An ideal stage of any system, natural or artificial, is self-sufficiency. As such, a country that is genuinely focused on sustainability should ultimately/ideal be developing an ecosystem that can foster innovation and unleash the potential of the people within. This leads to the agglomeration of talent, which ends up making a nation sustainable and robust.
Qatar and the region are going through such a transformative phase, and the region realized that Venture Capital is one of the foundations of the journey.
Several factors need to come together to form a virtuous cycle. One of the fundamental elements that drive venture is the availability of capital. Capital availability is the spark that lights ideas and encourages entrepreneurs to take on the journey, which in turn creates a successful startup, talent attraction, and a few of the talents creates a new type of offering or value add to the existing players in the system. And VCs gravitates towards those hubs with entrepreneurial activity--forming of a virtuous cycle.
However, access to capital at inception, a higher number of startups, and a talent pool will not alone ensure success. Access to capital has to be there throughout the various stages of the venture life cycle of a company.
First, for investors (angels, or micro VCs or early-stage VCs) and entrepreneurs, being close to each other is mutually beneficial. VCs prefer being close to startups, especially angels do not prefer investing in a guy far away, and the entrepreneur does not have the network to seek funding from someone outside of the ecosystem--it is uneconomical at this stage.
As startups slowly get bigger, they would need more funding from late-stage VCs. At this level, it becomes a little complicated for existing, early investors to participate in ever-increasing rounds or lead new rounds in their own portfolio company at a higher valuation without third party validation. So, as companies start to grow and move through various stages, an ecosystem needs to make access to late-stage capital available.
I do believe that GCC nations are doing a lot more in terms of supporting ideas at the early stage. For example, Qatar has devoted several entities to spark the curiosity of entrepreneurs via grants, product development fundings, accelerations, and incubation hubs. Dubai is way ahead of the crowd, not only making capital available but also in easing regulations, a crucial factor in building ecosystems.
Further, realizing the problem mentioned above, several institutions have come up with independent VC funds that can evaluate and invest in these incubated/accelerated companies. However, this solves the problem of giving seed or series-A funding beyond that the companies should be scaling outside the country or else attract capital from outside.
The truly talented entrepreneurs realize this imminent problem at the outset, which makes them gravitates towards an ecosystem with balanced early and late-stage investors and talent pool. Such a move is reasonable because entrepreneurs should be in a liquid market with value-adding VC partners than with some wannabe VC in a developing ecosystem. As often quoted by Vinod Khosla, about 90% of the VCs destroy value, and I am sure most of them are the wanna-be-kinds. However, this is a significant blow to building an ecosystem in the home country.
Fliping the perspective to late-stage-outside VCs, late-stage VCs by size have networking access and compelled to spread odds across various sectors, and geographies are on the hunt or nomadic mode. Unlike early-stage investors and founders mentioned above, these guys are economically motivated to travel across countries to pick the right companies. With size comes more resources to maintain and manage companies from far and late-stage startups do not need continuous VC involvement as in at the early stages.
So, the onus is on the institutions with the mandates to build ecosystems to find the one remarkable idea at the outset and bring into light that can attract smart money from abroad. You do this once or twice, and in a few years, you are looking at kick-starting the cycle.
This task possibly cannot be achieved by one institution working alone, but the concentrated efforts of many institutions: grant givers, incubators, accelerators, angels, and early-stage VCs, etc.
Local capital availability per startup has to be readily available at the early startup phase; then, the batton can be passed on the outside VCs to take these startups through the journey. In my opinion, an early-stage VC in a budding ecosystem is not suitable for a fast-growing company--to do great things, you need great people.
So, in summary, what I am trying to say is that the problem of building a sustainable VC ecosystem is more like building a marketplace. It takes time and the right balance of providers to user ratios. In our case, the right balance of early to late-stage VCs vs. high caliber of entrepreneurs working in exciting (or at least me too) innovations early on.
Notes:
Here's an example of how Indiana built its VC ecosystem and how the availability of capital and early success stories cascaded. https://medium.com/swlh/how-indiana-became-the-next-big-startup-tech-hub-258ea19bf017
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