As published in Forbes Middle East, October 2017.

In startup circles, Wamda is more than a name. The Wamda Capital team is one of the most active startup investors in the Middle East.

The company has two distinct parts: Wamda as an online platform that celebrates and encourages entrepreneurship in the region through original articles and research, and its fund, Wamda Capital, which raises money from investors for startups. Just before it was founded in 2014, the region’s startup ecosystem boomed, and entrepreneurs rode the wave of widespread digital adoption among Arabs.

“Wamda was, and still is, a pioneer of the whole space and the whole ecosystem,” says Ray Dargham, founder and CEO of STEP Group. The Wamda Capital team, led by partners Khaled Talhouni and Fares Ghandour, and chairman Fadi Ghandour, invested $500,000 in his company in its January 2017 Series A round. Dargham is the first to admit that entrepreneurship has changed drastically since he started out, and the venture capitalists agree.

“We’ve had a change in the nature of the companies we’re looking at, the entrepreneurs are much more sophisticated, the companies are much more mature, the market is more readily absorbing their ideas,” says Khaled Talhouni, managing partner at Wamda Capital. “I have had to rethink about investing, how to think about these businesses and how to approach the market.”

These are not words to be taken lightly. Talhouni’s entire career has centered around investing in early stage startups in the Middle East—he joined Wamda Capital with more than eight years of experience. Still, he maintains that the change has been so radical that his experience before the startup boom is probably not relevant in today’s startup ecosystem.

The investment team at Wamda Capital has banked on that shift: through its first fund of $70 million, launched in 2015, it has invested in 22 technology-centered startups, including Careem, The Luxury Closet and Mumzworld. Investors in the fund include Abraaj Group, Zain Group and International Finance Corporation, which invested $14 million and is part of The World Bank Group. But the company’s leaders are not just trying to raise funds. They’re out to disrupt the business that finances disruption.

Startups are centered around disruption. Successful companies are able to totally disrupt an industry, like Uber did to transportation or Amazon did to commerce.

“You hear a lot of VCs talking about disruption, saying ‘we invest in disruptive industries, disruptive companies.’ I think few take stock in the fact that our industry is being disrupted,” Talhouni says. “Being aware of that and cognizant of that is key to our success. I spend a lot of time thinking about that.”

Traditionally, venture capitals raise funds from investors, acting as a mediator between startups and capital. “A lot of the better talent feels a lot more comfortable when someone like Wamda Capital, a fund established in the region, approaches them and gives them the vote of confidence in the company rather than if a startup were to approach them alone,” says Fares Ghandour.

But he and Talhouni see this as a model that can be disrupted. Their vision: evolving Wamda Capital into an entity that does more than raise funds and offer mentorship. They want to build up the startup ecosystem and invest in it and monetize it differently. One part of that is encouraging entrepreneurship outside of the scope of investments.

“Even before Wamda Capital was our investor we received a lot of support from them for our conference and that really helped to have Fadi [Ghandour] and Wamda Capital as a brand to be there pushing for what we were doing, even when we were smaller,” Dargham says.

Fares says that it’s about more than money on several fronts—they don’t want to support startups solely by financing them, and they don’t want to support entrepreneurs whose main goal is to exit the company. Wamda Capital’s value add team works to help portfolio companies with recruitment, scaling and legal issues, among others.

But investing is a large part of the equation, and the partners at Wamda Capital believe that the way it is currently done is inefficient.

“Venture capital is an industry that invests in businesses that are data driven and disrupt traditional businesses because they build up products that are based on that data,” Fares says. “Venture capital as an industry, globally, for the most part, is not that. We are not as data driven as the businesses we invest in.”

He believes that venture capitals should, and will, become more data driven, relying less on venture capitalists’ “gut instinct” about an entrepreneur and ultimately blurring the lines between an investor and a limited partner—limited partners invest money but don’t share much of the day-to-day responsibility or the business decisions a startup makes.

One piece of the puzzle: integrating the Wamda platform and the company’s fund, Wamda Capital. “It’s not something we’ve figured out, but it’s something that we’re constantly thinking about,” Talhouni says.

In the meantime, the firm continues to grow in size and scope, and the partners are hoping to further develop its value-add team and write bigger checks for startups. It also plans to expand its presence in Turkey, Pakistan and East Africa, where it invested in Kenya-based food supply platform Twiga Foods in July 2017. Fares says they look for markets with a similar story to the Middle East, with fast consumer adoption, low capital and a growing startup ecosystem.

Raising a fund isn’t easy. “It’s a bit of thankless process, it’s long and arduous, and I think a lot of our entrepreneurs feel it when they’re fundraising from us,” Talhouni laughs. “I think very few of the entrepreneurs on the other side of the table appreciate that we go through a similarly painful process.”

Investing in startups has its challenges; even the most promising startup isn’t a sure bet. “The very nature of what we do is trading risk, it’s part and parcel of what we do,” says Talhouni. “You take a risk every time you back an entrepreneur.”

The partners also need to invest in the right sectors—Fares notes that focusing on one sector can be a risk, because investors’ money relies on the success of one industry. But he also says that it’s important to diversify across years, spreading out investments and being selective with startups so the fund lasts over a longer period of time.

But missing an investment is also a risk. “We turn people down every day, multiple times a day,” Talhouni says. “It’s an unpleasant experience, but because a lot of entrepreneurs, because they pivot and change and develop, there’s a very good likelihood that they’ll come back and we will invest.”

One near-miss: Fadi Ghandour, the founder of Wamda Capital, recalls meeting with Careem’s founders and turning them down at an early stage before joining in the ride-hailing app’s $350 million Series D round, which was led by Rakuten and STC Ventures and led to Careem being valued at $1 billion.

The Wamda Capital team typically invests at the Series A level, a startup’s first round of funding. Series A investments usually go up to the $5 million mark—Wamda Capital invests between $1 million and $5 million in that early stage.

They decide the amount based on how much the startup needs to survive for around 18 months including funding from other investors in the round, and the partners take into account Wamda Capital’s own funding plans.

Fares notes that Series A is typically where investments are most necessary. “That’s the point when the company wants to shift from an early stage startup to a scale up,” he says, referring to the point when startups try to expand their business outside of the country or city in which it was founded.

Scaling up in the Middle East is uniquely difficult. “It’s quite a complicated market that we live in,” says Fadi. “Scaling is the biggest challenge. Moving from Dubai or Jordan or Egypt and then going to Saudi Arabia, these are all such different countries.”

He is sometimes asked about how the Middle East can replicate Silicon Valley. His solution: create a unified market across the borders of Arab countries, so that regulations are uniform and some scaling issues can be minimized.

But Wamda Capital’s partners emphasize that this is also an opportunity for entrepreneurs in the Middle East—since the region is difficult to penetrate and presents specific customer needs and demands, it’s more difficult for outside companies to build a presence, leaving space for entrepreneurs to grow.

Fadi compares the Middle East to the U.S. They have similar populations, but for a startup to scale in the U.S., it simply has to spread across one country. In the Middle East, it has to reach 22 countries with totally different circumstances, infrastructures and, in many cases, different cultures.

For example, people in the U.A.E. and Lebanon have a different infrastructure and standard of living, with the latter facing lower internet and credit card penetration. An entrepreneur from the region has a better understanding of these differences than a larger company from the U.S. might, making it easier to navigate the region.

Another benefit: some global industry leaders might prefer to acquire a local startup that knows the region instead of expanding in the Middle East on their own, like Amazon’s acquisition of Dubai-based ecommerce platform Souq.com in March 2017.

Fadi would know—he founded global logistics giant Aramex in 1982 in Jordan. Now it operates in 66 countries. He sold his shares in the company in 2016 to focus on Wamda Capital, though he remains the vice chairman of Aramex. He also exited his startup Maktoob, an Arabic web portal, to Yahoo in 2009.

“My experience of running a business from startup to going public and everything in between, that is what I bring to the table,” says Fadi. “Wamda Capital is an entrepreneur-led VC and an entrepreneur-friendly VC.”

Indeed, Talhouni notes that starting a business is an education in itself, and they often take note if an entrepreneur who approaches them has failed to start a business in the past. “There is so much value in having an entrepreneur who has been through that before, because there will be more known unknowns,” says Talhouni. “More things that that entrepreneur knows to look out for. It is quite invaluable.”

But Fares notes that the “culture of failure” isn’t as widely accepted in the Middle East as it is in Silicon Valley. “In the Bay Area, it’s a lot more expensive and competitive, so startups shut down when the business is not working,” Fares says. “In the Middle East, they coast and basically exist on life support, on a slow burn.”

The 12 employees at Wamda Capital screened around 750 startups in 2016, and they expect to push 1,200 this year, each of whom they will meet for 30 minutes. Their takeaway after hundreds of meetings: simply building a company around a good idea is not enough to create a successful startup, the key is a strong founding team.

“You may have a great business, a great concept and the due diligence on it checks out, but if you don’t have a team that you can have 100% confidence in, we have seen that that doesn’t work,” Talhouni says, noting that having a fine-tuned idea isn’t as important. “Companies at an early stage tend to evolve and develop in different ways, so the idea that you have set up in the beginning has to evolve and pivot and change over time.”

With Talhouni and both Fadi and Fares leading the fund, Wamda Capital’s own team is as strong as ever.