ABC of Startup Investors.

This article is written by Clinton James, a Contributor Author at Startup Istanbul.

In Startup Istanbul’s event hosted by Ozan brings in a panel of Yousef Hamiddan, Sharif and Khaled who are among top investors who see through the global growth of startups.

Pertaining to the discussion are notes about why investors are sometimes misunderstood, what we should know about them, how they select and judge ideas, and why they may say ”no” to a proposal.

Commencing with Sharif, he voices that we need to understand the investor structure first because some raise money through other investors termed as LPs who ensure funds are available for the investments as GPs assess the skeleton of the funds for investment by entrepreneurs.

As a Venture Partner for 500 Stars Company and the Lead Partner for VC’s and Google Partners, he says a $10 million fund spread through 10 years can be understood through math where an investor pumps most of it in the next 3-5 years hence consolidating to $2 million a year. Through this you may ask how many fund partners are managing the fund. If they are 2 partners, then each partner has $1 million which can be distributed to 2 investments per year per partner. Therefore when talking to an investor who hasn’t understood the above funnel, they are likely to say ‘no’ because they can’t just invest because they like you, the product or the market.

Understand the investment thesis and geographic location which enables you to know what stage they invest, what they’re looking for, where they sit in the lifecycle of investments and their mandate as countries like USA’s investors have some mandate limited to only invest in USA.

Therefore, it’s not because investors don’t want to communicate, i.e. via emails, but because they get 1000s of irrelevant information, yet they need to prioritize.

Khaled, a Managing Partner of Wonder Capital has been able to make 17 investments especially in Turkey and created 4 different startups, emphasizes that the idea is always very critical as they spend a lot of time scrutinizing the theory. They go in depth to understand the profile of the entrepreneur, their global geographic thinking, and then further see into the investment processes as they come in from the Seed level, then Series A and then B which have quite a gap compared to Series C. The bulk of funds mostly checks into Series A and such investors at first glance would run-through a prism of the value chain, sector, among other elements to know whether it’s worth to invest in.

As Ozan feels there’ll be a massacre of accelerators because most of investors have no tangible success stories, Yousef affirms it as challenging to manage especially new ecosystems and pushing startups of a specific value. They need fundamentals to change, where funds and margin fee have to increase in size and the in-kind has to drop down potentially to zero if possible, so that there’s more cash available for startup as the equity maintains between 7-10%.

Therefore there’s need for financial validation and if we are unsuccessful in it, then we’ll face a greater challenge in regards to existence.

─ January 2, 2020