Fostering VCpreneurship!

There are lots of entrepreneurship initiatives in the MENA region that encourage entrepreneurs to start their own technology companies. However, those initiatives have created capital seekers in a region where risk capital investors rarely exist! …..

We don’t lack wealthy corporations or wealthy individuals in our region, but the problem is very few of them have risk appetite to invest in technology startups. Why?

The first reason would be the lack of qualified and experienced technology VC fund managers who can successfully manage technology VC funds. Wealth owners will always need qualified people to find deals, evaluate opportunities and manage their investments.

We have very few qualified fund managers. Those are actually senior finance people or investment bankers who studied and worked in USA or Europe for enough time to become fund managers on their own.

But when they came back, they started looking for large funds to manage in order to get good compensation. I mean the “Management Fees” which are usually a 2% annual cut of the fund amount, and the “Carry”, which is usually 20–30% of the fund’s net capital gains.
And this is the second reason why wealth owners do not invest in technology funds. I.e., wealth owners have to commit large portions of their available capital to participate in those large technology funds as “Limited Partners” or investors in the funds.

I have personally met with most of those senior fund managers in the MENA region, almost all of them ended up managing large “Private Equity (PE)” funds instead of managing “Venture Capital (VC)” funds.

In the PE world, the fund is larger, management fees are bigger, and the fund invests in larger companies at later stages that involve lower risks, and almost guaranteed carry.

However, smaller funds can’t invest in low-risk later stage companies because they need tens of millions of dollars. Smaller funds usually focus on seed and early stage startups that need smaller amounts of funding. Because of this, smaller funds may end up with huge Return on Investment (ROI) but also may end up with huge losses (investee companies are still starting and maybe none of them will hit a big success).

Thus smaller funds are much more risky and challenging when it comes to achieving a considerable carry.

In this region, we need smaller or moreover, “Micro” funds to encourage more wealthy individuals or institutions to risk smaller amounts of their money and participate in technology funds.

That’s why we badly need young VC fund managers, or whom I like to call “VCpreneurs”, who are young enough to accept managing smaller funds with lower salaries (lower management fees) and to accept taking higher risks and getting less guaranteed carry by investing in the risky seed stage startups.

At the end of the day, entrepreneurship is all about taking risk and accepting challenges, and I believe being a VCpreneur (managing a micro seed stage fund) has lots of risks and lots of challenges as well!!!

Yet, those VCpreneurs should be qualified enough to be trusted to manage such funds. That’s why we, in this region, should also focus on creating qualified young VC fund managers or “VCpreneurs”, not only entrepreneurs!