Envisioning Potential: The Methodology Driving A Venture Capital Investment
This article is co-written by Hubertus Thonhauser, Managing Partner, Enabling Future
As a venture capital firm headquartered in Dubai, there are a couple of things that make our organization, Enabling Future, stand out from its peers in the industry here. Firstly, we are not solely focused on the MENA region- we are actively exploring investment opportunities in the US, Europe or Asia. 60% of our investments have been made in companies outside the region. We are affiliated to six investors networks in the US, Europe, Australia, and MENA, and this enables us to be exposed to different startups and advisors or experts from a variety of industries, to keep an open mind.
We are often asked what remains constant in our investment approach, or what connects the startups that we invest in, and the answer to that is we have a very strong methodology in choosing startups that offer solutions to real life problems. At the moment, the partnership has a portfolio of 12 companies, valued in total over US$1 billion. We chose these startups through a process which has become our own, and it’s worked really well for us so far- here’s an explainer for the same.
In terms of our methodology, we have developed a structured assessment process, consisting of checklists, which we adapt according to the development stage of the startup, and which we also constantly update based on our learning. At first, it’s very important to understand the knowledge level, the professional qualities, the level of commitment and the dynamics of the founding team. For us, the founding team is key. After all, down the road, say, in three years’ time, the company will look very differently from what we discuss in the first meeting.
We are data-driven investors, and as a result, we like to see how the founders are going to stir the company forward, and develop their strategy applying financial metrics and KPIs. What we want to know and see is the founding team’s way of thinking and capabilities. We want to see that the people whom we are talking with have the capacity to anticipate changes needed, and to implement them. Due diligence is, of course, very important, but, sometimes, one meeting with an entrepreneur is often enough to decide if we want to work with them.
For example, in the first few minutes of meeting Stuart Oda, the founder of Alesca Life, a startup that offers urban farming solutions, we knew we wanted to work with him, purely because of his knowledge and passion for what he does. Secondly, we evaluate the startup’s perspective on the market. Are they solving a problem, and are they the best at solving the problem they are tackling? And do they have the potential to gain a monopolistic position in their segment?
At this moment, it’s very important to leave your personal interests aside. You cannot make assumptions about what works or what doesn’t without putting yourself in the shoes of the customer. Having a structured mindset is essential- we reach out to advisors or experts from the specific industry of the startup, and we try to understand the challenges, distortions, opportunities of the market and the size of the addressable market.
For example, one of the most successful businesses that we invested in was Babil Games- despite not being gamers ourselves, we knew that it was a very interesting segment, and we understood its potential. This is thus an important part of our process: we try to understand if there is any real competition for the solution that the startup has designed, how big is the market, and what is the long-term potential. We like startups that are driven, passionate, and can envision and build the world of tomorrow, today. This is connected to the reason why we like to read science fiction: it gives you a sense of how the world will look like in the future, and it enables the mind to be creative and imaginative, and not reject revolutionary ideas that might seem out of the ordinary.
During the early stages of the company, we often act as constant sparring partners to the entrepreneur, while also being facilitators to their growth through our international network. At the same time, our role changes once the company reaches later stages with new lead investors joining. For instance, in the case of Babil Games, Hubertus was involved in a double role, as investor and co-founder, being involved in all corporate matters, until the negotiation terms of the exit. In post-Series B companies like Thrive Market, with valuations north of $500 million, we became passive investors, although still maintaining a healthy relation with the founders and some lead investors.
One thing we really care about is the way Enabling Future operates after the investment has been made. We want founders to know we are one phone call away, and that they are not in this by themselves. Founders usually tend to get lonely in hard times, and these are the times they need to talk to their investors and regain their confidence. That is the most exciting part, being supportive and watching the startup transform and grow. The best thing a VC firm can do is be good to the founders of the startups they are investing in. We are very supportive, we make connections, we give advice, and we are there if they need us.
As for the road ahead, we have a flexible structure that allows us to take the best of both worlds, angel and VC investments. One of the key things we think about while investing in startups outside the region is that we can plan a strategic role in bridging the gap for these companies to the Middle East. We like to discover companies such as OfficeRock, and see their potential and relevance for the Middle East market, and then support their growth. We don’t have a specific mandate; we can do the deals we want to do. We are going to continue looking for teams who are driven by passion, empowering startups that aim to solve problems. By doing this, we want to build our credibility, as well as a successful track record of exit strategies.