Our Journey to BECO Booster Fund II

Amir Farha
Nov 3 · 6 min read

Three long challenging and yet very meaningful and transformational years. That’s how long it took us to complete our fundraise for BECO Booster Fund II. It’s a known fact that most VCs struggle with raising their second fund and often decide not to continue persisting through the pain. Transitioning from Fund I to Fund II successfully is one of the hardest things for VCs to do. More often than not, Fund I LPs are initially family and friends, and sometimes expanding to include friends of friends (i.e. your tier 1 and tier 2 networks). They invest in the venture capitalist based on trust more than track record, similar to making a seed investment into a founder, and the VC would often be pressured to warehouse a pool of assets into the fund (we did that when we launched Fund I with 5 companies already in our portfolio). The warehousing gives more comfort to investors to know that they are not investing in a blind pool fund and in a manager who hasn’t done this many times before, while also allowing them to diligence the decision-making process and get a good idea of the capabilities of the VC manager.

Now once you raise your first fund, you generally have a 3 to 5 year ‘investing’ period where you find companies to invest in, then a 5 to 7 year ‘harvest’ period where you develop those companies and hopefully start generating returns through exits. Most early stage VC funds are 10 years long so it’s a very patient game. VC firms must deploy that capital into investments and follow-on rounds over the investing period, but also must ensure that they invest in the best deals each year. For example, assuming the Middle East produces 2 to 3 companies each year that have the potential to be $500m+ in size, then the VC should focus on making enough investments to ensure that it has the best chance to capture those 2 to 3 companies. For a long-term VC these investments should happen every year, where each year is called a vintage. Therefore, as it deploys capital and reaches 60% to 70% of the fund size in terms of capital invested, the VC would then need to raise a new fund to continue deploying for subsequent years (or vintages), trying to capture those 2 to 3 outliers. If they raise too late (i.e. when > 70% of the fund is deployed) then they risk missing a vintage (a year of investing), which means missing another potential outlier, because of the lengthy process to raise a new fund.

The challenge here for first-time fund managers is that by the time the VC is 70% deployed, there are very few exits in the fund of reasonable magnitude and so VCs are forced to present gains “on paper” or show unrealized returns (calculated as TVPI, total value to paid-in capital) and bank on that performance to raise Fund II. We did that, and it was a big part of our struggle. Some sovereign wealth funds wanted to see exits (at least 3 exits in Fund I to show that enough acquirers are willing to buy regional companies), which took us 5 years to accomplish. We went out in Q4 2016 with a growing portfolio of exciting companies, and two highflyers; Careem and Property Finder. We would showcase those companies, pitch the regional technology revolution story and why we need to support it to help redefine our economies, create role models, generate wealth and build a stronger and more talented workforce. Most potential LPs we met with would love our ambition, dynamics and what we’ve accomplished, but very few would ever commit to investing. We saw about 300+ investors over 3 years and received commitments from 26 of them. 26, that is a very low hit rate but typical for first-time fund managers raising Fund II.

We did our first close in March 2018 and had warehoused 3 companies into the fund by then. We were lucky to get anchored by some amazingly supportive LPs at the start, including Al Waha Fund of Funds, the International Finance Corporation (IFC), KAAF Investments, Watar Partners and RIMCO Investments, all of whom allowed us to drawdown capital and continue investing while raising the remainder of the fund. We had to balance both fundraising and new investments, managing drawdown schedules, follow-ons of our existing portfolio and Fund I companies. We learnt a ton (and continue to). We learned how important it is for a fund manager to pace their deployment to ensure that they don’t invest the capital too quickly. We learnt that ownership matters a lot, especially when raising a fund, the size of $100m, and thinking about what it will take for us to generate returns for our investors (more on that in another future post). We improved our follow-on investment process and continue to learn from that. We learnt how to work better as partners, and the gaps missing in our team to provide more value in our investment process and value add activities. This includes hiring 5 awesome people:

Noor Lozi who heads up our Data Analytics function and provides so much value to our early stage companies who are looking for product-market fit, while giving us significant insights in follow-on funding activities with our portfolio.

Firas Al Naji who is our Investor Relations and Fundraising VP and works on supporting our portfolio companies with introductions to potential investors from our wider network. We know how painful it is to fund raise, and we strive to provide significant value in that process with our portfolio of founders.

Omar Barakat who runs our value creation activities which are predominantly related to managing our network of founders, understanding their support requirements and building solutions to help them solve their most challenging areas.

Judy Rifai who runs our event and community activities. This includes BOOSTMENA (our flagship investor conference), the Founders Retreat, and organizing intimate dinners with founders to build stronger relationships across our portfolio.

While not a full-time hire, let’s not forget to mention the most recent and phenomenal addition to our team, Abdulaziz Al Sagha, who is a Venture Partner at BECO. We’ve known Abdulaziz for a long time and he’s been engaged informally throughout, until now. Abdulaziz encompasses our values to the core and is extremely curious, very thoughtful, highly intelligent and well-versed with the future of technology, with a strong global network that he’s built over the years while running his own US growth investment firm, Oryx Ventures. Abdulaziz provides his unique insights and observations across our investment decisions, while adding value to our portfolio companies through his experience in investing and his global relationships.

We believe in people and the impact of our team, and while these are all new areas of development for BECO, we constantly try to improve and learn from the needs of the people we care about; our ecosystem and our portfolio of awesome founders and people. We will continue to think about these areas and experiment with new initiatives to really create change for our region and drive outcomes for our portfolio.

Today we are well on our way with investing the capital raised in BECO Booster Fund II and are so excited by our new investments and founders, as well as the growth our region is witnessing from the technology industry. Our strategy hasn’t changed; we continue to focus investing at Seed and Series A rounds in the most promising technology companies in the Middle East. And while round sizes have grown, we have far more ambitious founders trying to solve for regional and global problems. We have governments embracing startups and technology faster than we expected, and we have a growing pool of capital, both from the region and abroad who are ready and willing to boost the growth of these existing and future companies.

With that said, we are still in the first innings as a VC industry and as an ecosystem as a whole, but the future is bright, and we will keep fighting to push our region and industry forward.

BECO Capital

Created and curated by our team for tech entrepreneurs and investors in MENA, this is our take on the ecosystem, news, startups and technology.

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