Lately, I have become extremely interested with the Palestinian entrepreneurial scene and am trying to understand where the problems are. There’s so much talk about encouraging Palestinian startups. I’ve even heard that there are 78 organizations within the Palestinian areas that support Palestinian startups. I’ve heard this number mentioned in a meeting once, so I’m entirely sure how accurate it is, although I don’t think it’s far fetched. It also seems that not a week goes by without some event talking about startups and entrepreneurship. My question is with all these events, initiatives and organizations dedicated to supporting aspiring entrepreneurs, why haven’t we heard of any success stories? Assuming there are 78 organizations dedicated to supporting startups, why haven’t we seen 78 success stories, or seven or even one really successful story?
Now there are a lot of factors that come into play here and I’ll try to go over each one and I would really appreciate any feedback, comments or questions to make this a lively discussion. While I probably won’t discuss all the factors, I’ll try to cover the main ones I can think of, namely: funding, ideas, business environment and education.
In this first part, I’ll talk about investment options and funding for Palestinian startups.
Funding: I’ve heard over and over again that there aren’t enough investors in Palestine that could support the startup community. There are actually two problems here, one that people don’t believe there is investor money and the second is that most would-be entrepreneurs don’t want to give up part of their company when they take outside investments.
What I’ve seen so far is that there are a lot of investors here in Palestine. I believe that from many of the 78 organizations that support startups, many would be more willing to support them financially. However, the assistance they receive usually isn’t more than $20,000 USD, which in most cases should be sufficient to help a smart startup run for up to 6 months. From what I’ve also heard is that these funds are usually grants, i.e. the entrepreneur doesn’t have to give up part of his company. But what if someone needs much more than$20k? Well, there are VCs, Private Equity funds, angel investors and more. While the number may not be equivalent to that in the US or Israel, demand will generate supply. If we start to see a huge demand for VCs, others will start to appear. Angel investors are out there, but they don’t label themselves as such, so they can be a bit harder to find. There are many people/organizations that would be more than happy to invest in a startup team with a great business model. But it is the responsibility of the startup to pitch the idea properly and get the interest of the investor. I don’t think it’s fair to conclude that no one will give money when you haven’t really approached enough people or there are serious flaws in your business model. I’m sure that if one is really persistent, they could also find outside investors who would be willing to help (again assuming that they have a solid business model).
You can’t have your cake and eat it too: The second problem related to funding is that startups don’t want to give up a stake in their companies. While understandable that we would all like to keep as much as we can of the company, an investor’s interest is to maximize return on their investment. They’re not a charity giving out money, and they won’t invest unless they truly believe in the business idea and the team around it. That’s how the investment system works, they invest and buy a portion of your company. Usually, the bigger the risk the more of a stake they’ll take. If you can de-risk your startup, you might be able to get more money or get to keep more of your company. So I don’t switch focus of this blog post, I’ll try and talk about de-risking in another post.
Personally, I would prefer to have 70% or 50% or 30% of a company that’s worth $1 million rather than have 100% of a company that’s worth $1000. Investors are partners in the company and one has to choose them accordingly. You shouldn’t just look at the amount of money they’re offering, but also ask, can this investor add value to my startup? Will they be helpful in promoting the company and discussing the vision/strategy and helping tackle the problems we face? If not, then maybe you need to keep looking for other investors who will.
Of course, there are two other options when it comes to funding, FFF (friends, family and fools), but from my experience, while this maybe easy at first, it gets more difficult later on when you’ve borrowed from everyone you know and unless you have some really rich friends/family or fools that you are close to, the amount each person gives won’t cover much. In some cases, I know people have treated FFF as investors and given them a small amount of shares in their company. The second option is bootstrapping and tightening the belt (more than it already is). This can be a powerful method if you have a side job, which can serve as your primary source of income until the startup is able to walk on its own, or if your startup is already bringing in revenue and you don’t need vast amounts of funding to grow your operations. The bright side here of course, is that the entrepreneurs get to keep all of the company of themselves. I think that startups differ in their financial requirements and each startup should determine how much they need and when they need it.
There’s more money than we think, but again these are investment funds, not giveaways, so for someone looking for investors in Palestine, be prepared to give up part of your company, and more important keep pitching. If one investor doesn’t like your idea, that doesn’t mean others won’t. Keep pitching to anything that moves, listen to feedback on your business and continuously evaluate.