Speakers from venture capital, financial services and incubation companies looked at how to fund the different stages of a startup and how and when to approach institutions for capital.
Alvaro Abella, managing partner and CFO of BECO Capital, started by offering some words of encouragement. “It’s the cheapest it’s ever been to raise capital and it’s the cheapest it’s ever been to test your value proposition,” he told an audience of entrepreneurs and owners of startup businesses.
Licensing, long a burden for entrepreneurs, he added, is becoming more affordable. Abella cited initiatives such as Astrolabs and Flat6Labs Abu Dhabi, which help reduce the hefty costs associated with business licensing and registration.
“Even from a licensing perspective, we’re seeing more and more cost-effective options across the region and here in Dubai. Services such as Astrolabs easily allow you to start with a spot in the tech centre for a minimum fee a month and you have more and more accelerators popping up in the region that allow you to really launch your business. I think these are all great options that entrepreneurs should consider when starting their business,” he said.
Ali Farahani, founder of Loop Design solutions, who joined Abella on stage, also said today’s ecosystem makes it much easier to start a business. “I think it’s the best time ever to start a company,” he said.
“You can get service space from AWS [Amazon Web Services] to get the website running for $10 a year. I think we’ve innovated on certain platforms so it’s much easier to start a business, that’s number 1. Number 2 is it’s much easier to bootstrap a business, so you don’t need that much capital to test your initial value proposition or your initial product market. So I definitely think that services such as AWS [help],” said Farahani, who started his business two years ago.
On the all important question of funding, Abella echoed other speakers when he said that the early stages of a company should be self and family funded.
“VCs have a specific entry point,” he clarified. “Do your homework before you approach institutional money to see where you fit.”
Once they are in the market for VC money, entrepreneurs must be clear about how much they want and what they want it for. “You must have an initial proposition and data to back it up. Until you have that, don’t ask for institutional money,” he said. BECO Capital’s investment portfolio includes Careem, Propertyfinder and Jadopado.
“Companies sometimes take money just because it’s on offer…,” added Farahani, “and you might end up working with people whom you’re not comfortable with.”
Other words of advice included the need to understand that an exit may not happen quickly and that even five years may be too short.
“Five years may look good, but putting a time period or exit target on a company is typically a mistake,” Abella said. “You have to have flexibility [in VC funding agreements] on terms.”
Amjad Ahmad, managing partner, Precinct Partners, reiterated that VCs do not fund companies at the seed stage. “Family, angels and debt fund seed,” he explained.
Once past the seed stage and ready for VC funding, companies looking for a VC partner need to have a strategy.
“Look at the stage of the company, how much money you need and the landscape of investors,” Ahmad said. “We invest in emerging leaders in a space.”
Precinct…