Where venture capitalists are inclined to invest in the Middle East

What are the top things you look at when funding potential startups?
There are several key aspects we take into consideration when we evaluate a startup, before investing in it. Firstly, we make sure that the founders and the core team have relevant backgrounds and can execute the idea. Then, we look at their business model. The company should demonstrate a clear path for building towards a sustainable business. They should know their USP, value proposition, and have concrete go-to-market and growth strategies in place. As a blockchain-focused VC, we must make sure that the business’ blockchain and tokens have a real web 3.0 use case.

The size of the market is also an important metric upon which to make any investment decision; it should be big enough. Timing is critical, too – the market should be ready for the technology that the startup can offer. Furthermore, it’s vital that the startup has the right advisors and early backers on board to guide them and help them make the right connections.

Another essential selection criterion is the community around the startup: how big is their existing following? Are people already engaged? A strong community is an early sign of product-market fit. Lastly, the valuation of the startup should be sensible for the stage it’s in.

In the post pandemic world, across which sectors do you see most startups coming up? Is this a sustainable trend?
Since we only look at web 3.0, blockchain-focused startups, we can only comment on companies operating in this sector. We observe innovation happening in the DeFi, GameFi and infrastructure spaces. We believe that blockchain is still in its infancy and innovations will keep coming. We are looking forward to being part of some large milestones for blockchain, like its first billion users; the “mass adoption of blockchain” is hugely exciting.

Within the regional ecosystem, where are VCs most inclined to invest? Are regional trends different from global ones?
Blockchain, or web 3.0, is a global innovation. Every startup we invest in builds their projects to succeed globally, not just regionally. Someone sitting in one part of the world can solve problems for people in another part of the world. The concept of region has been completely overturned by new-age web 3.0 startups, which are global in nature.

Will non-traditional investors continue to contribute to VC performance this year?
The venture capital business is facing many challenges at the same time, from deteriorating public market performance, inflation, rising interest rates, and economic and geopolitical instability. In Q1 of 2022, 4,822 venture capital agreements were done at a value of $71bn, much less than the $90bn of VC investments in Q4 2021. Non-traditional investors such as private equity companies, hedge funds, corporate venture capital groups, and sovereign wealth funds continue to contribute significantly to VC success. They contributed for $52bn, or 74 per cent of VC deal value, in Q1. Over 800 megadeals were finalised in 2021, which was greater than the total number of deals concluded in 2018, 2019, and 2020 combined. More than 700 of the 800-plus megadeals executed in 2021 obtained funding from atypical VC firms. These unconventional VC investors were swayed by VC returns, which have been the best performing private asset class in recent years.

How do you see 2022 perform and close?
Even though the overall market scenario is bearish, as a VC, our time horizon is longer than one or two years. By nature, we are not market speculators, since we are in the industry for the long-term. We are still investing and will keep investing in the coming months and years as we truly believe in the power of blockchain in shaping the future. Having said that, macroeconomic conditions are not looking great, as we are witnessing with the global markets right now. Inflation is on the rise, interest rates are increasing, and global economies are facing pressure. These issues will play a big role in the market in the short-term. Always solve customer needs; do what is best for the customer rather than what is easy for the company. Proactively solicit customer feedback. Finding product-market fit is difficult and iterative. Finding a way to launch a product early will provide so many signals to accelerate your understanding of what customers need and how to reach them. If you’re on to something and it works, customers won’t care. The early feedback creates more confidence that you’re investing your resources in the right direction.

Vineet Budki is the managing partner and CEO at Cypher Capital

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