MENA Startups: A Step-by-Step Guide to Raising a Venture Fund

You’ve got a vision for a VC fund. You’re ready to invest in promising MENA startups. But getting from idea to launch isn’t as simple as it may seem.

Launching a venture fund is more than just declaring yourself a venture capitalist. It requires a strategic approach, a compelling pitch, and a deep understanding of the venture capital landscape. 

As Amir Farha, founder of COTU Ventures, a VC fund focused on early-stage MENA startups, puts it, "When you look back, it seems impossible, but when you're there, you're doing it. You're getting through it."

Amir, with his extensive experience in the MENA startup ecosystem, knows the ins and outs of raising a VC fund. His journey, marked by both obstacles and successes, provides invaluable insights for emerging managers seeking to navigate the complex world of venture capital. 

On an episode of the How I Raised It podcast, Amir shared thought-provoking advice and actionable strategies for emerging fund managers. 

This blog post will break down Amir's best advice on how to raise a VC fund — even if you have no prior experience.

Lay the groundwork: Refining your strategy & building credibility

Before you even think about pitching your VC fund to potential investors, you need a rock-solid foundation. This means having a clearly defined investment strategy and building credibility within the venture capital ecosystem.

Focusing on a niche: Don't try to be everything to everyone. Define a specific niche or industry you want to focus on. Amir, for example, identified a gap in the MENA startup ecosystem for pre-seed and seed investments, leading him to launch COTU Ventures with that strategic focus. Amir explains, “When I say ‘defining offering', it's like you start off somewhere, you provide a high-level pitch, but then you want to build depth and clarity around what you're doing. Just like a typical founder would when they're talking to a potential investor."

Leveraging your track record: Highlight your past successes and experiences to build credibility. Investors want to see that you have a proven track record of success. Amir drew on his nine years of experience building BECO Capital showcasing his expertise in venture capital and his understanding of the MENA market. If you're new to the venture capital world, consider building a track record through angel investing or working with an existing VC firm.

Networking is key: Start building relationships with potential investors early on. This includes family offices, sovereign wealth funds, and other VC funds. "These types of things take a long time to foster," Amir says. "You need to kind of engage with every stakeholder multiple times over a long period and kind of show progress in whatever you're doing and show momentum and show sort of insight and learning so that you build trust, and you build credibility."

By focusing on showcasing your expertise and building a strong network, you'll create a solid foundation for attracting investors to your VC fund.

Finding your champion: Why your first investor is key

Securing your first anchor investor is a critical step in raising a venture fund. This lead investor not only provides crucial capital but also validates your fund's strategy and attracts other investors.

Amir talks about his anchor investor, stating, "He was the bravest person. It's kind of like the approach we have with founders. We want to be the first one. So he was that for me for sure."

Building trust and alignment: Look for an anchor LP who shares your vision for the fund and trusts your ability to execute. Amir's first anchor investor was someone he had a strong relationship with from his previous experience at BECO Capital. This existing trust played a significant role in securing their commitment.

Negotiating terms: Be prepared to offer your anchor investor certain benefits, such as a discounted fee structure or a larger allocation in the fund. This is a common practice in venture capital fundraising, as anchor investors take on more risk by being the first to commit.

Showcasing momentum: Once you have an anchor investor on board, use their commitment to create momentum and attract other investors. "I started approaching [...] I think I had about 300 or so calls with investors that ended up coming down to about 70, including the ten that supported me early on," Amir shares. "So 60 new investors showed up over a year and a half of fundraising."

By securing a strong anchor investor and leveraging their support, you'll be well on your way to reaching your fundraising goals and launching your VC fund.

Craft your narrative: Building a pitch that resonates

With a solid foundation and an anchor investor in place, it's time to craft a compelling pitch that will attract other investors to your VC fund.

"It's not really a pitch," Amir explains. "It's just like, this is what I'm doing, and most people either want to be part of it or find MENA venture quite an exotic space that they wouldn't be interested in. So it's quite binary in that situation."

Develop a concise pitch deck: Your pitch deck should clearly articulate your fund's strategy, target market, and team's expertise. Keep it concise and visually appealing, focusing on the key information investors need to know.

Highlight your unique value proposition: What sets your VC fund apart from the competition? COTU Ventures, for instance, positioned itself as "champions of the underdog," focusing on first-time founders in the MENA region who overcame significant challenges.

Anticipate and address concerns: Think about potential investor concerns and address them proactively in your pitch. Be prepared to answer tough questions about your strategy, experience, and the market you're targeting.

By crafting a compelling narrative that highlights your fund's strengths and addresses investor concerns, you'll increase your chances of securing the capital you need to launch.

Managing the process: From first meeting to final close

Raising a venture fund is a marathon, not a sprint. It’s a multifaceted process that requires careful planning, persistent effort, and the ability to adapt to unexpected challenges. Here’s how to navigate the journey from those initial investor meetings to the final close.

Building and managing your pipeline: Create a comprehensive list of potential investors, including those you've already established relationships with and new prospects who align with your fund's strategy. Systematically reach out, track progress, and personalize your approach for each investor.

Due diligence and preparation: Be prepared for a rigorous due diligence process. Investors will scrutinize your track record, investment thesis and team. Gather all necessary documents, anticipate tough questions and practice your responses to ensure you present yourself and your fund in the best possible light.

Understanding the legal and administrative aspects: Fund formation and closing involve complex legal and administrative tasks. Engage experienced legal counsel to guide you through the process and ensure you comply with all relevant regulations.

Embrace the journey (and the setbacks): Fundraising can be a rollercoaster ride with unexpected twists and turns. Amir acknowledges this, stating, "If I look back and I say, ‘Would I do this again after what I went through?’ I'd say, man, that's so difficult that I probably say no. So I think naivety is a good thing. And I think rolling with the punches, ‘cause it'll only get better as you go." Stay persistent, learn from setbacks and celebrate milestones along the way.

Parting words

Raising a venture capital fund, especially your first one, is undoubtedly a challenge. But as Amir Farha’s story illustrates, it’s a challenge that can be overcome with the right approach. The MENA startup ecosystem is brimming with opportunities, and with careful planning, a compelling pitch and a relentless drive, you can become a part of this exciting growth story.

FAQ:

1. Why is MENA a great place to invest in startups?

MENA’s startup scene is booming, with over $4 billion invested in 2023. With 400 million+ people, fast-growing economies, and 70%+ smartphone use, there’s a huge demand for tech-driven businesses like fintech, e-commerce, and logistics.

2. What makes raising a VC fund in MENA tricky?

Unlike the US and Europe, where big institutions fund most VC firms, only 10-15% of MENA’s VC capital comes from them. Instead, most investors are family businesses or government-backed funds, which means building personal relationships is key.

3. How long does it take to raise a first VC fund in MENA?

It usually takes 18-24 months to close a first fund. Most fund managers talk to 200-300 potential investors, but only 10-20% end up investing. It’s a long process, but persistence pays off.

4. What kinds of startups are getting the most investment?

Right now, fintech gets the biggest slice—over 30% of VC funding—followed by e-commerce and logistics. The UAE, Saudi Arabia, and Egypt are the top three hubs, and Saudi startup funding has grown 5x since 2020.

5. How much do first-time VC funds in MENA usually raise?

Most first-time funds land between $10M-$50M, while bigger, more experienced funds aim for $100M+. Getting one big investor (an "anchor" LP) to put in 20-30% of the fund makes the rest of the fundraising process much easier.