Interview with Dan Stuart, Managing Partner At Intilaq

One of the most interesting developments that have taken place recently in the internet entrepreneurship and venture capital space in the Arab world has been the launch of Bayt’s venture capital arm “Intilaq”.

To get even more details about this exciting bit of news, I got to ask Dan Stuart, who is Head of strategic initiatives at Bayt and a Managing Partner at Intilaq, a few questions about it all; why they’re doing it, why now, where they’re going and more.

I’d like to thank him very much for taking some of his time to answer these questions and provide us all with more insight into this new venture.

What made Bayt decide to move into the venture capital space?
The vision and mission of Bayt.com don’t say anything about being strictly a job site, per se. From the outset, the founders were focused on creating a Middle Eastern institution that empowers people in the region to build better lives. Jobs were the primary focus because of their direct impact on lifestyle – and we have maintained a firm leadership positioning in that domain as measured by any parameter – but from the outset we recognized that there are many other opportunities to better people’s lives in the Middle East. Combine this affinity to the people of the region with a first-hand understanding of the unique needs of the region as well as the challenges in starting a business in the region, and add to that a strong desire to expand our scope and invest the capital reserves that we have built over time, and we decided that an investment arm was the logical next step.

Why did you choose to do it now?
There has never been a better time to start an online business in the Middle East. Internet penetration is skyrocketing, there is a huge bubble in regional demographics at the youth level, successful online business models are prevalent globally, but still relatively nascent regionally, and agile and open source technologies are making it easier to put vision into reality. Inefficient processes are ripe for disruption, and with funding and mentorship, we think that there is great potential for not only local/regional Internet successes to emerge, but truly global leaders. There is no reason that a Google, Amazon, Yahoo, Facebook, Baidu, Salesforce, or other online tech leader cannot – and should not – emerge from the MENA region.

You say that you’re flexible on the amount you’re willing to invest, and that it depends on the project. But what do you think would be a healthy average investment size or range?
I think the early inquiries to Intilaq are the best indication of the investment ranges that we will pursue and which are in demand. Regional interest seems to confirm our thinking that business angel and seed stage investments are in high demand but relatively short supply. We foresee these investments coming in the $100,000 – $2,000,000 range so that entrepreneurs can make a full-time go at creating a launchable product to build audience/usage, and demonstrate value while practicing capital efficiency.

How big of a stake do you look at acquiring in the companies you’ll be investing in?
As entrepreneurs ourselves we fully appreciate the importance of having founders maintain a meaningful stake in the business while providing investors with enough of an opportunity to make a return on their investment. The stakes we are targeting will therefore vary entirely based on the financial requirements of the business and the desired long-term involvement of the entrepreneur.

Investments by corporate VC arms usually come with a few strings like the right to buy the company at a later date; how do you think this will affect the chances of startups to raise more money from other investors later on down the road?
VC investments will vary from company to company. The “strings” are often related to the business itself and what is necessary to ensure a possibility of return. We feel strongly that no restrictions that prevent the entrepreneur or the investor from making long-term returns should be placed on an investment.

You state that you’re not an incubator, but that in certain cases you can provide office space. Have you thought about moving towards a full-fledged incubation model in the future?
We are big fans of several incubation models that have emerged in Europe and North America. At this point, we decided to ‘open the tap’ and create a line of communication where we could begin to invest without creating any false expectations for ourselves or others. This gives us the chance to assess the market and the feasibility or a regional incubator and also gives entrepreneurs the chance to get a better understanding of us. A year from now I would be very happy to answer that question again. We could well tell you that we are moving forward with an incubation model that mobilizes more entrepreneurs and industry professionals – in a win-win-win for entrepreneurs, the region and Intilaq.

I’m sure you’ve gotten a fair number of submissions ever since you launched Intilaq; is there anything that has caught your interest up to now?
We have had far better interest than we expected. It’s only been a few days since launch and Intilaq has certainly kept us busy with over 17 submissions. Several of these look extremely interesting and we are trying to learn more and assess quickly.

Other than entrepreneurs submitting their projects through the website, how else do you plan to find interesting projects to invest in?
We are being proactive looking for synergies with existing idea development and support groups in the region. Whether this means partnering in business plan competitions, investment events, running our own “launch” events, and really just trying to be in the market as much as possible – we are open to discuss with anyone who thinks there may be a fit.

What do you think Arab startups need to work on to help their chances of getting funded by you or other investors?
There are some great ideas in the region and some great centres of thought and development emerging in the online space. Look at the great work being done in Jordan. I think, right now, Jordan is leading the way in the region in terms of real grassroots idea development and launch. I know first-hand the quality of the Jordanian technologist since Bayt.com has a significant portion of our IT team in Jordan. I also think there is good work being done in other countries including Algeria, Tunisia, Egypt, Lebanon and still to a lesser extent in the GCC. The most compelling startups looking for funding must have a great core founding team who understand the opportunities that exist to disrupt the current market or create new markets. If there are some gaps in their team at present, these can always be filled, but the strength – and an understanding of the weaknesses – of the team is key. You don’t need a perfect business plan, but to get a look from us you need to inform and excite us with a compelling idea that can get mass audience, has unique value and can remain capital efficient.

What are the areas and opportunities you think aren’t being addressed yet, or enough, by Arab startups?
That’s the million dollar question. I’m sure everyone has their own opinion on this, but I think that often entrepreneurs in the region can easily get caught trying to create content and community – because this is what is seen globally from the larger online players. While these can be exciting they may be difficult to monetize in our region at present. I would like to see more new technologies emerge from the region. These don’t have to be huge, but developing new applications and add-ons to existing technologies that add real value – especially in a way that specifically aligns with a region where millions of new Internet users are coming online each year. How can you preempt the move to broadband? How can you leverage the fact that mobile Internet penetration is exponentially larger than fixed-line usage? How can you empower businesses and users to transcend national boundaries and increase the flow of goods, money and information? How can you help me at work, at home, at play find what I want, do what I need to do, or engage more fully with those around me? These are some of the questions that can help spark ideas, and these are a few of the questions that entrepreneur technologists should be answering.