The Middle East is quickly becoming a hub for entrepreneurs, with many successful businesses finding their roots in this region. This boom brings with it an influx of investors looking to grow new ventures. In 2018, over 155 institutions invested in MENA based startups, with 30% of these investors coming from outside the region. UAE and Egypt accounted for the bulk of startup investment into the region, accounting for a combined 52% of deals, according to the 2018 MENA Venture Investment report by Magnitt.

 

Business incubators and accelerator programs are rapidly growing, and there are several government funded grants and private sector funded prizes to be claimed by driven entrepreneurs and innovative ideas. For investors looking to become a part of this boom, here are a few tips on how to make sure you get the most out of your money:

 

Diversify your investments
Most angel investors tend to have a diverse portfolio of businesses they invest in, with the full knowledge that most of these will fail in the short term. Failure rates tend to be high among startups, and it is key to remember this as you plan your investment. There is a high possibility that you could lose all your money. For this main reason, it is key to start small and work your way toward bigger ventures. Build a portfolio with a very diverse range of companies, and study your investments well enough to know which ones are doing well and which ones are in need of further guidance and support in order to do well.

 

Choose people not ideas
Many entrepreneurs may have the same idea, however only the ones who are able to execute their idea best, reap any rewards. When you’re investing in a business, you’re investing into the team and leadership behind that idea, rather than the product or the USP itself. Our advice is to understand and get to know the people driving this business, as they will be the lynchpin that either makes or breaks the business. A poorly formed team, or the wrong entrepreneur has the ability to sink your investment before you can gain any returns.

 

Expand your network
If you’re wondering where to find your new venture, you won’t have to look too far. The key is to constantly be working on building a network, whether you’re actively looking to invest or not. Startup networking events are a great place to start, as they can get you in touch with aspiring entrepreneurs as well as other investors who could recommend or guide you through the process. Building a professional network is often like watching plants grow. It takes time and might feel like you’re not really doing anything, but you can be sure to reap its rewards in the longer term.

 

Another option is to join an angel network, however these are very selective and exclusive groups that require you to have a certain net worth or annual income to be a “certified” investor. If that isn’t you, crowdfunding might be your best bet! There are various platforms (increasing each year) that can connect you with your next investment, and with transaction costs at a minimum, you can put in as much money as you’re comfortable with!

 

Do your due diligence
Let’s say hypothetically, that all of the above tips work. You find a couple of incredible startups with a USP that you believe in, driven by a great team and you’re ready to invest. This would be a good time to slow down. While this is a given, what you really need to do is take a step back and do some thorough due diligence on the business you’re about to give your money to. Who are the core drivers behind this idea? Do they have a history of entrepreneurship or is this the first time? What do they plan to do with your money and how are they going to repay you? Do they have any pending debts or shareholders that need to be bought out? What does the shareholders agreement look like? What are their goals and plans for the short, medium and long term, and what resources do they need besides money to achieve these goals? These are only a few of the questions you should be asking.

 

Overall, as an investor you must always be prepared for the reality that things change. Business ideas may pivot, teams can change and unfortunately, they might fail. The best way to protect yourself is to prepare for such contingencies by building a strong portfolio of investments, where the few hits can make up for the many losses, and only invest the money you can afford to write off. If at this point you’re wondering why anyone invests in startups, remember that the greater the risk, the greater the rewards tend to be as well.