how should a government invest in startups?
DESCRIPTION
The report was created for Kuwait Fund of SMEs, but I'm sure it can be used by any government considering to invest in startups and to help in establishing a healthy Startup Ecosystem.TRANSCRIPT
(Report done for Kuwait Fund of SMEs)
Done by: Abdullah Alshalabi Email: [email protected]
How Should a Government Invest in Startups?
Table of Content
1. The purpose of the report……………………………………………………….............. 2. Introduc<on……………………………………………………………………………………...... 3. Execu<ve summary…..…………………………………………………………………………. 4. Common misunderstandings………………………………………………………..…….. 5. What can we learn from previous experiences? ………………………………….
a. Chile…………………………………………………………………………………………….. b. Finland………………………………………………………………………………………….
6. The new law of Kuwait Fund of Small and Medium Size Enterprises …… a. Goals and objec<ves……………………………………………………………………. b. Major concerns……………………………………………………………………………. c. Suggested solu<ons……………………………………………………………………..
7. Roadmap…………………………………………………………………………………………….. 8. Global brilliant minds…………………………………………………………………………… 9. Local and regional brilliant minds………………………………………………………… 10. Recommenda<on…………………………………………………………………………………
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p2 p3 p4 p5-‐7 p8 p9-‐14 p15-‐20 p21 p21 p22-‐25 p26-‐31 p32 p33 p34 p35
The purpose of the report -‐ The new law is a right step in the right direc7on, however it needs to be improved and executed in the right way
Last month Kuwait approved the new law of Kuwait Fund for Small and Medium size Enterprises. While the new law is a posi%ve sign, we believe that its going to fail to achieve its stated goals because of many reasons that will be explained in this report. The goal of this report is to raise concern of some major drawbacks of the new law and to share some of key leanings from other countries that have similar previous experiences. Moreover, the report includes suggested solu%ons for some of the major concerns and a roadmap to show how our vision can be best executed.
Disclosure: The team that worked in this project are not interested or expec4ng any compensa4on for submi:ng this report. The only reason that drove us to put the effort to write this report is to help Kuwait to move forward and to become a be@er place for the next genera4on and for everyone living in it.
The purpose of the report
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Introduc7on
While Kuwait is considered a rich country, it is obvious that this wealth will not sustain and there will come a <me that Kuwait will go through an economic disaster if it doesn’t act wisely soon. The new Kuwait Fund for Small and Medium Size Enterprises (KFSM) is established to solve the following problems:
The problem is clear to everyone, however the solu<on is not as clear. The obvious solu<on is to push people to create their own companies and start their own businesses to help them be more independent and less reliant on government support. It’s clear that the persons behind the law are aware that the problem is not with availability of money. They know that the problem is with the Ecosystem and the environment surrounding the small businesses. However, the solu<ons men<oned in the law are incomplete and falls into common mistakes that other countries have fallen into 5-‐10 years ago.
1. Create new jobs for Kuwai<s and move away from the reliance on the public sector as a major employer
2. Create a healthy Ecosystem for small and medium size businesses 3. Diversify the na<onal revenue source (through taxing companies)
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Execu7ve summary
Common Misunderstandings
The Chilean Experience
The Finnish Experience
Road Map
Major Concerns and Suggested Solu7ons
Recommenda7on
The differences between Scalable Startups and small businesses
Startup life cycle and funding rounds Startups are not a small version of large
companies
Startup Chile program a_racted 320 startups from all over the world
With only US$12.8M of investments, Chile Startup Ecosystem is developing very fast
Chileans s<ll don’t understand the difference between a Small Business and a Scalable Startup
The government was very generous to support entrepreneurship during the last 2 decades, however it s<ll failed
Direct funding was one of Finland’s major mistakes
Types of companies Funding strategy Selec<on process Direct Funding Lack of focus in a specific field
Lack of skilled labor University role Large companies role Fund manager
No direct funding Divide the fund into 4 separate en<<es An interna<onal fund manager A_ract interna<onal skilled labor A great focus on alterna<ve energy startups
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Misunderstanding#1 – Startups are all the same
KFSM
Scalable Startups: -‐ New product -‐ New market -‐ Unknown customers
-‐ Seeking to create a big company with high poten<al of growth
-‐ Very risky, but very rewarding
Small Businesses: -‐ Known product/service
-‐ Known customer -‐ Low risk -‐ Want to keep it small within the family
-‐ Have small poten<al to grow
Fully commi_ed to support and boost entrepreneurship, small businesses and innova<on
Scalable Startups Small Businesses
• Create 1,000s of jobs • AKract interna7onal talents • Revenue > US$100M • Change the world to a beKer place
Key Characteris<cs • Create 10-‐100 of jobs • AKract cheap labor • Revenue > US$1M • Want to feed the family
Key Characteris<cs
• Mentorship and advice • Talent and skills • Educa7on • incubators
What do they need? (Ecosystem elements) • Early stage investors • Late stage investors • Easier regula7on • Global network
• Ini7al investment • Grants and Loans • Land • Regula7ons that support their products
What do they need? (Ecosystem elements)
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Misunderstanding#2 – You can es7mate how much funding a startup needs from day one!! Of course not
Time
Amount of Funding
US$100K
3-‐6 months
US$10M
Series A, B
Seed stage
US$20K
Searching stage
Building Stage
• The funding is spent in building the product to be able to support a bigger base of customers/users
• Customer discovery • Changing and
modifying idea, product and business model
Series C,D
Growing Stage
• Most of the money is spent in acquiring new customers
• Building the team to run the business
US$300M
Angel investors Incubators Family and friends Bootstrapping
Angel group Early stage VCs
Private Equity Late stage VCs
18-‐ 24 months 3-‐5 years
When a startup raises money it <es the amount of money being raised with <me, number of new employees and other related costs. A startup should raise a round for a period of <me between 12-‐18 months. The other variables (No. of new employees and other costs) are highly unpredictable and dependable on the performance of the startup. Moreover, the idea will most probably change drama<cally during the startup life and will end-‐up being something completely different than the ini<al idea.
Ques%ons -‐ In which stage the government is willing to fund? -‐ When is the Gov. willing to pull the plug from
zombie companies? -‐ What is the <me period for the funding round?
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A Startup is not a smaller version of large companies
Large companies Large companies are organiza7ons with proven business model
Known • Customers segments • Business Model • Market environment
• Customer needs • Market size
Startup Startups are temporary organiza7on designed to search for repeatable and scalable business model.
Unknown
Ready to execute S7ll need to learn before star7ng execu7on
Use Business Plan Business plans are execu<on plans. In a business plan we assume that we know our customers, their needs, the market size and everything else and this is how we are going to make money. It includes the steps that we need to follow to generate the 5 years financial projec<ons. Once agreed is hard to be modified or changed
Don’t use Business Plans
• Customers segments • Business Model • Market environment
• Customer needs • Market size
In a startup everything is based on assump<ons. Startups change and pivot many <mes during its life <me, following an execu<on plan (Business Plan) that was built before even star<ng the company is like commu<ng suicide. Business plans is a good exercise to visit all parts of the project, however a person should know that he will need to change it frequently during the life of the project. This lead to the crea<on of the Business Model Canvas.
Business Model Canvas
What can we learn from previous experiences and other countries?
• During the last 10 years many countries realized that suppor<ng small business and new startups is the best way to create jobs and have a sustainable economy and living condi<ons. In this report we only focus in three countries that have some similari<es with Kuwait in terms of:
-‐ Popula<on -‐ GDP per capita -‐ Level of support from government -‐ Life style and work culture -‐ Government plans to support new startups
• The two countries that will be covered in this report are Chile and Finland
Chile Popula<on = 17M GDP per capita = $17,000
Kuwait Popula<on = 3M GDP per capita = $41,000
Finland Popula<on = 5.3M GDP per capita = $36,230
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Chile
Chile is considered the wealthiest and safest country in South America Chile has a diversified GDP, however natural resources such as Copper,
Agriculture and fishery represent more than 30% of their na<onal GDP Chile established a Cornfo to boost entrepreneurship more than 70 years
ago, however the results were modest un<l Startup Chile is established 2 years ago
Other interna<onal organiza<ons helped to play a major role to increase the entrepreneurship ac<vity such as Endeavor
A brief about Chile
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Chile – CORFO Chile Established: 1939 Team: Board members: 6 (Chairmen is the Minister of Commerce) No. of Employees: 38 Goal: Encourage entrepreneurship and innova<on to improve produc<vity in Chile and it’s global posi<on in compe<<veness Program descrip7on: Provide financing for startups and small businesses to start or grow their businesses through different types of tools and funds (both debt and equity). It also organizes compe<<ons and provides the winners with up to 70% funding. Compe<<ons covers many sectors and vary from producing movies to energy projects. Results: -‐ More than 16,000 transac<ons are guaranteed during the period from 1st of Jan to
end of March 2012, helping mostly small businesses and farmers working in the agriculture sector
-‐ More than 40 different programs and compe<<ons to boost technology and innova<on in different fields such as business innova<on compe<<on, packaging compe<<on and R&D compe<<on.
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Chile – CORFO Chile
Advantages: • Helps to increase the produc<vity and the growth of small businesses • Helps in crea<ng jobs • Bootstrap R&D and innova<on ac<vity Challenges: • Didn’t succeed in establishing mul< billion companies that can expands globally and create a huge number of jobs
• Most of the business benefi<ng from the program are small and family businesses. The owners of these type of businesses don’t have the vision to grow beyond his/her local region
• The challenges men<oned above led to the crea<on of Startup Chile
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Chile – Startup Chile
Established: 2010 Team: Board members: 8 (4 global, 4 locals) (2 from Stanford University, 1 from HP) No. of Employees: 16 Goal: To convert Chile into the defini<ve innova<on and entrepreneurial hub of La<n America by a_rac<ng the world’s best and brightest entrepreneurs to bootstrap their startups in Chile, and create the next US$1 billion company. Program descrip7on: Provide US$40,000 of equity-‐free seed capital (no shares or equity is given, nothing), and a temporary 1-‐year visa to develop their projects for six months, along with access to the most important social and capital networks in the country. Results: -‐ 320 Startups benefited from the program un<l the end of 2011 -‐ 630 apx. Is the number of people that benefited from the program -‐ Startup teams that represent 36 countries around the world (US$40,000/team) -‐ Money spent on the startups = US$12.8M -‐ Total funds raised by some of the startups = US$5M (outside investors) -‐ More than 20% of startups in the program are local startups
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Chile – Startup Chile
Advantages: • Encourage local Chilean people to become entrepreneurs • Interna<onal teams are contribu<ng to build a first class Startup eco-‐system • The increased a_en<on from global entrepreneurs, media and investors was a wakeup call to all Chileans that they are capable to change the status quo and become the leading des<na<on of innova<on in South America
• A_racted many speakers and brilliant minds around the world to help achieve the new Chilean dream
• A_racted back some of the local talents that migrated to pursue their dreams in other parts of the world
Challenges: • Startups from abroad usually leave aoer they spend the 6 months required • The success of the program in recent years doesn’t guaranty success in future years if Chile doesn’t have a compe<<ve advantage other than giving up money for free
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Chile Analysis
What can we learn from Chile experience?
The Good: -‐ Even small programs with small budgets can have big impact on the entrepreneurship
community -‐ Having interna<onal teams helped to contribute in shaping a high quality startup ecosystem The Bad: (Analysis by Steve Blank aoer visi<ng Chile late 2011) -‐ Small Business versus Scalable Startup: there’s confusion in both the Government and
Universi<es about the difference between small business entrepreneurship (startups designed to be family businesses,) scalable startup entrepreneurship (startups designed from day one to scale big inside Chile and then expand globally)
-‐ There is no focus in a specific field: Entrepreneurship and innova<on in what field? Where will Chile establish technical and innova<ve leadership? Is the only way they will a_ract talent by paying entrepreneurs to come to the country? Or will students and entrepreneurs come to Chile because it is one of the best places in the world for innova<on in certain specific industries (pick your favorite – alterna<ve energy? materials science? food science?
-‐ Lack of connec%on with big enterprises -‐ Lack of Venture Capital and Angel investors
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Finland
Finland is ranked no. 21 in terms of GDP per capita; higher than UK, France and Japan Finland is considered one of the most ac<ve countries in terms technology and innova<on.
Regardless of it’s small popula<on, Finland is the home of Nokia and some other successful companies such as MySQL, Linux and Rovio (the famous game maker of Angry Birds)
Finland has one of the best educa<on systems in the world Finland entrepreneurship scene is fairly ac<ve and consists of many organiza<ons and
companies supported by a mix of public and private en<<es. The main drivers of the startup eco-‐system are shown below:
A brief about Finland
Government Funding Venture Capital Startup Accelerators Universi7es
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Finland – Government Organiza7ons
www.tekes.fi www.finnvera.fi www.sitra.fi
Established: 1983 Annual Budget: Around EU500M Team: 7 board members 400 employees Regions: Finland, Beijing, Silicon Valley, Tokyo and Brussels Goal: Tekes works with the top innova<ve companies and research units in Finland. Every year, Tekes finances some 1,500 business research and development projects, and almost 600 public research projects at universi<es, research ins<tutes and polytechnics. Program descrip7on: Tekes offers businesses a low-‐interest loan or a grant, depending on the distance to the market and on the nature of the proposed project. Results: In 2011 Tekes made funding decisions regarding 1,928 projects, which resulted in total investment of 610 million euros
Established: 1999 Annual Budget: More than EU500M Team: 11 board members Undisclosed no. of employees Goal: Finnvera strengthens the opera<ng poten<al and compe<<veness of Finnish enterprises Program descrip7on: Offering loans, domes<c guarantees, venture capital investments, export credit guarantees and other services associated with the financing of exports. Results: Domes<c Financing € 3.0 billion Export Financing € 10,4 billion
Established: 1967 Annual Budget: More than EU500M Team: Undisclosed Goal: We are forward thinking and an<cipate social change and its effect on people. Our ac<vi<es promote new opera<ng models and s<mulate business that aims at sustainable well-‐being. Program descrip7on: Invests in Venture Capital funds locally and globally. Currently invested in more than 40 VC funds, mostly to help Finnish startups to grow and expand globally. Results: Sitra is the oldest organiza<on in Finland that was established to boost innova<on and entrepreneurship. Its investments and ac<vi<es through the last 40 years are enormous and is spread into many other sub-‐organiza<ons. The organiza<on currently reports directly to the Finnish parliament.
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Finland – Incubators
ww.newentures.com www. gorillaventures.fi www.cleaninvest.com
Established: 2010 Goal: We push the selected startups develop to a stage where they’re ready to take over the interna<onal markets. Benefits of the program: Incuba<on, coaching and hopefully funding Funding: They help startups to secure funding aoer the program. They only provide 1,500 Euros during the program Program dura7on: 6 weeks Requirements: Startups should be from Northern Europe, Bal<cs or Russia Results: 70 startups benefited from the progrma Team: 5 full-‐<me employees 20 coaches
Established: 2009 Goal: Finland has many promising start-‐ups with lots of poten<al. Yet very few of them ever reach interna<onal scale. We want to change that. Benefits of the program: Helps entrepreneurs realize their dreams by making seed investments and par<cipa<ng in the opera<onal running of the company – whether strategy and customer development, go-‐to-‐market execu<on or globaliza<on. Project Funding: Depends on project 50K-‐750K Euros Program dura7on: None Requirements: An idea with poten<al to disrupt exis<ng businesses Target market is big and growing Studied the customer’s needs really well Results: Investment in 16 companies Team: 4 execu<ve employees
Established: 2005 Goal: Seeking opportuni<es from discon<nui<es in the way we use natural resources. Benefits of the program: Crea<ng success stories by combining capital, technology & sector know-‐how and access to key players in the cleantech sector, globally Project Funding: 1-‐2 Million Euros Program dura7on: No specific dura<on Requirements: Providing capital and support for ventures with significant global poten<al. We look for entrepreneurs with the ability and will to build a global success story. Results: Invested in 9 companies working in the cleantech industry Team: 3 employees
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Finland – Aalto University Ecosystem
Aalto University
Aalto Center for Entrepreneurship
Startup Sauna (Incubator)
Startup Sauna is an incubator funded by Aalto university and takes Aalto Venture Garage as its base. Startup Sauna serves as the main incubator of Aalto students, however teams and startups are not restricted to be from Aalto university neither are supposed to be from Finland.
Aalto Entrepreneurship Society gathers the most talented students and researchers to create more startups and build interna<onal connec<ons in and around Aalto University in Helsinki, Finland. Aaltoes organizes lots of events and gathers every week. The main two programs are the 10 weeks Summer of Startups program and the interna<onal exchange programs
Aalto Entrepreneurship
Society (Students society)
Aalto Center for Entrepreneurship (ACE) offers innova<on, commercializa<on, and start-‐up services for Aalto University researchers, students and other stakeholders. The center serves as a bridge between the academic and real life entrepreneurship scene. The main goal of the center is to push graduate students to become entrepreneurs.
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Finland’s analysis
What can we learn from Finland’s experience?
The Finland government realized that they failed to build a first class startup ecosystem because they realized that even aoer more than 20 years of government support for innova<on and startups, they failed to produce not even one successful global company. Below are some of the major reason of Finland’s failure: -‐ Public direct funding: The government tracked it’s performance by measuring the number of
companies funded every year. But, it’s not about quan7ty, it’s about quality. The government gave money like crazy, most companies created are lifestyle companies that don’t become large companies at the end and don’t actually create any jobs. Its nice to give everyone a chance, but that wasn’t what the whole system was built for
-‐ Risk aversion: Risk aversion autude leads to accep<ng businesses that have a high possibility to survive, but that do not have a high poten<al to become large companies that change the world. Lack of interna%onal skills: Lack of global business competence and serial entrepreneurs. Talented people only work in big companies.
-‐ No viable VC industry: Lack of real venture capital ac<vity. Most of the ac<vity is derived by public funding.
-‐ Lack of business competences: Lack of business competence that help companies to grow globally and a_ract global investors and interna<onal talent.
-‐ Finland didn’t consider the globally exis%ng systems to learn from their experiences
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Finland’s analysis Suggested solu%ons for Finland’s situa%on (by Steve Blank 2011 and VICTA 2007) -‐ Indirect funding: The government should stop funding startups directly and should instead fund global incubators and VC’s that can then start funding Finnish startups based on commercial and market driven criteria's.
-‐ Remove lifestyle (such as restaurants, fashion store..etc) companies from the equa%on: Lifestyle companies are not growth companies, they will not create jobs or add value to the society. This type companies should be removed or separated from the startup ecosystem. These companies are sucking resources (<me and money) and distrac<ng the government performance measurement indicators.
-‐ AOract global talents: Transform the Finnish early-‐stage startup ecosystem to support the infusion of talent from the leading global talent. Laws, regula<ons and tax incen<ves should all be fixed to support this goal.
-‐ Fix government strategy: The government should shio it’s strategy from just helping Finnish people to start their own business to crea<ng mul< million companies. The vision should be driven to: generate more jobs, a_ract foreign investments, create global successful companies, and a_ract interna<onal talents.
-‐ Fix culture and aPtude challenges: The government should have a plan for a campaign to change the an< entrepreneurial culture. Challenges such as “Money takes care of problems”, Risk vs Reward and Failure vs Success, this mentality should be changed through educa<ng the young genera<on and through some awareness campaigns.
-‐ Fix incubators structure: Currently most incubators are owned by the government. Incubators should op<mally be owned by 4 shareholders: a local VC, a global VC, the government and a local university. Also the manager of the incubator should be either a serial entrepreneur or from a VC background. The incubator manager should also have direct or indirect share in the companies being accepted in the program. Moreover, the incubator should not accept more than 20 companies per year.
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Kuwait Fund of Small & Medium Size Enterprises (KFSME) Goals & Objec7ves Goals and Objec7ves stated in the law: -‐ Create more jobs -‐ Diversify na<onal income resources -‐ Reduce number of Kuwai<s working in the public sector and resolve the problem of fake unemployment
While the goals stated in the law makes sense, they lack the clarity of answering the ques<on “How?” -‐ How are we going to create more jobs? By crea7ng high growth companies that generates millions of dollars and compete globally -‐ How are we going to diversify our income? By crea7ng high growth companies that generates millions of dollars and compete globally -‐ How are we going to reduce the number of Kuwai4s working in the public sector? By crea7ng high growth companies that generates millions of dollars and compete globally
Our goal should be clear and simple: “Create high growth companies that generates
millions of dollars and compete globally” Any company that doesn’t fall within this goal, should be removed or separated. Otherwise, it will distract and suck our resources without any real return.
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KFSME -‐ Major Concerns Types of companies
1 The fund is heading to in the direc<on of funding all types of companies. However, not all of companies will lead the fund to reach it goals. The fund should focus only in funding companies that have the poten<al to become global companies that generate mul< million dollars and can employ thousands of people. Restaurants, fashion stores and mechanical garages will not employ thousands of people and will not create millions of dollars for Kuwait government. What type of companies the fund is going to support? Why?
2
In which stage the government is going to invest? How many rounds the government is going to par7cipate in? What does sweat equity means to the government? Why should an entrepreneur share to pay the capital if at he just need to cover his/her co-‐founders salaries? Does the government s7ll need to own 80% in a project funded by US$50,000?
Funding strategy Technology startups don’t need much funding in their ini<al stages. The co-‐founders just need to cover their personal expenses and some of the development costs ( a programmer and a designer). This means to test the ini<al idea they just need around US$20,000 – US$100,000. This is the global standard and any more than that is a waste of money. The funding should be in stages, first stage (Seed Stage) should be small (US$20K – US$100K) and the second stage should be larger. This structure is the standard that is being used globally, and is as the following: • Seed Stage – (US$20K – US$100K) -‐ (Investors: family & friends, incubators, angel investors, early VCs) • Series A & Series B – (US$250K – US$50M) – ((Investors: Angel group, Early stage VCs) • Series C,D – (US$50M – US$500M) – (Investors: Late stage VCs, Private Equity)
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KFSME -‐ Major Concerns Selec7on process
3
Ideas cannot be converted to successful companies without having a great entrepreneur behind them. The management team is the single most important element of having a successful startup. Having a great idea will take you no where if its not managed by a capable team. Selec<ng projects should not be based on Business plans and numbers in papers, it should be about people. If a person or a team have what it take to create a successful company then he should be accepted even if his idea is not as good as others. The process of accep<ng companies based on people sounds so subjec<ve and unfair, but if you did a research with global VCs and global incubators you’ll find that all of them invest in teams and persons not in ideas. This skill is developed with <me and experience. How much emphases are put in the co-‐founders team? Did the law considered diversity The law is trying to invest in companies that are financially feasible, however great companies start as crazy ideas with very high risk and low probability of success? Is the government willing to take high risks to get the high reward? Or will it only invest in safe projects that have low risk and low return?
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Direct funding The government should not invest directly in startups. When the government invest in companies, it doesn’t really care if the company will become a US$1 billion dollar company or not. They don’t invests based on commercial bases, even if they say they will. Instead the fund should fund incubators and VC’s, that way they will invest indirectly in startups and only based on commercial and market driven principals. Does the government have a clear vision how to pull it-‐self out from the system to leave everything for the private sector? Does the government provide the added value that a regular VC firm brings to entrepreneurs? Are they aware that they can actually harm more than help the startups if they invest directly on them?
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KFSME -‐ Major Concerns Lack of skilled labor
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There is a lack of skilled labor in Kuwait. It’s hard to find the required talented people to create great innova<on products. Many companies in Kuwait end-‐up outsourcing there key ac<vi<es to India and other countries. However, to build a sustainable and a healthy ecosystem, these talented skills should be available in the market to help companies to produce high level products that can compete in global markets Does the fund have a plan in how to aKract skilled labor? Do the current laws and regula7ons help in aKrac7ng talented people? Is there any reason for skilled people to move to Kuwait?
University role Universi<es are the biggest place to produce passionate and innova<ve entrepreneurs. However, Kuwait university is not being ac<ve enough to support these students to become successful entrepreneurs. Is universi7es preparing students to become entrepreneurs? What is the university role in the startup ecosystem? How can we integrate universi7es to this new ecosystem?
6
Large companies role Kuwait has some huge companies that can contribute to the startup ecosystem. Companies such as Zain, NBK and KPC are leading companies in their field and they have a good amount of skilled employees and advanced technologies that can benefit the startup ecosystem. Is the fund willing to corporate with these large companies? Does the fund realize the value that can be extract from these companies? Does the fund have a clear plan in how to integrate and mo7vate companies to be part of its vision?
7
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KFSME -‐ Major Concerns Lack of focus in specific field
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If Kuwait wants to be one of the leading startup hubs in the region, then it should have a key differen<a<on factor than other startup hubs. Kuwait have two well established sectors: energy and finance. Kuwait should have one major focus field of innova<on that will a_ract global companies and global talents. Money by itself is not enough to build a global des<na<on for innova<on. Does Kuwait want to be a global startup hub or just a friendly place for locals to start small businesses? Is the government aware of some of the strength points that can be currently used to create a bright future?
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Fund manager The fund manager should be an experienced entrepreneur with a successful track record. The manager should have a previous experience in raising money and building a successful business. Kuwait doesn’t have much of experienced entrepreneurs that can run the fund. What are the key characteris7cs of the fund manager? Did the government consider recrui7ng a non-‐Kuwai7 fund manager? Does the government understands the full implica7on of recrui7ng an incapable fund manager?
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Suggested Solu7ons for the types of companies being funded
KFSME
Scalable Startups Fund
Industrial projects Fund R&D Fund Small and medium
size businesses Fund
50% of resources 20% of resources
15% of resources 15% of resources
The fund should divide its opera7ons into 4 separate Funds:
1-‐ Scalable Startups Fund: This en<ty is specialized to support companies that have high poten<al for growth and to become large companies. The fund should denote 50% of its resources (Money, human resources…etc) to this type of companies, since these companies will most probably create most of the jobs in the market and will generate most of the revenue. 2-‐ Small and Medium Size Businesses Fund: this en<ty is focused in providing financial help to small and lifestyle companies. Fashion stores, restaurants and small grocery shops are all considered small businesses. These types of businesses require some financial support and some land space. The fund should provide only 15% of its resources to this type of companies. 3-‐ Industrial Projects Fund: Factories and heavy industrial driven projects fall into this category. There needs and type of support is different than other businesses. The Industrial Bank is specialized to help this sector, however the fund could also contribute to help in crea<ng a be_er environment for industrial projects. Fund should provide 15% of its resources to support this type of projects. 4-‐ Research and Development Fund: The Fund should establish a separate en<ty to support research and development studies done by individuals and teams working in Universi<es, research centers or private companies. These research studies should be funded to boost innova<on and also to help them to convert their inven<ons and findings into real products that can be sold in the market to real customers. The fund should provide around 20% of its resources to support this part.
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Suggested Solu7ons – The funding structure suggested below solves many problems related to selec7on process, funding strategy and direct funding
KFSME – Scalable Startups
10 Global and local Incubators
3 Global Late Stage VCs
5 Global Early stage VCs
• Support each incubator with a loan of US$25M. This loan should be returned within a period of 8-‐10 yrs • Covers 50% of incubator opera<onal expenses for first 3 years • The incubator can incubate up to 50% of foreign companies, but they should all agree to move and to have their HQ in Kuwait
• Selec<on of startups is based solely on commercial bases • Incubators have higher incen<ves to push startups to the limits
Structure
Benefits
• Support each VC with a loan of US$50M. This loan should be returned within a period of 8-‐10 yrs • Covers 50% of VCs opera<onal offices in Kuwait up <ll 3 yrs • VCs should employ at least 2 full <me Kuwai< employees • The VCs can invest up <ll 50% of its capital in regional opportuni<es
• Selec<on of opportuni<es is based solely on commercial bases • Global VCs add much value to startups in terms of interna<onal exposure and business competences
Structure
Benefits
• Support each incubator with a loan of US$50M. This loan should be returned within a period of 8-‐10 yrs • Covers 50% of VCs opera<onal offices in Kuwait up <ll 3 yrs • VCs should employ at least 2 full <me Kuwai< employees • The VCs can invest up <ll 50% of its capital in regional opportuni<es
• This stage of financing is necessary for startups to grow interna<onally. Global VCs can provide global network and guidance for possible exit strategies.
Structure
Benefits
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Suggested solu7on for the lack of skilled labor problem
Opening global offices in key ci<es to serve three main goals: 1-‐ Find skilled labor and help them find jobs in Kuwait 2-‐ Serve as a bridge between global startups and startups that wants to enter MENA region 3-‐ Help and convince interna<onal startups to apply for incubators based in Kuwait.
2-‐ Global offices
Silicon Valley
Bucharest
Mumbai
Beirut Amman
London
The government should be serious in lowering the barriers for skilled labor to work or to start a company in Kuwait. Also the government should consider lowering tax burdens and any other difficul<es associated with foreign investments in Kuwait, The current situa<on is a complete disaster and no smart person will consider moving to Kuwait. These regula<ons should be all changed to make it easier for both Kuwai< and non Kuwai< startups to a_ract global skills and for foreign capital to invest in
Beijing
1-‐ Regula7on Easing
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Suggested solu7ons on how to engage universi7es and large companies in the ecosystem
Source of innova7on
Research and studies
Gradua7on Projects
Entrepreneurship track
Talks and seminars
Educa7on
Global network and partnerships
University incubators
Large Companies
Fresh graduates
Professors from different fields
Source of talent
Experienced employees
Interna7onal talents
Closer to market
Technical support
Real experience
Closer look to market needs
Real world working environment
Universi%es are the biggest source of innova<on and talent. Moreover, universi<es are the best place to educate the public and to change some common mispercep<on and cultural autudes such as Success vs Failure
and Risk vs Reward. The university’s role is central to the startup ecosystem and it should be directly linked to the work of incubators since they can add much more value working together.
Large companies can add much value to the ecosystem if they are integrated in the right way. Large companies wants to be up-‐to-‐date with the latest technologies. Being part of the incubators and latest development in terms of technology and startup scene gives them a compe<<ve advantage
Universi<es own 5%-‐10% in incubators
Companies own 5%-‐10% in incubators
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Suggested solu7ons – A great focus in Alterna7ve energy startups
Kuwait is like a large oil company. While Kuwait might be able to produce oil for more than 70 years ahead, there is a big possibility that oil will not be the major resource for energy any <me soon. The world is in a con<nues search for an alterna<ve source of energy, mostly driven by natural resources. During the last 60-‐70 years it accumulated a lot of experience in the energy sector. This experience should not be wasted, as a ma_er of fact it should be leveraged to build our future. Alterna<ve energies have been always a threat to oil prices and to our na<onal income. However, major oil companies such as Shell and Exon realized this threat and already took ac<on and started inves<ng in this field to prepare themselves for the future. Similar steps should be taken by Kuwait’s government to prevent a disaster from happening. Our sugges<on is to focus big part of the fund in suppor<ng startups focused on the energy sector and in finding alterna<ve sources of energy. We also suggest that the fund creates a separate en<ty or a separate department focused only on alterna<ve energy projects and providing them with their needs. The support should extend beyond the local market and should cover the whole scope of innova<ons happening around the world. Kuwait should be the place for anyone that wants to start his alterna<ve energy project. Kuwait should provide funding, space, facili<es, talent and labs that entrepreneurs needs to test and build their projects.
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Suggested solu7on on who should be the fund Manager?
The fund manager should have a previous experience in going through the process of establishing a company, hiring employees, raising money, building a product and dealing with the government. The fund manager should’ve went through the pain of star<ng a company and all of the difficul<es and hurdles associated with it. Moreover, the fund manager should have a previous experience in star<ng a company in a well developed ecosystem (such as the US or UK). A Kuwai< person with this characteris<cs is hard to find and the only person that we believe have similar quali<es is Mr. Naif Al-‐Mutawa. We believe that having an experienced serial entrepreneur is more important than being Kuwai<, we believe filling the manager posi<on with an experienced interna<onal serial entrepreneur is for the best interest of the fund and Kuwait as a whole.
Started more than one company
Raised several rounds of funding
Dealt with incubators and VCs
Started a scalable startup
One of his startups resides in a well developed ecosystem
Have a global network
Fund Manager
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Roadmap – Unfinished part
Year 1-‐3
Year 4-‐5
Year 5-‐10
Year 11-‐14
Year 15-‐20
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Five star board members that can take Kuwait to the top
Steve Blank
Eric Ries Fred Wilson
Brad Feld
Vinod Khosla
Professor at: -‐ Stanford University -‐ Berkeley University -‐ Colombia University Two Books: -‐ Four Steps to the Epiphany -‐ The Startup Owner Manual
-‐ Khosla is one of the co-‐founders of Sun Microsystems and its first CEO
-‐ One of his famous sayings “Freedom to fail is key ingredient in success
Steve Blank is the guru of entrepreneurship. He helped several governments on how to fix there entrepreneurial ecosystems. His last visits was to Chile and Finland, and he is currently working with the US government in a project called Startup America.
Vinod Khosla is the guru of green and alterna7ve energy. His venture company, Khosla Ventures, invested in more than 44 companies in the Cleantech industry. He is considered one of the few believers in green energy, since many other VC’s abandoned this type of investments because of its long-‐term return.
Brad Feld is the guru of building startup communi7es. Brad Feld turned his small city Boulder, CU from a beau<ful small city near Denver to a factory that produce successful startups.
He is considered one the best VCs in the world and also he is part one of the most successful incubators in the world TechStars. He is currently wri<ng a book in how to build Startup Communi<es that will be released in Sep 2012.
He is the guru of the VC industry and one of the partners at Union Square ventures
In addi<on to his smart investment decisions (Twi_er, Zynga..etc) he is a person that loves to give back to the startup community. His blog avc.com is the most read blogs in the startup world and where the most insight full discussions happen. Fred Wilson also helped NY to become one of the most vibrant ci<es in the US in terms of the startup ac<vity.
He is the guru of product development and the person who invented the famous
“Lean Startup” methodology. Eric Ries denoted his en<re life to spread the idea of Lean Startup. This new methodology changed the way how entrepreneurs and organiza<ons building a new product or a new business. His method is reduced cost, <me and possibility of failure and proved to be successful in all types of businesses. Currently he works as an advisor with all types of en<<es.
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Local and regional brilliant minds that can bring a lot to the table
Dr. Naif Al-‐Mutawa
Fadi Ghandour Founding Partner of Maktoob.com, the world’s largest Arab online community. Maktoob was acquired by Yahoo! in
2010. Ghandour is also a member of the Board of Abraaj Capital, the largest private equity firm in the Middle East Founding Board Member of Endeavor Jordan Ghandour is passionate about suppor<ng entrepreneurship in the Arab world and is an ac<ve angel investor focusing on
start-‐ups in the Middle East and North African countries. He is Chairman of Wamda.com the leading online pla|orm for informa<on and knowledge on entrepreneurship in the
Middle East.
I’m a Jordanian entrepreneur and the founder and CEO of Aramex. Aramex was the first company from the Arab world to go public on the NASDAQ stock exchange.
I’m the Founder and CEO of Teshkeel Media Group (THE99 mother company). President Barack Obama praised me and THE 99 as perhaps the most innova<ve of the thousands of new entrepreneurs viewed by his Presiden<al Summit on Entrepreneurship.
Dr. Naif is considered one of the most successful in Kuwait and in the Arab world. His comic and TV series THE99 spread globally and was the first super hero series to partner with Marvel’s superhero’s (Spiderman, Superman and Batman)
Dr. Naif raised several rounds of financing from different types of investors and different countries (Friends, Angel investors, global and local VCs and investment companies)
Dr. Naif operates his business in two main offices Kuwait and New York. He has worked in two types of ecosystems and knows exactly what’s missing in the Kuwai< system to become a first class startup hub.
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Recommenda7on
Vision
Funding strategy
Fund structure
Universi7es and large companies
Focus Alterna7ve energy
Fund Manager
AKract global talents
The government should never invest directly into startups. Instead it should invest in global incubators and VC firms that will invests in Kuwai< startups
(Indirect funding)
“Create high growth companies that generates millions of dollars and compete globally”
Interna<onal serial entrepreneur with
successful track record
Divide the fund into four separate units: 1-‐ Scalable Startups Fund 2-‐ Small & Medium size Businesses Fund 3-‐ Industrial Projects Fund 4-‐ R&D Fund
The government should work in removing the restric<ons against talented labor wan<ng to work in Kuwait and establish global offices to a_ract them to work or start their companies in Kuwait
Building the future on top of our current experience in
the energy sector
Universi<es and large companies are the major source for talents and innova<on. They should work closely with the fund and should have direct shares in the incubators.
36