Entrepreneurs eagerly seeking that first cash injection for a business idea will be encouraged to hear a successful angel investing concept has come to the Emirates.
Based on a number of companies in the US and UK, including the Silicon Valley firm Y Combinator, SeedStartup is a new outfit based in Dubai that aims to invest in entrepreneurs and provide coaching, mentoring and contacts. After a three-month programme, the entrepreneurs present their business product to angel investors at a demonstration day and then try to take their companies further.
SeedStartup plans to select 10 technology or mobile ideas to receive an investment of up to US$25,000 (Dh91,830) in return for a flat 10 per cent equity stake. During the programme, the company will help each start-up refine their products and bring them to market.
"The biggest value is the mentoring and the connections that come from those mentors," says Rony el Nashar, the founder of SeedStartup. "These mentors will help the entrepreneurs to build their product and give them more business advice, but there will also be technology people available, who are experts in products."
Mr el Nashar heads the direct investments function at the Khalifa Fund for Enterprise Development in Abu Dhabi, and in his separate role at SeedStartup he has a team of about 15 mentors, investors and tech experts. Mentors include Dan Stuart, the founder and chief executive of GoNabit; Sim Whatley and JC Butler, the founders of Dubizzle; and Ravi Bhusari and Derv Rao, the founders of Duplays.
SeedStartup's concept is so well regarded in the US that Yuri Milner, a renowned tech investor, recently offered to invest in all 40 of Y Combinator's latest class. Mr Milner has helped revolutionise angel investment by offering easy terms and buying at high valuations. His high-profile investments include Facebook and Groupon. Mr Milner offered each Y Combinator graduate company $150,000 in a loan due to be converted to equity at another round of fund-raising.
But success is all the more likely, Mr el Nashar says, if start-ups are given mentoring and guidance. "More than 70 per cent of companies that have been through programmes like the Y Combinator, Techstart.org and Seedcamp, have either raised further financing, been acquired or become profitable," he says. "That compares with a worldwide failure rate for start-ups of about 80 per cent."
SeedStartup is trying to focus on entrepreneurs from the Middle East and North Africa region, but will accept applications from anyone around the world. Entrepreneurs will be chosen based on their idea, education, knowledge of the industry, and enthusiasm. Investment in entrepreneurs and small to medium-sized enterprises in the region is gaining traction, with a number of banks working with government institutions to provide loans to the sector. But there are few investors who will offer cash in return for an equity stake as early as the idea stage for a product.
Stephen Mezias, the professor of entrepreneurship and family enterprise at Insead in Abu Dhabi, welcomes the concept, but says certain issues have to be considered. "It will have to make sure the entrepreneurs go from winning, essentially, a beauty show to a business that generates returns for shareholder through growth or an exit strategy."
SeedStartup's initial funding is planned to cover living expenses in Dubai for the three-month programme, as well as marketing and product launch costs, and the application closing date for the inaugural class is the end of next month.
Entrepreneurs must come in pairs or more to receive funding - single entrepreneurs will not be accepted. "I believe the ideal number of co-founders is two to three, there have been very few success stories of single entrepreneurs," Mr el Nashar says. "You need to have at least two people that have complementary skills."