MENA Startup Ecosystem 2.0 Scale-out and up.

Welcome to the MENA Ecosystem 2.0 

One-Size-Fits-All. Or Does It?

One-size-fits-all. It never works for everyone. It’s an ill-fitting garment. We’re left with something that just doesn’t feel right. We know this reality, yet startups  follow the same unsuccessful formula; taking the conditioned one-size fits all approach to exit.  Masked innovative execution is no-longer enough. A copycat scale-up business model is only designed to gain share in an already existing market. It's a short-term solution and is not going to work forever. MENA entrepreneurs and investors, you know this is an ill-fit. It’s time to discard the “one size fits all” approach for good. 

MENA Ecosystem 1.0: Attempts to Scale Up

The challenges in scaling are nothing new for startups. We've seen that each region and each ecosystem, demands a different course of action adopted for their market. However, not all models are successful in resolving the evolving demands of the market. 

“Many startups appear to be focused on narrowly local—rather than globally scalable—enterprises.”  -E.B. Boyd, These Entrepreneurs Are Transforming  the Middle East’s Startup Scene 

As rightly pointed out by Fadi Ghandour the founder of Aramex and Arif Naqvi the founder of Abraaj Group, the introduction of stronger borders, higher operating costs, taxation, lower consumer demand and more competition makes stitching MENA markets challenging. (2016 STEP Conference) However the MENA ecosystem was not originally structured to support optimal collaborative growth and scale out. Ecosystem 1.0  was founded on a promise of scaling up based on commonalities within the following four factors:

• language,
• faith system
• consumption patterns
• cultural norms

In theory, this sounds great and can make a MENA region entrepreneur or investor proud.  Don't let pride blind you; it's part dream, part hope, and a lot of wishful thinking. Not to worry, where problems exist, opportunity will  prevail. It’s time to move onto building the MENA startup Ecosystem 2.0.  

Ecosystem 2.0: A Tribe of Sniper-Hyper Entrepreneurs and Investors

The Ecosystem 2.0 tribe will be composed of  sniper-hyper entrepreneurs and investors; armed with agile strategies, deep customer empathy, and a thirst to knock out other global players in scale-up markets. At the heart of a sniper-hyper startup, are founders that notice one of the following growth barriers: 

• Market size isn't big enough
• Inter-MENA market access is fragmented
• Regulatory continuity is a challenge
• Initial funding is more accessible than your next funding rounds 

If you're experiencing one or all of these, it's time to become sniper-hyper. Scaling out isn’t just for growth, scaling out is inevitable. Within the Ecosystem 2.0, local investors stand to benefit greatly Their role is playing a bridging point to target scale-out markets.  To become a sniper-hyper entrepreneur and ignite growth, start with some due diligence questions for potential investors.

• EXPERIENCE: Have they invested in a startup before that has started in the MENA region and has shifted to another market to scale-out?
• NETWORK: Do they have any affiliations to other investor networks or funds in key markets like and how are those affiliations structured and work to help a startup like mine?
• RESOURCES: What other resources besides money can they bring to the table that can help you grow locally but scale globally?  What are they and how do you see this working out practically? 

Scaling out is the most viable solution for all parties, but there’s no need to create this model from scratch. We’ve already seen global examples of the disruptive models of scaling out in Canada. 

“In the Canadian market…they immediately go to Europe and the U.S.; they don’t even try to just scale first locally; they go out.”  -Gauthier CFO and Head of Business Development for Compass 

For the last 40 years, Canadian startups have been globally minded; building locally, but shifting south to the US to scale. They have been scaling out.  Why? For a variety of reasons: 

• to access funding, 
• gain access to a broader market
• better startup support systems 
• quicker consumer adoption 

The result? Canada has positioned itself to be a major technology hub. They provide Silicon Valley with some of the most disruptive technologies. What we see here is a shift in approach, and Canada proves the model of scaling out that MENA startups can learn from. 

“Instead of relying on attracting entrepreneurs and capital to its relatively isolated location, built a presence in other ecosystems where those things are already found in abundance.” -Reinhart, Startup Ecosystem Report Highlights Need for    Scale-up Growth in Canada.

All Parties Benefit From Scale-Out

The case for scale-out is simple. The most substantial venture capital markets are always thirsty for deal flow.  Not all VCs see value in crossing borders, but many of them do see value in bringing startups into their comfort zones where they can add the most value. We've seen several VCs that shy away from regional startups, but are happy to take on local LPs (Limited Partners).  

What does this mean to MENA startups and MENA angel investors?

If international VCs want local LPs, then it’s time to show a clear-cut case of local deal flow scaling-out into significant markets. Scale-out serves all: investors, entrepreneurs, and the startup ecosystem at large. The domestic startup ecosystem benefits by gaining knowledge transferred back in the form of liquidity into companies that would not usually get funded. Most importantly are zero to hero stories that inspire risk-taking for local entrepreneurs.

“It’s clear that a major entrepreneurial shift is taking place in the Middle East and the startup scene has grown exponentially in the past years…it’s an exciting and diverse region.”  -E.B. Boyd, 500 Startups

MENA Ecosystem 2.0 is already in development. Several investors outside the MENA are currently active within the region.  Many of them have already taken aggressive positions at several different funding stages and across key sectors including a heavy focus on technology, e-commerce, and logistics.  

VC firms investing in the MENA region
Lumia Capital	San Fransisco	http://lumiacapital.com/
500 Startups	Silicon Valley, Mexico City,  San Fransisco	https://500.co/
Hatcher	Singapore	https://hq.hatcher.com/
Amadeus Capital Partners	London, San Fransisco, Stockholm	https://www.amadeuscapital.com/
Tiger Global Management	New York	https://www.tigerglobal.com
Hummingbird Ventures	Antwerp, London, Istanbul	http://hummingbird.vc/
Frontier Digital Ventures	Kuala Lumpur	http://frontierdv.com/
Naspers	Cape Town	https://www.naspers.com/
Fenox Venture Capital	Silicon Valley	http://www.fenoxvc.com/
Rocket Internet	Berlin	https://www.rocket-internet.com/

Wamda: The Growing List of VCs Investing in MENA Startups MENA startups---this is your time, and you're paving the way for the future generations of entrepreneurs.  With the support and interest of local VCs, and global VCs collaborating with local investors the time is ripe.  These are exciting and promising times for MENA. 

MENA Angel Investors Stand to Make a Killing  

Scale-out is a smart strategy for MENA Angel investors as it gives them that upswing at an early and lower entry point. On average MENA Angel investors stand to gain 2x to 3x more on their original investment based on the following factors: 

• valuations in scalable markets are higher 
• exit opportunities are more vast 
• next round funding is more readily available 
• growth support is more accessible 

“ The MENA ecosystem has matured enough to the point where we can start investing the appropriate amounts in early-stage tech companies to drive successful returns as per our global peers. ”   - Dany Farha, CEO BECO CAPITAL

Early stage investment is where the most significant opportunity is, and this is where Angel investors will stand to make that killing.  This is where and how Angel investors play an essential role in the early stages of a startup in preparing them for a scale-out strategy.   

But. It's not all pretty, so be ready. 

Challenges do await Ecosystem 2.0. The key challenge Angel Investors are going to have to solve with their startups is how to bridge that investment gap when shifting from the MENA region to their target scale-out markets. Networking is key of course, but hyper-local credentials may be more valuable for MENA Angel investors than you think.  However, the MENA region has a good base of local-hyper investors driving the ecosystem.

INVESTORS IN THE MENA REGION WITH A STRONG FOOTING
Wamda Capital	U.A.E	Venture Capitalists	$60 Million	http://wamdacapital.com/
MEVP	U.A.E	Venture Capitalists	$119.3 Million	http://www.mevp.com/
RAED Ventures	U.A.E	Venture Capitalists	$20 Million	http://raed.vc/
RAED	Saudi Arabia	Venture Capitalists	NA	http://raed.vc/
MENA Venture Investments	U.A.E	Angel Investor	$20 Million	http://mvi.vc/
Arzan VC	Kuwait	Venture Capitalists	$60 Million	http://www.arzanvc.com/
Flat6Labs	Egypt	Accelerator	$5.3 Million	http://www.flat6labs.com/
Beco Capital	U.A.E	Venture Capitalists	$50 Million	http://becocapital.com/
Leap Ventures	Lebanon	Venture Capitalists	$40 Million	https://leap.vc/
Jabbar Internet Group	U.A.E	Venture Capitalists	NA	http://www.jabbar.com/
twofour54	U.A.E	Accelerator	$20 Million	https://www.twofour54.com/en/
Silicon Badia	Jordan	Venture Capitalists	$60 Million	http://www.siliconbadia.com/
Al Tayyar Capital	Saudi Arabia	Corporate	$200 Million	https://www.altayyargroup.com/subsidiaries-associates/group-investments/
STC Ventures	Saudi Arabia	Corporate	$50 Million	http://stcventures.com/
MBC Ventures	U.A.E	Venture Capitalists	$25 Million	http://www.mbc.net/en/corporate/ventures/about
Siraj Fund	Palestine	Private Equity	$10.3 Million	http://www.siraj.ps/

Forbes: The 50 Most Active Investors in the Middle East Making a case for local growth and bridging it is a bit foreign for some VCs, but not an impossible pitch. Angel investors, have a secret weapon: opening up a two-way channel for VCs to tap into local and regional markets by using their local markets as the base.  This gives MENA Angel investors and startups a serious incentive to negotiate with. 

Here’s How to Make it Happen

Joining the 2.0 startup tribe means looking beyond the current market and seeking out a market with a more significant appetite. Scaling out is about finding the right ecosystem fit that enables startup growth using your existing market to springboard into hyper-growth.   The following five-step process will help develop a scale-out strategy for startups.  

1. finding the right ecosystem within the target scale-out market
2. finding key local resources to tap into in the target scale-out market
3. designing your business model to compete in that scale-out market
4. finding the right competitive edge which is what you bring to that market
5. finding the right people, investors, and supporters to draw you in

Entrepreneurs, finding the right people brings you one step closer to your scale out. It’s essential for you to consider local companies that are similar or that have a high interest in your offering. The key indicator is that they aggressively see growth as well. These are your optimal targets. Next, seek collaborations that bring you center-fold into your scale-out market.  To efficiently achieve this there are several modes of engagement.  You can consider the following: 

• getting investment 
• a big customer or revenue source
• finding partners to enable your main competencies 
• discovering unique collaborations that create a new offering altogether

However, it is essential to know where startups can potentially go wrong. Strategically entrepreneurs have three areas you need to resolve. These three strategic factors determine how you will implement your scale-out strategy.

1. Is the problem your solving relevant to your target scale-out market?
2. What is the bridging points between solving it locally and in your target scale-out market aligned
3. What changes are happening in your destination scale-out market and how to prepare for it from now?

Once you’ve got those three areas mapped out, your chances of success dramatically increase.  Having high-level clarity combined with your strategy, and collaborative approach startups are in a much strong position to win. 

Where to Scale Out to

Sniper-hyper entrepreneurs will maximize their success by targeting key regions already primed for success and growth. The most conducive cities for MENA startups are Silicon Valley, New York, London, Boston, Berlin, and Singapore. The 2017 Global Startup Ecosystem Report states that these top 20 cities are the most robust locations for startups today.  The connectivity between these cities also is essential to highlight and has proven a direct link in driving activity between ecosystems. MENA startups need to be aware of the global concentration of efforts in the startup ecosystem.  Not also does this map out where to go, but also may serve in finding bridging points along the way.  Knowing the target is half the battle, getting there is the other half. 

“While there is a hierarchy of Global Connectedness within each region of the world, Silicon Valley, London, and New York form the Global Connectedness core. Analyzing these hubs can tell us which ecosystems have the strongest gravitational pull for startup ideas and resources and, thus, where startups are best positioned to go global in terms of market reach.”           -Jonathan Ortmans, President                    Global Entrepreneurship Network (GEN)

Putting the 2017 GENOME report into context for MENA startups, it would be advisable to use their criteria to filter which locations are ideal for entrepreneurs.  Within target ecosystems, the following factors have the most impact on MENA startups and their probable success.

• performance -- best city for probable global success within their ecosystem 
• ecosystem assignment - see which cities will give you the best soft landing 
• resource access -- access to talent for growth 
• current and lagging indicators -- funding possibilities and existing value  
• bigger is better- cluster momentum give better traction and funding possibilities 
• global connectedness -- easier for startups to enter and grow from 
• founder ambition -- if startups have a more innovative offering this will be important 

The Success Factors That Enable Scale Out

There are three factors enabling a scale-out strategy, and it's essential to use these three factors to leverage other challenges that may emerge:

• Flexible business models are imperative and a strong customer focus.  Anticipating changes in customer needs not just locally but within the target scale-out market. 
• Pre-developing their networks, in those target scale-up markets including light-setups like a Delaware incorporated entity ready for investment for the US market. 
• Being multilingual from the get-go.  It doesn't stop at language but extends deeply into cultural adoption. 

Designing your product and services to be usable for users for your existing and future scale-out market consumers, will enable successful scale out.

Scaling Out is the Way Forward

A scale-out vs. a scale-up can be different in many ways. There is no universal model. Startups will have to pave your way. Entrepreneurs--if investors aren't gripping your pitch, local grants are far, and in between, friends, family, and fools have been exhausted…it’s time to abandon one-size-fits-all.  It's time for you to join the MENA Tribe 2.0  and scale out.  “Scaling out is not selling out, but about playing it smart and within the relevance of where our world is today.  Bring it back home is your eventual goal to support your local ecosystem if you are not supporting it who will?" -Nader Sabry, CEO TIMEZ5 Global Inc. 

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