In the Middle East (expect Dubai & Tel Aviv), our approach to building a startup should be different, there isn’t that much capital here that is going into startups, which means that some business modules are just not so feasible here. Even in the U.S, if you are the type of founder who likes life-style businesses, or is not that comfortable with venture capital, that in itself would mean you should look for different business modules, different products & different startups than someone in Silicon Valley would.
Startups got to be so huge because of Silicon Valley, Don Valentine and others started it all by investing in Intel & Apple, Steve Jobs attracted much capital into Tech with his unmatched charisma, the money that got into the tech ecosystem from every tech company that won got invested back into tech, this is why Silicon Valley is what it is today, that is why NY is a tech hub too, and that is why our ‘never-heard off’ city is not.
You see, venture capital moves through connections (except YC, I hope!), if your city is not well connected to a lot of venture capitalists, then it would be a suicide to start a startup there that needs to raise capital to survive. VCs from the U.S do not invest in startups that are not located in the U.S, I know it seems harsh but it is true. Furthermore, startups who have users outside the United States tend to be valued much less than startups with users located in the U.S (Check out Robinhood vs. eToro).
This article is not written for those who envision building ecosystems in their cities, if you are one; all the power to you, the future depends on your efforts in more ways than I can ever describe. However, I wrote this article for the first-time entrepreneur who is starting right now, and my goal here to try to find a way for people like him (and me) to make it without VCs. This mindset is good to have everywhere we go, having a bootstrapping mindset will make us more resourceful & will save our startups a lot of delusion down the line.
3 reasons why we shouldn’t go after venture capital in the Middle East:
1. Dominating a small niche is only valuable if there are similar niches around that we can expand into easily, in the U.S; if your app spread like fire within Harvard, you can safely assume it will do okay in other universities. However, in the Middle East, you can’t make that same assumption so easily.
2. The users you get in the Middle East are not worth much to VCs outside the Middle East!!
3. It’s hard to exit & get the investors their money back, IPOs are almost never heard of here, and you can never depend on another company buying you out as an exit strategy.
Okay, so we established here that we shouldn’t start a startup in a 3rd world city with a business module that ‘need’ venture capital. That is not so bad, most freemium and SaaS businesses can be grown organically, plus what better way to grow a business other than through the money of customers, even Venture Capitalists admit as much. Customers are not biased, they will never bullshit you, if they like the product enough you will get their money, which is one of the best indicator of product-market fit.
Silicon Valley follows a different philosophy when it comes to business, in short, they follow retention to indicate product-market fit. That makes sense for them, they have so much capital going around, even if you’re not profitable, as long as you have found a product users love, then there is no need to worry about cash (many startups IPO before breaking even). That seem awesome and all, but it does come with a hefty price, over-there success in no longer measured by 2X growth, every Venture Capitalist & their mother is looking for that 10X startup.
In the Middle East however, people have much lower expectations, I have seen accelerators which have startups with an average 1X growth, and still is looked upon as being a successful, I am sure you never heard of 1X before, that is maybe because that isn’t really growth, it’s just survival. Why is that happening? Simple, Impact, even if those startups are not growing nor making money for investors, they are creating a decent number of new jobs, which is kinda acceptable for a developing economy. That might seem sad to you, afterall a startup is all about growth, any business that is not growing shouldn’t be named a startup in the first place, it’s a small business by all definitions!!
Let’s be reasonable here for a second, we can’t expect an ecosystem to jump from 0 to hero in 10 years, life just doesn’t work that way, Silicon Valley didn’t come to be what it is today in 20 years because of the interest, it was a center of innovation since the 1940’s, it was even named that because it was the birth mother of semiconductors 70 years ago. How about we stop trying to create the next Silicon Valley everywhere?!! If we are trying to copy what they did then we are not learning from them afterall. Let’s just use our current ecosystem to get whatever connection they can introduce us to, then one day when we are old and grey and have 100 times that amount of connections, we can use that power to return the favor & expand this shitty ecosystem until it’s not shitty anymore, it’s how NY, LA, South Korea, Estonia & Tel Aviv growing to be what they are today.