Top VC Explains How Lack Of Capital In Middle East And Africa Makes For Better Investments

Forbes

Noor Sweid, the founder and managing partner of Global Ventures, says that a quarter of her firm's portfolio companies are EBITDA positive. In this interview from the Forbes 30/50 Summit in Abu Dhabi with Forbes senior editor Maggie McGrath, Sweid points out that a historic lack of capital in the region where she invests has forced startups to become more capital efficient, making it easier to for them scale.  0:00 Introduction 0:29 Noor Sweid On Investing In The Middle East & Africa 2:23 Noor On Looking For Innovative Tech Solutions 4:08 Asking Questions For The Next Level Of Healthcare Industry To Emerge 6:13 How Can Companies Be More Capital Efficient? Noor Sweid Explains 7:12 What Noor Sweid Looks For When Investing In A Company? 7:58 What Is The State Of The Global Economy Right Now?  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Noor Swade, thank you for coming to the Forbes 3050 Summit.

00:03 Thank you for inviting me.

00:04 You are a venture capitalist who said on stage today that a quarter of your portfolio, which

00:10 is mostly seed in Series A, is EBITDA positive.

00:15 And that stat made your fellow panelists kind of do a double take, like I watched her head.

00:20 How did you do that?

00:21 And do you happen to know the metrics in terms of how many other firms in the venture community

00:26 can boast the same statistic?

00:29 I don't know, but I think that no one else can boast the same statistic.

00:32 So I know it's really shared theirs.

00:35 But I think that what we're doing is pretty amazing.

00:38 I won't take credit for it.

00:39 It's the founders.

00:40 So we invest across the Middle East and Africa in Series A. The lack of capital in the venture

00:45 ecosystem historically has meant that founders are just more capital efficient to start with.

00:51 And to quantify that for you, last year, our entire ecosystem had $2.6 billion of venture

00:56 funding.

00:57 That's all of MENA, all deals, all year.

00:59 The year before was record at $3 billion.

01:02 But that's the size of our ecosystem.

01:03 So as a result, when founders start companies and they think about how do I build this,

01:08 their first port of call is not just to raise tens of millions of dollars, because that

01:11 doesn't really exist.

01:13 And even if they do raise that, they're not going to burn through it so quickly, because

01:17 they don't know if they can raise it again.

01:18 So part of it is just the adversity advantage that founders have when they are in such an

01:23 ecosystem.

01:24 And part of it is we are a B2B investor mainly.

01:27 So the business models we back are more capital efficient and can scale more quickly with

01:32 less money, which means, again, you can work to break even.

01:36 But the founders that do come in, not at break even, not at profitability, we work with very,

01:40 very closely to make sure that they are streamlined, they are quick to scale, and that they scale

01:45 with very strong unit economics.

01:47 Is there a common theme in what you're doing with those companies that are not cash flow

01:51 positive?

01:52 What's the business development that you're working on with them to get there?

01:56 Well, I think it's high level growth, so triple digit growth on its top line, but also margin

02:01 expansion on a very much bottom line, not just gross profits, but net profits, EBITDA.

02:06 Those things matter.

02:07 So we never had the grow at any cost mindset.

02:10 For us, it's always been great high level growth, but also make money on a gross level

02:16 and sometimes on a net level.

02:17 So it's not the ethos of the firm, it's more the ethos of the ecosystem.

02:21 And we just happen to be investing in this ecosystem.

02:23 Just happen to be investing in the ecosystem.

02:25 But you also told me that you look for innovative tech solutions.

02:28 So you have a lens that is strategic, it sounds like.

02:33 We are very strategic and we are thematic.

02:35 So as a former operator, so I've grown, scaled, IPO'd one company, sold another private equity

02:41 firm.

02:42 So we can look under the hood and understand operations very well.

02:45 And I think that's important for an investor to know how to do that.

02:49 And then you couple that with a strategic lens and a macro lens and the part of the

02:52 world we're sitting in as an emerging market, a very high growth market.

02:56 And the question that we end up always asking is, what are the cutting edge technologies

03:02 available in the world that can be applied here that solve problems for hundreds of millions

03:07 of people?

03:08 And this part of the world, the Middle East and Africa, 1.9 billion people, half under

03:12 the age of 30, 85% digital penetration, but you don't have, for example, financial infrastructure.

03:20 So in 2018, we were 85% unbanked or underbanked.

03:24 So you could easily build fintechs and not encounter incumbents.

03:28 And that enabled the fintech companies to grow.

03:30 So we've invested in what just became the first fintech unicorn in the region.

03:34 We did their series A four years ago, and their EBITDA is in the tens and tens of millions

03:39 of dollars.

03:40 It's a four-year-old company, but scaled well.

03:44 And then you take a look at health care, and same problem.

03:47 You have one doctor per 1,000 people.

03:49 Europe has four and a half doctors per 1,000 people, as does the US.

03:52 The real honest truth is we'll never have enough doctors.

03:55 So the question is, how do you use health tech to overcome that gap?

03:59 And now that health tech exists in that way, you can do that.

04:01 And again, no incumbents, no legacy infrastructure.

04:05 So you get to a point where these companies scale very quickly and sometimes profitably.

04:09 Today we're looking at the same questions.

04:11 Which industry five years from now is massively different to five years ago?

04:14 Where can you use technology to affect hundreds of millions of lives?

04:17 That becomes your TAM.

04:18 And for us, the answers are supply chain tech.

04:21 So we think that in this part of the world, we import most things.

04:25 So if you're going to start manufacturing, and if you're going to start thinking about

04:27 supply chains, what are the best technologies in the world for that?

04:30 And can you implement them here, where again, there are no incumbents?

04:33 And the other area that we really like and where we're investing is agritech.

04:37 So if you think about food security in this part of the world, we still import about 80

04:41 or 90% of our food.

04:42 So if you want to think about how do you grow food, how do you feed your people five years

04:46 from now, things like vertical farming will be ubiquitous.

04:50 Whereas five years ago, they were proof of concept.

04:52 So how do you enable those technologies to scale in these markets?

04:54 So when you think about the lack of incumbents and legacy, enabling new companies using that

04:59 technology to enter markets, solve real problems for hundreds of millions of people, and then

05:04 sell, that's what we get behind.

05:07 That's a lot of opportunity.

05:09 And do you think the global investment community has woken up to that opportunity?

05:14 Goodness, I hope not.

05:16 Because if they have, then you'll have this massive influx of capital.

05:20 You'll have valuation inflation.

05:22 Whereas right now, because of the lack of capital, we're able to invest that multiple

05:26 that make a lot of sense.

05:28 If everyone just suddenly wakes up and comes in here, then the valuations go up, the multiples

05:32 stop making sense, and our investors stop making as much on their returns as they do.

05:38 As it stands now, our fund one, which is a 2018 vintage, sits at a 0.8 DPI, which puts

05:45 it in the top decile performance in the world for that vintage.

05:48 We've had a few exits, but none of our winners.

05:51 But we had a few exits in 2021.

05:53 But the ability to come in at regional multiples and then help a lot of these companies scale

05:58 globally to about a dozen companies that have more revenues in the US than the region.

06:02 So once they do that, then these companies can demand international multiples.

06:07 And that multiple arbitrage is hugely beneficial to us and our investors.

06:10 It stops existing if everybody just finds out about the region.

06:13 So we should stop this interview now.

06:15 It would be in your financial interest if we did that.

06:17 I was going to ask, because you said on stage that the entrepreneurs in this region are

06:21 more capital efficient and have always had to be more capital efficient.

06:25 Can you explain what that means?

06:27 So the lack of capital or the small size of our ecosystem means that there's a lack of

06:31 capital for founders and specifically strategic networked capital.

06:35 And so as a result, when founders raise a million dollars, they will spend that in a

06:39 very particular way where they can do so much more with it than the same founder building

06:44 the same product somewhere else.

06:46 So a lot of times when international investors come and do our follow ons, they're properly

06:51 surprised at how much has been built with so little funding.

06:55 They've always been more capital efficient because of the lack of capital in this region.

06:59 And we say in the States that women and people of color are usually more capital efficient

07:04 founders than their white male counterparts because they are relatively underfunded by

07:09 comparison.

07:10 Same principle applies here.

07:12 Same principle applies here.

07:15 What's the opportunity then for you or for global investors when we look at capital efficiency?

07:20 So I think there's a lot to learn from the founders in the region.

07:22 I think especially as interest rates started to rise globally, the investor, the founders

07:27 here kind of shrugged their shoulders and said, yeah, this has been our life forever.

07:29 So we never had 0% interest rates.

07:32 So I think that the adversity advantage that they built over time is something international

07:36 founders will learn from.

07:37 I think investors have started to look more globally.

07:40 We have seen a huge influence of investors into the region over the last two years compared

07:44 to five years ago.

07:45 So for us as a firm, half our capital comes from the US and Europe.

07:49 And it's people that understand this is a gross market, they want to participate and

07:53 they want to invest.

07:54 So I think there's a huge opportunity here right now as this market grows very quickly.

07:58 So when we talk about the economic situation globally, obviously it's different region

08:02 to region.

08:04 And in the United States, we've been talking a lot about the flood of capital that we saw

08:09 in about 2021 during the pandemic.

08:11 And then there was the pullback and 2023 didn't feel so good to a lot of VCs and entrepreneurs.

08:18 I've heard some sources say that 2024 will feel better.

08:21 What's your take on the state of the market right now?

08:24 I think it does feel better than 2023.

08:26 The region lags in its economic cycles about nine to 12 months behind the US.

08:30 So whereas the US and the other markets struggled in 2022, that was our record year of funding

08:35 at $3 billion.

08:37 Compare that with when I started the firm six years ago, the ecosystem was $400 million.

08:43 So it's grown about eight times.

08:45 Last year was $2.6 billion.

08:47 So we lag on the down and we lag on the up cycle.

08:50 So I reckon that this year might be a great year for us, but it means that definitely

08:53 next year is going to be fantastic.

08:56 Well that's a good hopeful note to end on.

08:58 Any other predictions or advice for the VCs and founders watching this video?

09:04 I think build companies that tackle problems in a different way.

09:08 Don't try to think outside the box.

09:10 Let me imagine there is no box and think, here's a massive problem.

09:15 And what are the best technologies that exist in the world today?

09:17 And how can I apply those to solve these massive problems?

09:20 Noor, thank you so much for sitting down with Forbes.

09:22 Thank you for having me.

09:22 Thank you.

09:23 [END]

Category

Transcript

Be the first to comment

Recommended