What Should Define Venture Capital Investment Strategy into Tech Startups in Today’s Global Recession?

27 Jan, 2009

As USA is already in recession, UK yesterday has been officially in recession and oil prices dropping, The economic outlook in the Arab world, especially in the Arabian Peninsula is gloomy. So I have asked Herve Cuviliez the managing director of KuvCapital a seed investment venture firm that has offices in Lebanon, France and UAE, (Afirca office is planned for this year) to write this guest post, many thanks to him. You can meet Herve during ArabCrunch DEMO next month where he will be a speaker:

PS: if you wana be a guest writer to AC email me at: editor{aT}arabcrunch[dot]com.

We are supposed to live in the toughest recession since WW2, and each day brings its flows of bad news. I might sound over optimistic, but I believe, we in this industry, have known harder times with the dotcom bubble burst in the late 90s.

How can I say that while this recession is just starting and being predicted to be the longest recession ? Well, this time, nobody has a doubt about the future of our industry. While during the dotcom bubble burst, we were treated as witches and we had to spend more than 3 years convincing people of the ICT potentials. 

Today, technologies are everywhere, reshaping industries one by one (music, media, you name it; even politics with the recent election of Obama –and his use of Social media-). These are a major differences, I believe the future will be brighter and those who will make it through can expect strong exits.

In the Arab world, technologies can even accelerate and reshape some industries and cause shifts, as theses industries (Media, Advertising, and Retail) still in its early phase. Especially, the advertising one supposed to fuel a large number of online businesses in the region.

Online spending are around 2% of marketer’s total media budget where in Europe it’s more than 12% and 25% in the US. 

Having their budget squeezed, marketers might take a closer look at the online advertising. Effectiveness and accountability are two strong values in recession period.

But today we are in a tunnel and, even if we know there is light at the other end, we don’t see it. It might be 6 , 9 or 12 months. Editor note (might be even years to come.)

So in this gloomy economy – rare cash – and potential bright future conditions, what should be our investment strategy as venture capitalist?

First of all, we think we have a good momentum. Entrepreneurs are more realistic and motivated, valuations are fair, and competition is weaker.

 There are still many opportunities to invest in tomorrow’s winners, but some rules should be applied:

1) Businesses, once the money is raised, it has be sustainable for 12 months with very low revenues, especially if you have an advertising based business model.

2) Expenses have to be kept to the very minimum. As we cannot project the end of recession, available cash is precious.

3) More than ever, don’t invest in a “me too” projects, but in strong ideas that have a leadership potential, only them will survive.

4) In these uncertain times, trust your instinct and your experience more than your spreadsheet.

5) Estimate a fair valuation for both the entrepreneur and the investor. Don’t take an unfair advantage of your investor position in these special days. It’s a source of demonization for the entrepreneur, especially when he will have to strongly tie his belt.

The last lesson, we should remember from the dotcom burst, we as an active lobby have to do -as members of the Arab world ICT community- is to promote the benefits and the vitality of our digital economy. 

The more marketers – CEOs – influencers will see our business as an opportunity, the quickest we’ll move through the recession.

We will have dark moments ahead of us, but keep in mind -if you will get discouraged- that after the dotcom bubble burst, we had the Web 2.0 boom!

So let’s fight hard, we will make it.

About Herve Cuviliez:

Hervé is a VC and a serial entrepreneur has been an executive in interactive agencies for more than a decade, he co-founded his first webagency (CreaHTM) In france in 1996 with Ivan. He  also has been a technology investor since 1999.

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  1. Habib  |  January 31st, 2009 at 9:46 AM #

    Very interesting perspective …

  2. Isabella Edwards  |  October 5th, 2010 at 9:16 AM #

    Online business are great but it is hard to start and succeed in it~;;

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