investments in companies not only in Dubai, but also in Egypt, Lebanon, UK and USA. Our entrepreneurs come from all around the world since we believe that entrepreneurship easily crosses borders, nationalities, and personal backgrounds.” There are also additional differences from other region-based angel investing groups, one of which is that DAI members commit capital upfront, and, in most cases, do further invest their own money alongside the DAI commitment, Shah says. “DAI has already invested several million dollars, and in some cases, we lead the round as well, without VC support,” he says. “In those cases, we complete our own due diligence with the help of the DAI members.”
Kushal Shah at an event. Image Credit: Dubai Angel Investors.
To date, the majority of DAI’s deals have included an investment of US$50,000 each, which is a minimum amount that the group invests directly, with the maximum being $250,000. Furthermore, DAI team has completely led three funding rounds, with one investment being of over $1 million, and the other two of around $500,000. A decision to invest in a company requires twothirds of the DAI Investment Committee members who attended the relevant pitch night to vote in favor of the investment. In any case, the startup is to be informed of the decision within 24 hours of pitching. Following an investment in the startup, DAI assigns one of its members to track the startup’s progress and offer an assistance when and where necessary. In addition, DAI’s portfolio companies are seldom invited to its meetings and provide an update on their activities.
From Shah’s perspective, the DAI team hasn’t had any major funding “misses” on their record, but he does point out that NOW Money, Malaeb, and Eat are some of the startups that DAI did not invest in, but which did manage to successfully raise capital from other investors later on. “Speed is the name of the game for both startups and investors,” Shah says. “We typically move fast, but sometimes we get dragged into processes driven by know your customer (KYC) and other matters, which are not directly relevant to the startups. Our biggest successes are where we are very comfortable with the founder, and our failures are where we did not assess the full flexibility of the founders.”
As for the kind of ventures that DAI members hope to invest in the future, Shah points out that the group is sector agnostic, and that as long as the startup engages with its customers via proprietary technology and has a capital-efficient vision to scale the business, it is good enough to be considered for their investment. However, there are certain preferences for 2018, so entrepreneurs in the respective sectors should take notice. “Technology service providers that are addressing large new trends, such as providing services to corporates to support their blockchain or AI activities,” he says. “Also, we see a lot of opportunity in logistics, be it transportation solutions, last-mile delivery, online markets, or long-haul carriers. Lastly, we have been intrigued by clean energy solution providers in solar applications.”
But what makes for a good pitch by an an entrepreneur to impress DAI? Shah offers three pointers. One, demonstrate “use cases” with live examples, such as real customers and scenarios. “Show real examples on how they are disrupting to provide better solutions to a real problem,” he says. Two, be realistic about where your enterprise is headed. “Be careful with forecasting, and present the right balance of forecasting and assumptions, not too over ambitious, yet not too conservative,” Shah explains. “We tend to focus on unit economics and understanding how much money is a company making with every new transaction or incremental growth.” Three, give the investors the full picture. “Present a thorough story, meaning a complete roadmap, plans, and clear understanding of the different aspects of the marketcompetition, barriers to entry, and so on.” And there you have it, ‘treps- three tips to better your chances at an investment from Shah and his team at DAI. Good luck with your pitches!