Day 2 of ArabNet 2014: An Afternoon of Seeds, Bridges, and Growth

With the 2014 ArabNet Digital Summit in Dubai less than a week away, now is the perfect time to review the panels and talks from the last ArabNet session, which took place in Beirut.

ArabNet is the #1 event in the MENA region for digital creatives, with offerings for everyone from programmers to social media managers. If you have not done so already, feel free to review my other ArabNet Beirut summaries:

This article will summarize the afternoon of the second day of ArabNet 2014, which presented thought-provoking opinions and information from a range of distinguished participants.

Panel: Supporting Seeds

This memorable panel discussion focused on supporting start-ups at the seed stage. The featured participants were Intigral’s Vice President of Strategy and Corporate Development, Juan Jose de la Torre; Founder of Arabreneur and MENA Apps, Dr. Abdul Malik Al Jaber; and Eureeca’s Head of Strategy, Partnerships and Outreach, Joanne Kubba.

I will summarize each panelist’s main points below.

Juan Jose de la Torre

Juan Jose de la Torre, also known as J.J., is a 15-year telecom and media veteran who has worked for companies such as Orange, TeliaSonera, Etisalat, and Booz. He is also a seasoned entrepreneur who has successfully founded 3 start-ups. In the past two years, he has been working at Intigral, where he helped found Afkar, a fully-fledged product incubator for the MENA region.

J.J. explained that Afkar differentiates itself from other incubators by means of 4 unique value propositions, all of which are based on a year and a half of research into the needs of entrepreneurs and venture capitalists:

1. Actual money: Providing funding in exchange for revenue sharing (from gross profits) rather than taking equity
2. Access to revenue: Offering clear access to revenue for start-ups and adding each one to Akfar’s portfolio after product development so that the Afkar sales team may help all participating start-ups enter the market
3. Support: Covering all of the support and accommodations needed on a day-to-day basis, from logistics to office space
4. “Mini-MBA”: Getting to know start-ups, understanding their strengths, weaknesses, and areas in need of development, then taking the entrepreneurs behind them through a 3-month “mini-MBA” program to educate them and help them grow

J.J. also said that Afkar works with with start-ups in different phases, from those who just have a business plan to those who are already in the growth phase.

According to J.J, entrepreneurship is a state of mind.

“It’s really about you pursuing your dreams and pursuing them with a certain level of passion that you inject into what you do,” said J.J. “That injection basically lets you pursue an objective and keep going after it. That doesn’t mean that you’re going to keep your world hidden; that means that when the different obstacles come your way, you’re going to try to take them and basically surpass them.”

J.J. also said that each entrepreneur should take the time to select a team with a shared vision. An entrepreneur’s teammates should help the entrepreneur materialize their dream, provide a lift during hard times, and help overcome obstacles.

Finally, J.J. added that 100% of start-ups Afkar has invested in thus far have been run by women. He said that was a sign of great progress in the MENA market.

Dr. Abdul Malik Al Jaber

Dr. Abdul Malik Al Jaber is a Palestinian businessman who served as COO for Zain Group from March of 2010 to June of 2011. Since then, he has established two enterprises that specialize in supporting start-ups: MENA Apps and Arabreneur.

According to Abdul, Arab youth have the same potential as American and European youth, but have been hindered by what he called the “bad, corrupted, stupid governments” that some countries have had.

Next, Adbul said that MENA Apps and Arabreneur are not typical venture capital funds, accelerators, or incubators. He said that they focus on helping very early growth-stage start-ups in the following ways:

1. Investment: Investing about $50,000 per company
2. Hosting: Providing office space in the same building where Abdul and his colleagues work and cultivating a family environment
3. Hands-on mentorship: Discussing positioning, packaging, marketing, and pricing with each start-up, along with how to approach targeted customer segments
4. Opening doors: Making sure that appointments are scheduled and set to run with potential customers

More generally, Abdul said that he’s not concerned about exits, mergers, and acquisitions in the MENA region yet, because he feels these will come naturally once start-ups hit their potential. He said that the market has a lot to offer, and start-ups have an advantage in terms of market knowledge, allowing them to handle localization better than big players.

Furthermore, he said that the MENA region should avoid trying to duplicate Silicon Valley, a model that only works within the context of the advanced legal, financial, and entrepreneurial environment of the United States. For example, in the early stages of developing an entrepreneurial ecosystem, Abdul said it is usually unemployed people who submit ideas, and clueless investors who throw in money.

Only recently has the MENA ecosystem evolved enough for a dedicated entrepreneur to be willing to quit a well-paying job for an idea, and for countries like Kuwait and Omar to begin setting aside funds for start-ups. However, the legal framework in many countries, such as Jordan, still makes writing an effective contract and offering different share structures impossible, so there is still a lot of work ahead for the MENA region. Abdul said that he believes the major player in supporting entrepreneurship will remain the private sector, not the government, as the region moves toward the development of a true entrepreneurial ecosystem.

Interestingly enough, Abdul said that his team has heard pitches from all over the Arab world, yet the best ideas presented came from Gaza, despite the lack of Internet and 3G access. He said that when he entered Gaza, which he described as “almost a big prison,” in a partnership with Google, he was not even allowed to bring equipment.

“Sometimes when you have these difficult conditions, innovation is not a luxury,” said Abdul. “If you are not innovative, you die.”

According to Abdul, now some of the best entrepreneurs are coming from war-torn Syria, and being recruited by tech accelerator and investment company Oasis500.

“These are young entrepreneurs who lost their businesses, who lost their companies, and they’re starting from zero. Coming after they have been successful running a factory, or owning a factory, owning something—they come to Jordan as refugees, they have nothing, and they are starting with this new desire to rebuild their lives.”

Finally, Abdul emphasized that he has seen truly original ideas coming out of the Arab world. He said that now, working with entrepreneurs, he has much more hope for the future than when he was “working the corporate life.”

Joanne Kubba

Joanna Kubba is Google’s former Head of Public Affairs for the MENA region. One of the first people to work for Google in the region, she started out working from home, handling various major business functions herself. Since then, she’s moved on to Eureeca, where she is Head of Partnership, Outreach, and Strategy for the global crowdinvesting platform.

Joanne said that Eureeca was started by two guys who wanted to support small and medium enterprises (SMEs), which are crucial to creating jobs in any economy, by creating the first global crowdinvesting platform.

According to Joanne, crowdinvesting is distinguished from crowdfunding, as seen on Kickstarter and Indiegogo, by the following main features:

1. Crowdinvesting offers financing for entire companies, while crowdfunding offers financing for specific projects only
2. Crowdinvesting provides funders equity or shares in each business they invest in, while Kickstarter and Indiegogo generally reward backers with goods or services

According to Joanne, crowdinvesting gives entrepreneurs the chance to leverage their networks, including online social networks. It also lowers barriers to entry for investors, allowing people who only have $100 available for investment to participate. Joanne has found that the average investment during one of Eureeca’s online 90-day funding proposal periods is $5,000.

“It empowers and democratizes investments,” said Joanne, speaking of Eureeca’s platform.

Joanne also said that Eureeca looks at businesses from all sectors and parts of the world, focusing on young, established companies rather than fresh start-ups.

“They say true innovation and real economy change takes place at the growth level, not necessarily at the super-early or later stages, but kind of that key middle phase that a lot of people don’t tend to pay attention to.”

According to Joanne, the role of the university in fostering innovation is also extremely important around the world. Without knowledge and proper research and development, people will only copy each other. Another problem is that people who aren’t privileged enough to enjoy familiarity with the world of entrepreneurship don’t know how to enter it. That’s why Eureeca is working with universities and other organizations to teach people about the options available for turning ideas into businesses through a transparent system that shows average people how they can become entrepreneurs or investors. She said that incubators and accelerators can’t spread this knowledge alone, but need to work to push the entire system forward.

Finally, Joanne said it was exciting that about 80% of SMEs that have raised money on Eureeca have been female-run. She said she feels inspired by the “powerful and practical” women at ArabNet who are, as Facebook’s Sheryl Sandberg might say, “leaning in” at the global negotiation table. Joanne anticipates growing female involvement in entrepreneurship in the future as more women with drive and motivation enter the field.

Panel: Building Bridges (MENA to Silicon Valley)

This session featured the story and opinions of Nima Adelkhani, the founder of PITME, a social impact organization aimed at linking Middle Eastern start-ups to Silicon Valley resources.

According to Nima, early inspiration for PITME came from watching the 2005 film Kingdom of Heaven. The story focuses on a blacksmith who participates in the 12th century Crusades. Just before dying, the protagonist’s father tells the hero to create a “kingdom of heaven” where Muslims and Christians live in peace. Being the half-Iranian, half-German son of a Christian mother and Muslim father, Nima “got goosebumps” at the thought that this could also be his mission.

The idea for his organization’s name came when Nima saw a friend sign an e-mail with the acronym PITME, standing for Peace In The Middle East. Finally, when he went on his first trip to the MENA region with his fiancé, he had an epiphany and began asking himself what he could do to change the world.

On his 35th birthday, he left a successful job as the Vice President of Business Development for an e-commerce startup called Keen Systems to grab a flight to the Middle East. After seeing Saudi Arabia, Dubai, Beirut, and Cairo, he thought of setting up a growth-stage, $70 million dollar venture fund. But, after 10 days of silent meditation, he decided to focus on peace through technology, reeducation, and mentorship, leveraging the relationships he had already built through years of work with the Silicon Valley-based Founder Institute.

After telling his story, Nima “busted myths” circulating about Silicon Valley, such as:

Myth: You just need to show up in Silicon Valley, give a nice presentation, and you’ll get a check.
Reality: Getting funding is never that easy for entrepreneurs!

Myth: Outsourcing works.
Reality: Entrepreneurs will end up rebuilding whatever they outsource in order to fine-tune it.

Myth: MENA companies can raise money by pushing for introductions to Silicon Valley investors.
Reality: There are many barriers between MENA entrepreneurs and Silicon Valley investors, including culture, distance, and lack of an existing relationship. That’s why PITME does not allow entrepreneurs within the program to approach mentors for funding.

“If you ask for money you get advice, and when you ask for advice you get money,” said Nima.

Instead, within the PITME program, entrepreneurs are encouraged to build relationships with mentors, then allow those mentors to decide whether to fund them or introduce them to others without a sales pitch.

Myth: The developer or developers need to be present when fundraising.
Reality: To be cost-effective, only the founder or co-founder should go on fundraising trips to the U.S. If the start-up’s team is good, they will be able to achieve results from home, especially with a strong Vice President of Engineering helping translate vision into product.

Myth: A lifestyle business isn’t worth an entrepreneur’s time.
Reality: While it is true that a lifestyle business isn’t considered fundable in the U.S., Nima says that lifestyle businesses are “exactly what the region needs to create jobs” in the Middle East. Although a non-scalable business doesn’t lead to huge profits for investors, it still gives the entrepreneur a chance to build a good business, hire people, and follow their passion.

Myth: A start-up is a bigger commitment than marriage.
Reality: Nima said this one is true! He joked that he is getting divorced thanks to ArabNet. According to Nima, a start-up is a 10-year commitment where investors can divorce the entrepreneur, but the entrepreneur can’t divorce the investors, as seen in cases where a founder is fired from their own company. He said that the average marriage in California lasts 3.4 years, so a start-up is 3 times the commitment of a marriage!

Myth: Angels invest money.
Reality: “When they do give you money, it’s a convertible note, so they’re actually just loaning you money,” expained Nima. “The idea is, if you make it to the next milestone, you get a discount as well, then they become investors.”

Until then, Nima said, angel investors are really just sharing your loan.

Myth: Marketing works.
Reality: “I have a marketing degree and I totally feel that marketing is fluff,” said Nima.

According to Nima, making large marketing expenditures is basically telling an investor that you’re going to give their money to Facebook and Google. From the investor’s perspective, they might as well buy stock in Facebook and Google instead because they will make more money than the start-up.

Nima said that the key to success for new start-ups, seed stage companies, and early-stage companies is to figure out how to market organically until significant revenues are available and ads have been optimized.

Myth: Investors are very smart.
Reality: Investors are not as smart as entrepreneurs think, but they have learned to trust their pattern-recognition abilities.

Nima believes that the main factors that influence an investor’s decision to provide funding are luck, timing, and the “gut feeling” the investor has when meeting the entrepreneur. Entrepreneurs listen to a lot of pitches and learn to understand patterns, picking out opportunities that stand out based on their experiences.

Myth: Distribution is more valuable than market.
Reality: This “myth” is actually true, according to Nima.

“The biggest thing you can do is figure out how to transfer the burden of distribution,” said Nima.

Nima said that, while a $100,000 investment will run out in 3 or 4 months, a distribution agreement can be the key to real success.

After a brief question-and-answer session with audience members, the moderator thanked Nima for his participation and Nima received a strong round of applause.

The State and Growth of Digital Advertising by Ipsos

At 5 p.m., toward the end of the second day, a representative from Ipsos, a global market research company and the leading research agency in the MENA region, provided an update on Internet and smartphone penetration in the area over the past year. This update was based on interviews with 25,928 people from 9 MENA countries.

Ipsos’ research found that the following increased from 2012 to 2013 in all MENA countries surveyed:

  • Internet penetration
  • Smartphone penetration
  • Social network penetration
  • Active daily users on social networks
  • Content streaming

The following either increased or remained stable from 2012 to 2013 in all countries surveyed:

  • Online streaming and online downloads
  • Electronic game penetration

To list just a few specific examples, Saudi Arabia experienced the following increases:

  • Increase in Internet penetration from 60% to 82%
  • Increase in consumption of streamed content from 51% to 63% (among Internet users)
  • Increase in mobile Internet access from 71% to 84% (among smartphone users)

To learn more of what Ipsos’ research uncovered, watch this slide deck.

Seeds, bridges, and growth can all be symbols of hope and opportunity, and they certainly were on the second day of ArabNet Beirut. This sense of optimism shone through the new incubators and platforms nurturing budding start-ups in the MENA region, Nima’s dream of building a bridge of opportunity across the oceans and cultures, and even the number of Arabs who are now connected to the world’s greatest information and communication resources. These opportunities could hardly be imagined even 20 years ago, and I believe the entrepreneurs they help create will bring innovations we can hardly imagine now.

Please check back here for further information on ArabNet Beirut 2014, and please be sure to sign up for the ArabNet Digital Summit in Dubai before “Late Bird” registration closes.

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