10/30/2016 12:00:00 AM
VC Association Wanted, Please Call Egypt For More Details!
This article was first published in Wamda and is republished with their permission.
There is no doubt the Egyptian startup ecosystem is young. If the startups are young, the investors are as well.
As investors, we need to work more closely together to up our game and be the right partners not just for Egypt’s entrepreneurs, but for entrepreneurs all over the region.
This is my call to action for Egyptian investors to come together and put in place the seeds of a strong venture capital association that can help us take this industry forward.
Investor collaboration? Hisssss
Being a good investor is about being in the know, and being in the know can sometimes mean making sure others are not.
So when you talk about investor collaboration, especially in a young market, you’ll usually hear a lot of hissing. Investors can be catty, just in case you were wondering.
Collaboration is hard. It’s a long game that requires us to look beyond our immediate individual needs towards the long-term collective gain.
You will be a better investor individually if we as a group become better investors collectively.
There are four main pillars on which we as investors must collaborate in order to propel ourselves, Egypt and even the regional ecosystem forward:
Data: We need to share data with one another on our transactions and start building a database that we can all draw on when making investment decisions.
This data includes exit multiples, valuations and equity stakes. It will help us make better decisions and, later, better returns, and over time to create collective metrics for the industry which we can track. If we can show improved performance over time, it’ll be easier to attract investor money.
The National Venture Capital Association in the US does this quite well. They have an entire section dedicated to data and research including fundraising, exits, corporate venture capital and other industry-related statistics.
Legislation: The legislative environment in Egypt does not really recognize the type of transactions we make.
It’s time we took our needs to the government and lobbied as a group to change the legislative environment, and ultimately create an entrepreneurship ecosystem that is based here and not in the British Virgin Islands or Delaware.
In Delaware, business friendly legislation and preferential tax systems have made the state the off-shore home to roughly 285,000 companies including Apple, Coca Cola and Google. With Stripe rolling out its Atlas program that benefits from the state’s business friendly legislation, startups are now flocking to register in Delaware. It’s a testament to how simple legislation can help grow an economy. We need better legislation, period.
Regulation: Shouldn’t there be rules around what makes an investor an investor? Shouldn’t there be certain regulations one must adhere to? What about ensuring certain best practices and a code of conduct?
There is no better regulation than self-regulation, programs like ISO which are business to business programs have effectively become a standard because customers now not only require them, they also expect them.
If we take the initiative to self-regulate, it will be easier to work with legislators and the government in the future. We would have a track record and evidence of successful self-regulation and even if they want to take it off our hands, we will have had a chance to shape it and create a strong position from which to start the conversation.
The British Venture Capital Association (BVCA) is an example of an institution that works to self-regulate, or at the very least, shares best practices with its members. The BVCA’s Responsible Investment Advisory Group provides advice to its members to help them incorporate responsible investment considerations into their decisions. The BVCA even provides training to the industry and foundation courses for those interested in working in Venture Capital.
Outreach: We have an obligation as investors to educate international investors on Egypt’s and the region’s ecosystem and the opportunities they present.
Working together to neutrally educate international investors can make it easier for us as investors to raise capital not just for ourselves, but also for our startups when they’re looking to raise capital for follow-on rounds.
It can also help us find exit opportunities for our investments and help us free up some more resources to make those riskier investments international investors don’t want to make until a little later in the game.
The US based Emerging Market Private Equity Association for example does this type of work and helps support members interested in investing in emerging markets with data, research, networking and advocacy. The Egyptian Private Equity Association could be an excellent partner for any outreach initiatives.
Collaboration by Association
That’s all great! How do we do it? That’s easy, we need our very own Egyptian Venture Capital Association (ideally something regional, but let’s start somewhere).
We need to make sure the ‘EVCA’, is sustainable, effective and neutral if it has any chance of survival. Each one of those objectives is linked and one is not possible without the other.
The most important ingredient of creating an entity that would bring us all together is neutrality.
It’s something that is absolutely necessary for the free sharing of data amongst investors, and probably the single most important reason for having a venture capital association.
The EVCA will need to hire the right people for the job who are dedicated to the mission, and are able to focus all their attention on it not do it in their spare time. For this, we need funding.
Funding is the key to the overall sustainability of the EVCA. It’s not just for the sake of hiring the right people, but to allow the EVCA to perform its duties independent of its members and of donations that may sway priorities.
For this I suggest a fixed annual membership fee which can become a necessary stamp for doing business as an investor in Egypt. It can be designed and promoted to entrepreneurs as a quality guarantee that assures them that members of the EVCA adhere to a certain code of conduct.
Eventually making membership a legal requirement for local investors who wish to invest in Egypt will help the EVCA create a unified front. Much like some lawyer Bar Associations members or investors could risk losing their membership if they don’t follow the rules of say data sharing or the code of conduct and then, possibly, their ability to invest in Egyptian startups.
Making membership a prerequisite to a fund’s ability to invest is a necessary feature for collaboration on lobbying for legislation and something that will allow the EVCA to speak on behalf of its members who will then by default represent the entire industry. An industry-elected board for the EVCA should also be introduced to maintain the association’s legitimacy when it says it acts in the industry’s best interests.
This, my fellow investor, is my call to action to you. If you wish to be a part of this and want to help achieve this, do get in touch. After all, we need to collaborate in order to start collaborating.