Monday, 7 June 2021

Openner’s Ahmed Elsherif on venture building, what the newest VC firm has under its sleeve for Egypt, and what makes a startup “venture-backable”

How US-based Openner is making venture-building a thing in Egypt: Openner, a VC firm with an eye for the region but based in Washington DC, announced last October it’s on the lookout for stakes in as many as 50 tech startups, with USD 5 mn earmarked for Egypt at an initial stage. Yesterday, Openner made its first public announcement of a six-figure USD investment it closed for, to which it plans to provide technical support, expertise, and other resources alongside the VC funding. The Middle East and Africa-focused VC firm is led by Egyptian American founder and general partner Ash Rofail (LinkedIn) and Egypt Managing Director Ahmed Elsherif (LinkedIn).

At the heart of its investing model in Egypt is a VC track that barely gets a mention known as venture building.” We sat down with Elsherif, the man helping Openner bring this new model to Egypt. The newly-tapped MD spoke to us about how Openner does what it does, what it has in store for Egypt, and how the “venture building” model might be just what’s needed to unlock massive potential in a nascent VC industry.

Key takeaways from our discussion include:

  • How venture building, a systematic process to create and grow new businesses, has a proven track record of increasing the likelihood of success in startups.
  • Openner will operate in Egypt as a dedicated venture builder, after some tweaks and adjustments it made to its business model before setting up shop here.
  • The VC firm is aiming to expand its fund to USD 30 mn in a long-term plan that will see it commit an initial USD 5 mn to up to 50 startups in the next two years.
  • Egypt still needs a lot more early-stage investors and backers, and investors in this area need to be more bullish on backing startups from an early stage in order to grow and scale more businesses that can eventually become the next Fawry.

ENTERPRISE: What is venture building?

Ahmed Elsherif: We select an idea or product that resonates with an existing market need and is led by great entrepreneurs, who we take on board from day zero. Together, we validate the idea, build, and test the product, and acquire first customers. When they are ready, we accelerate the market launch, help hire a founding team, and give the founders access to company-building resources including backing from our in-house staff and help with other secondary functions in areas covering legal, financial, and HR, as well as design, marketing, and branding advice. This is alongside the VC financing itself. Venture builders generate in-house ideas that they could then introduce to the market through the startups they select.

E: How is this different from what regular incubators and VC firms do?

A: In traditional early-stage investing, a fund invests a significant amount of funding across a large number of startups, in the hope of making high returns on a few of them. Typically, the non-venture builder provides little or no support beyond capital. This support is often limited to some form of early-stage mentorship and occasional help tapping markets, but rarely goes beyond that. By contrast, venture builders focus only on a handful of carefully selected startups that are at the early stage and work closely with their founders.

E: Why does Egypt need the venture building model?

A: We believe that there is still a considerable gap in early-stage financing, and a lot of talented founders with market-relevant ideas and solutions and a market that is very ripe with digitization potential. Most founders struggle due to limited funding. And when funding is available, they struggle with allocating resources into the right company-building activities. Venture-building helps startups bridge this gap, dramatically increasing their chances of success. A recent report by Global Startup Studio Network (pdf) showed that the average internal rate of return (IRR) of startups created through venture building goes up considerably. Startups that go through the process have an average IRR of 53%, as opposed to 21.3% if they take the traditional route, and the time they need to get to series A from launch is cut down to only 25.2 months from 56 months.

E: What does Openner have in mind for Egypt

A: We’re looking to initially deploy USD 5 mn and scale early-stage companies through venture-building. We’ve so far invested capital and resources in five startups in the following sectors: end to end healthcare, financial technology and peer to peer money transfer, sports, electronics-focused e-commerce, and educational technology, and are currently studying four other prospects.

Our future plan for Egypt is to expand this USD 5 mn into a USD 30 mn fund that will focus on startups we can support through the entire early-stage value chain, taking them from idea to market. The expanded fund will also make follow-on rounds in a few select portfolio companies, but this is more of a long-term plan.

E: Why should entrepreneurs in Egypt choose to work with Openner?

A: We have invested USD 25 mn in 100 portfolio companies since 4Q2016, now worth an aggregate USD 2.95 bn. Aggregate capital raised by those companies is upward of USD 1 bn. We also have a strong and proven track-record in building companies that have exited or became leaders in their respective industries. Those companies received follow-up investments from the likes of ExxonMobil, Mastercard, CitiVentures and other multinationals, as well as from dozens of tier-one, US-based VCs. In terms of what we do, we provide those companies with everything they need – whether UX / UI design, engineering, branding, marketing, recruiting, legal, or financial expertise. That way, the entrepreneurs can focus on what is most important: building their business and growing their customer base. The process for each company is also customized based on its needs.

E: What will an average-single ticket investment be?

A: We provide up to USD 250K for a variable equity stake (case by case depending on the startup, its progress, and how much support it needs).

E: Which sectors in Egypt pique the most interest, specifically out of your co-investors?

A: We’re sector agnostic but the main themes that we find compelling are fintech, insurtech, property tech (proptech), govtech, digital health, media and entertainment, e-commerce, enterprise software, and AI and blockchain.

E: Talk to us a little bit about your exit strategy. What plans do you have to ensure the firm sees strong exits moving forward?

A: Our exit strategy is straight-forward. When they prove themselves we aim to double down through follow-ons; accordingly, we believe that the more we do that, the more we amplify the chances of success and the returns that we generate for our investors will most certainly be higher than normal. An exit trigger for us would be an acquisition, an IPO, or hitting a certain level of return, or a follow-on investment, which is the typical exit format.

E: What else do you do that we should be aware of?

A: We have three streams of business in which we operate. We have Openner Innovate — where we partner with leading corporations to co-create, launch, and scale a continuously evolving pipeline of tech startups. We have Openner Build and Openner Invest, which we discuss above, are part of the venture building model.

E: Are there any names in the tech business you’d pencil in for a Fawry-like story?

A: My hunch tells me that the next big success story will also be a fintech one. But I cannot confidently claim a specific company at this point, the existing companies definitely need time to flourish, and today’s environment is becoming a lot more conducive.

E: Why do you think startups in Egypt don’t go public?

A: We need a lot more early-stage investors and backers. What’s even more important is that we need to create more venture backable stories that can attract more funding. This means we need to focus on increasing the relevance of the solutions that we fund and build, and accordingly build high-return portfolios. There are so many gaps in the landscape that are yet to be addressed, and there should be a lot more focus on backing startups and ideas that are solving localized and very market-relevant problems. The VC market, in Egypt and the larger region, is still at a stage where it is yet to see sizable returns, but recently this industry has been booming and growing. It’s been getting a lot of attention over the past two years.

E: Have entrepreneurs you’ve worked with been mapping out IPOs later in their growth stories?

A: We are a lot more focused right now on proving our model, given that we have only recently entered the Egyptian market. But part of what we do with founders is to focus on educating them about the life-cycle of building a company and taking it to an exit scenario. Sooner down the line, we could focus a lot more on exploring this topic with founders.

E: What makes a successful, investible VC-backed startup?

A: Founders need to have stellar domain expertise. Their ideas have to have potential to reshape value chains at an industry-wide scale, while their business models need to have a clear and big impact on the economy and culture and a potential to enhance the livelihoods of mns.

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