The $100,000 Mistake of Arab Entrepreneurs
Nima Adelkhani Gives Advice to Entrepreneurs on How to Really Get Investors on Board
Here’s how to get investors dig deep in their pockets
There seems to be a pattern brewing in MENA when it comes to raising an angel round. Instead of seeing more investors believing in the market and the opportunity it holds and investing in great entrepreneurs to build great companies, we see companies actually sabotaging themselves by thinking smaller and smaller and trying to raise less and less. Is this out of desperation or because of a lack of confidence in their idea? Or is it just that investors think they are in charge?
I have observed something strange over the past few trips to places like Dubai, Cairo, Amman, Istanbul, and many of the new ecosystems of the Middle East. We in the valley [Silicon Valley] keep saying: “Think bigger.” And instead, companies are thinking “smaller.” What is going on?
This is an ongoing theme that I keep seeing…over and over. A company gets on stage, tries to explain what they do (not very well), with no passion and no story, and 9 out of 10 times, it ends with: “If there are any investors in the room, we would love to talk with you. We are raising $100,000. Thanks!”
The second you say, “We would love to meet some investors,” you have officially become the girl who doesn’t have a date to homecoming the night before the dance. You might as well start applying for a job, because if you are a startup and you are saying this, you are as good as dead!
Over the past two weeks, I have heard over 100 companies from all over the region pitch (their not-so-sexy company) and ask for $100,000. Results? None! And after asking dozens of investors, none of them were really excited about a single one of the companies, for several reasons. First of all, they have not thought their idea all the way through and are just trying to buy time to fluff some more to then waste a bunch more time to raise another round, which is 100 times harder and not readily available (especially in MENA).
Fundraising is a distraction, and most CEOS are not good at it—at least not until they have done it a few times and they realize it’s about packaging and positioning. The truth is, there is not much packaging or positioning you can do with $100,000. So why even bother if you are going to have to do it again in a few months. It is just painful! It will take twice as long and cost three times as much.
Here is the real deal: if you are asking for $100,000, your idea is too small and will run out of money before you start generating revenue or raise an A round— which might as well be called a K Round because it is nowhere to be seen, like Kasper the friendly ghost. How many startups actually raise a solid A round in MENA? One out of 1000, maybe less. So, if you are going to try, then take your vision and multiply it by 5 or at the very minimum three. Three hundred thousand dollars should allow you to mess up once, pivot once, and hire a few people that you didn’t even know you needed.
A good friend of mine always used to say: “It will take twice as long and cost three times as much,” or the other way around (in this case, it’s the same). Point is, if you are going to waste time to raise money, instead of focusing on product and business development, do it the right way and give yourself at least 16-18 months. If your burn rate is $10,000 a month, then by the time you actually build 20% of the rest of your product it will be $15,000 a month, which equals roughly $300k. Add in a cushion of $100k and there you go: you have created a runway of 18 months to actually show that you were serious. In the US, this number is at least double, maybe triple!
A CEO—A good CEO—IS a visionary who can get an investor excited about the vision, make the investor believe that he/she is crazy enough to
“It will take twice as long and cost three times as much.”
actually execute on this vision, and get the investor on board to help execute with his experience, network, and money—in that order!
The investor doesn’t want you to have to waste more time in 4, 5, or 6 months to go on another road show and sell a new vision. Good investors find good deals and then they are all in (based on the resources and value they can bring); which means that an investor who asks for a board seat for $30K-$100k is not aligned with you and the vision!
Personally, I think it should be illegal to ask for $100,000. Maybe it is already “illegal” in the sense that it doesn’t work. Moreover, no investor wants to hear you say that 40% of the money is going to ads to acquire users. If they wanted to invest in Facebook or Google, they would buy (probably have) shares in them. As a startup that is bootstrapping, you should figure out how to acquire users for free or organically; anyone can run ads.
As someone who has heard over 2000 pitches over the past 5 years, I would not invest in anyone of the 100 companies that I have met in the past 12 days, not because they are bad opportunities; quite the contrary, I loved many of them, but I am not confident that the entrepreneurs have a grasp on what it takes to build a company and that it is a 5- to 10-year- commitment; it’s not a cool project and not as fun or glamorous as it seems.
Understand that angel investing is very risky and it doesn’t make money. So someone willing to put in money as an angel (at least the good ones) is not doing it because they are going to make money; otherwise, the angels would be called loan agents or insurance brokers; these people make money.
What you need to do is get on stage, talk about your team, and explain why it should be you, your vision and your accomplishments that the investor should be interested it. If someone is interested or impressed they will come to you. There is no need to talk about the $30 billion global market and that you only need to get 1% to be the greatest thing since sliced bread.
And as a good friend of mine once told me, “the more you ask for, the more they respect you.” Keep that in mind the next time you get on stage.
“If you are asking for $100,000, your idea is too small and will run out of money before you start generating revenue or raise an A round.”
Nima Adelkhani is the founder of PITME. In his former role, he was head of business development for the Founder Institute, a global accelerator with operations in over 30 cities. He also helped to manage Thefunded. com and Founder Showcase. During his tenure, Nima helped launch over 300 startups.