It is a highly-recommended investment strategy internationally, for the benefit of both the investor and the entrepreneur, to invest in companies you understand. But in the MENA region, this has resulted in a cycle of not taking bets on (very rare) locally bred innovation yet lamenting their absence.
This begs the question of: how can we break out of a cycle of investing in tech transfer companies rather than true innovation if we won’t invest in technologies we don’t understand? How can we keep those rare innovative companies from moving abroad because the local investors don’t get the technology?
To begin with, the onus lies on the entrepreneur to simplify her language and be able to explain her technology and its benefits in 2-3 sentences. If the entrepreneur is not able to do that, then the advanced technology is moot. Granted, simplification is the hardest part of writing a pitch deck.
From an investor’s standpoint, there are 3 ways she can approach a new technology before declining because she genuinely does not understand the technology:
- Self-educate: When a new technology comes knocking on your door, instead of saying, “I don’t have the knowledge”, try to understand and do some research. And by research, I mean scientific journals and not news articles / thought papers.
- Use your network: Building a network of engineers and scientists who live abroad has been critical for Womena. Being able to call upon these individuals to evaluate technologies rather than rely on pure business, private-equity-type acumen is crucial.
- Try the product / ask for a demo: Innovative technologies are only great if they improve efficiency, scalability, user experience, security, etc. If you try the product and can’t tell the difference between the traditional and innovative, then maybe it’s not worth your time. But if the difference is great, then give it a chance! No entrepreneur has come up with the perfect technology in their first iteration.
Finally, I place a large responsibility on MENA governments and their schools to encourage / invest in local know-how that can both generate and evaluate new technologies. Research and development (R&D) is as important as importing international innovation. It is not coincidence that the nation that spent ~$500 billion on R&D in 2015 with the federal government being the second highest source of R&D spending is one of the top innovating economies in the world. It is not coincidence that companies formed by Stanford entrepreneurs generate world revenues of $2.7 trillion annually and have created 5.4 million jobs since the 1930s. It is not coincidence that startup companies created out of the UCSD reported more than $31.6 billion in annual sales in 2012-2013. WOMENA went on a world tour this summer and most startups sourced out of Europe had at least one government grant to develop their product.
While the UAE’s investment in accelerators / incubators and Lebanon’s circular 331 pumping hundreds of millions of dollars into venture capital is commendable, governments are better positioned to support scientists with limited resources. Innovation starts with science then moves to commercialization and venture capital. Needless to say, venture capital to some extent also acts as R&D spending as entrepreneurs continuously build, refine and improve their products. This means an investor should not expect a complete product before investing.
When government, private sector and venture capital come together to invest in local know-how, the economy will be armed with individuals who are able to BUILD, UNDERSTAND and INVEST IN new technologies. R&D will always bring the invested money back in multiples – for the government it’s economic growth and for investors it’s ROI. We just need to break that cycle!