Valley Fund Ventures East

The Middle East’s startup scene is getting a $25 million investment boost from Silicon Valley-based venture capital firm Fenox VC.

By Sadad Talhouni

Fenox Venture Capital is a Silicon Valley-based VC that provides early and growth-stage funding to emerging technology companies across the world. Fenox recently launched the $100 million Fenox Global Fund IV, which will provide seed, Series A and pre-IPO funding. Fenox General Partner Kamal Hassan says a quarter of the fund has been allocated to the Middle East because it’s a region ripe for tech innovation.

What attracted Fenox to the region’s startup scene?

Fenox is a global VC. Unlike other VCs around the world, a lot of their partners and investors are from Asia, Europe, and Eastern Europe. Most of the VCs in the United States have partners and investors from within. I would say over 70 percent of Fenox’s investments have been global investments. And because Fenox has about seven or eight offices around the world, they have become a strategic investor for many startups. They go to Fenox not because of the money, but because they know Fenox can help them expand in Asia and elsewhere. Fenox believes that the Middle East and Africa will be of great benefit for their next expansion. They are interested in diversifying their portfolio.

There are challenges to this, however. There is no way we can spend $100 million in the Middle East, it would be an oversell. There is not enough good deal flow in the region. There are lots of great local ideas, but there are not enough entrepreneurs who think globally. There’s a person who wants to fix a traffic problem in Amman, and someone who wants to fix the food problem in Dubai, but with global ideas, there is a challenge. So our target is really to invest in global and expandable ideas that come from the Middle East but can reach anywhere in the world.

What companies are you looking to invest in?

Tech startups that deal with software-as-a-service, the next generation social media, and tools in monitoring. We’re also looking at wearables, technologies that enhance the connection of the virtual world and the real physical world. We’re also looking at mobility in a very big way. Mobility in mobiles that enhances consumer experiences in different industries, whether it is in retail or healthcare. We’re looking at gaming in a huge way, but gaming where we connect the technological world with the real world as well.

How will you be spending the $25 million in the region?

Investments will be pretty much in seed and Series A funding. Pre-IPO funds are for companies that have reached a certain level of revenue and growth that make them ready for investment by profit, but not everybody is ready for that. In the United States, after Twitter, the IPO market is about to die. Fenox is going to invest in pre-IPO funding in Asia. We already invested in Dream Link Entertainment, one of the largest animation companies in Japan, and helped it execute an IPO on the Tokyo Stock Exchange.

What sort of return are you looking for on your investment in the region, and how long do you think it will take to realize it?

If you know the answer to this, please let me know. A lot of people ask what sort of return are we expecting, and my answer is “I don’t know.” It doesn’t work that way. We’re not a private equity, we are a VC firm. The fund has a five-year timeline.

Are you looking at any companies in Jordan?

No. I like the ecosystem in Jordan, but my only concern with Jordanian startups is that they’re very focused on the issues in Jordan. They address the market of Jordan. Some of them go a little bit further and focus on the market of the Middle East, versus Egyptian startups, which have a much bigger outlook to the global market. So when we meet a Jordanian startup, we find that they’re talking about localized issues, which is great. I mean there are investors interested in that, but the problem is if I am incubating a startup in Dubai, both Dubai and Jordan are not the market. I’m looking at Dubai as a starting point. This is where the development should start, but the extension has to be in a much bigger market. I’m looking at billion dollar opportunities and addressable markets, not a few million.