Middle East Start-Up Scene Attracts New Breed of Investors: Women


eKeif
Sima Najjar, the founder and CEO of eKeif, at work. The company provides online 'how-to' videos in Arabic, with a large user base in Saudi Arabia.

As entrepreneurs take the Middle East by storm, new funding sources are starting to crop up across the region to meet this gap in capital. The latest involves women. Following a trend where 30 percent to 40 percent of start-up entrepreneurs are women, the other side of the table is also starting to change.

While Silicon Valley and European venture capitalists (VCs) are predominantly men, it is no surprise to find a similar trend in a more socially conservative environment. However, what is surprising is the number of start-up companies that are women-led. There are lots of statistics in the US (three percent of small businesses are women-owned, 12 percent of start-ups are founded by women, 13 percent of venture capital money goes to women-led companies), however, not a lot of data in the Middle East exists yet. There are the numbers from the accelerators and incubators in the region. In Jordan, for example, Oasis500 reports that while only 10 percent of its applicants are women, 40 percent of its graduates are women. Forsa and Mowgli, two mentoring networks that are active in the Middle East, state that 38 percent of entrepreneurs in Jordan are women. No one is really sure why this is the case, but one possibility is that women face more difficulty entering the labor force and therefore find it easier to start their own companies. In the United Arab Emirates, women comprise 14 percent of the local labor force (defined as Emirati nationals) and make up 21 percent of the work force in Egypt.

Women’s Angel Investment Network (WAIN) is one of the new acts on the Middle East start-up scene. WAIN is differentiated by women investors from the region who want to invest both their capital and their time in women-led companies. The angel group—the first of its kind in the Middle East—was started in response to a need, voiced by Arab entrepreneurs, for more active mentors and investors. Studies conducted by the Angel Resource Institute have shown that start-ups stand a much better chance of success when angel investors are engaged. WAIN invests in early-stage companies where a woman has a significant equity stake as a founder and holds a C-suite role. There are a number of women angel investor groups in the US and Europe such as Golden Seeds, Astia, Pipeline Fellowship, 37Angels, and Femmes Business Angels. While there are active angel investors and angel groups in the Middle East, although arguably not enough, none of them are women-focused and most of them do not include women investors. Some of the American angel groups targeting women-led companies include men as their members, who invest because they believe that more diverse management teams produce better results.

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Little Thinking Minds
Little Thinking Minds is a Jordanian company started by two Arab female TV producers to create quality educational media for children.

The region has witnessed a huge jump in the number of resources available for entrepreneurs: incubators, accelerators, co-work spaces, boot camps, and universities. Impact Hub, a gathering space for entrepreneurs with locations in over 40 cities, recently opened its doors in Dubai. The GrEEK Campus, the first technology and innovation park in Cairo, is supporting information and communications technology (ICT) entrepreneurs. While there is growing support for entrepreneurs, there are no good learning resources and support for the other, and equally important, side of the equation, the investors.

Government initiatives have attempted to create angel investment groups but without success in most cases. Silatech launched SILA Angel Investment Network in Qatar in 2012 to connect Qatari angel investors with entrepreneurs. Arab Business Angels Network (ABAN) was established in the UAE, but did not attract enough angel investors to make it sustainable. While there are large amounts of wealth held by family offices and private investors, especially in the Gulf countries, the challenge has been in attracting angel investors who have both capital and professional experience that they can leverage to add value to start-up companies. Entrepreneurs need early stage investors who are willing to open up their networks, help with business strategy and provide emotional support when things are not going well (which is more often than not).

WAIN started in Dubai in 2013 with a group of women who were interested in piloting the model and determining whether the women-led companies in the region were investment-ready. They knew that there was a large number of women entrepreneurs in the region but they were not sure of the quality of the companies. The results were overwhelming: within two weeks of informally circulating an investment application, the Dubai group received 50 submissions. The pitches were equally impressive, especially the Jordanian entrepreneurs, reflecting the deep investment in the entrepreneurial eco-system in Jordan over the last two years. The high quality of the start-ups led WAIN to validate its investment model and consider regional expansion.

Contrary to the unscalable cupcake company fear, many of the companies interested in WAIN funding were Arabic content and technology companies. EKeif, led by the dynamic winner of Cartier’s prestigious 2013 Middle East Regional Award, is an online Arabic content company that provides ‘how-to’ videos, with a large user base in Saudi Arabia. Some of the companies can be considered social enterprises, as they are creating social impact in the education, arts or environmental sectors. Little Thinking Minds, a Jordanian company that produces Arabic educational media for young children, was started by two Arab female TV producers who were frustrated by the lack of original, high quality Arabic educational content for kids. Feesheh is the region’s first musical instrument e-commerce site (www.feesheh.com). Other companies, like Arabic online food company Zaytouneh and the Arabic content site for mothers, SuperMama, target the more traditionally feminine sectors. With the largest YouTube consumer base in Saudi Arabia especially among women ages 25-35 years old, there is a thirst for Arabic online content that has been sorely missing from the internet until now.

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Feesheh
The entrepreneurs behind Feesheh, the region’s first musical instrument e-commerce site.

Getting more women on boards and giving them board experience is another goal of WAIN. The group requests a board seat in exchange for its equity investment. Companies worldwide report low numbers of women serving on corporate boards of directors. Governance has been a weakness in the region and needs to be stressed early on in a company’s evolution. As one of the first third-party investors in a company, WAIN hopes to emphasize the need for regular board meetings with documented minute books and resolutions. Providing an example for other investors and coaching entrepreneurs is a role often played by angel investors.

Learning how to invest is almost as important as investing. Financial literacy is a problem for both rich and poor women. Women continue to lack self-confidence when it comes to investing. Asset managers and financial planners have coined this the ‘gender investment confidence gap.’ The 2013 US BlackRock Investor Pulse survey found that only about 48 percent of women describe themselves as knowledgeable about saving and investing vs. 57 percent of men, and that women generally feel less comfortable making investment decisions and investing in the stock market. Women might take ownership over budgeting and consumer spending decisions in their households, but only a minority of women are active financial planners and investors at home.

While curriculum from groups like the Angel Resource Institute and the Kauffman Foundation are available for virgin angel investors, there is no substitute for learning from doing. WAIN members undergo learning modules on topics such as mentoring, due diligence, valuation and governance while simultaneously conducting the investment process (screening, evaluating, due diligence, negotiation and closing). They receive firsthand experience from actual investment placement. Golden Seeds, one of the largest angel investor groups in the US, with women making up 70 percent of its membership, requires that all of its new members go through their Knowledge Academy classes prior to investing. One of the challenges faced by angel groups in the region has been convincing their members to go through angel education courses.

The requests from women around the region, particularly in Jordan, Saudi Arabia and Dubai, to join WAIN have signaled the clear need for a women’s angel group that focuses on learning and collaboration. The ultimate vision of WAIN is to create a regional network of connected women—entrepreneurs, investors, professionals and evangelists—that support one another.