Entrepreneurs: Investors Must Fund Start-ups More Quickly
Regional Middle East entrepreneurs express frustrations at lengthy investment procedures, as entrepreneurs do world wide.
Investors in the Middle East must speed up funding procedures, according to a panel of entrepreneurs and venture capitalists at the Step Conference in Dubai.
In a debate between 3 Start-up founders and three investors, the panelists agreed that the length of time it takes to finalize funding needed to be cut down, especially with seed money.
Rounds of investment can typically take up to nine months to complete due to extended negotiations over terms and other issues, explained the participants.
“It takes probably 6 to 9 months to close a deal with a VC here,” said co-founder and managing partner of Dubai-based BECO Capital Amir Farha.
“I think that’s a big problem and we realize that.”
Among the reasons given by the team of investors for the lengthy time frame are the importance of building a relationship with Start-up founders, carrying out due diligence, and tracking a company’s progress.
While understanding the need for caution, Mudassir Sheikha, co-founder and managing director of ride hire company Careem highlighted the frustrations the frames can bring.
“There is a need to do the due diligence and see the track record of the company, but there is a point where the VCs decide that they want to invest and what’s unfortunate is the time it takes from that point to the closing of the deal and getting the money in the bank. That’s really painful,” he said.
Explaining that Careem’s 1st round of funding took 6 to 7 months, while the 2nd took 7 to 8 months, and the third slightly less time, he added: “That is a waste of time and so frustrating.
“We then have to hire expensive lawyers and all sorts of things, and it’s in their interest to prolong it because they are being paid by the hour. It’s a pretty difficult situation and it does not add value.”
Founder and CEO of Nabbesh Loulou Khazen Baz backed up Sheikha’s sentiments.
She said: “It took me 6 to 8 months to raise the 2nd round which was really painful. And obviously after the term sheet there is a couple of months of negotiations and lawyers and shareholders agreement, which is a complete waste of time.
“If you are an early stage Start-up and an investor is going to invest $200,000 to $300,000 they should be quick and not drag the entrepreneur through 6 months, redoing the deck 15 times because someone’s asking for something extra. It’s not good for the business.
“Most of the VCs, entrepreneurs and angel investors know each other because we meet at events and we know each other’s businesses. This should make the process much faster. Maybe just come over to our offices for a couple of days, see if you like it and make a decision.”
Joy Ajlouny, co-founder and creative director at delivery service app Fetchr explained that negotiation of terms is the most trying aspect, adding: “It’s not the deciding. It’s after the deciding that’s painful.”
Investors agreed that there was a greater need for transparency over the reasons for lengthy processes.
“We probably should do a better job at explaining our investment procedures and styles,” admitted Walid Mansour, managing partner at Middle East Venture Partners.
Khaled Talhouni, managing partner at Wamda Capital added: “The best thing we can do is really be more upfront,” before suggesting quicker timeframes were achievable.
“I think we can move a lot faster,” he continued.
“There no no reason a start-up seed round could not be done in 1 or 2 months. That needs to be our new normal and I think we are all heading in that direction”.
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