Chairman of Mir Group, entrepreneur and angel investor, Shama-e-Zaheer, reflects on the importance of angel investment, what he looks for when he decides to invest in a startup, importance of having a sound operational model, maturity of local startups in Dhaka, what makes a great founder and his advice for early stage entrepreneurs.
Future Startup
First of all, what do you think about investing in an early-stage company and about investment in general?
Shama-e-Zaheer
Both from the investor's perspective and the entrepreneur's perspective, angel investing is hugely important. From the entrepreneur's perspective, it is important because debt is so expensive in terms of obligations, i.e. you have to make interest payments and principal repayments even when your cash-flow is not positive. In that respect, it makes sense to actually give up some equity and let the angel investor's share some of the risks.
From the investor's perspective, there are wonderful opportunities out there that, if carefully chosen, can generate a number of benefits. One thing I really believe in that the CEO of a major VC firm once said about angel investing: if you lose, you lose only 1 x amount of the money, but if you gain, you potentially stand to gain a significant x amount in return.
So, an angel investor,, who knows what s/he is doing with the money and maintains due diligence, is sure to get return on investments on a number of different venture in the long run.
It does take time, of course. It is only for the accredited investors in the sense that in angel investing you need to understand that patience and due diligence are two of the most important things.
The first thing I look for is hunger. And the second is morality. I think hunger tempered by a sense of ethics is what differentiates an entrepreneur from somebody who is just out there ready to take any means necessary to make a quick buck.
Future Startup
So, you've already invested in a company in Bangladesh.
Shama-e-Zaheer
Yes, I have recently. I sat with a group of entrepreneurs first and among them I found one particular entrepreneur more enterprising, so to speak. So, I invested in his venture which brings to my main point. I believe which many other investors might strongly agree with that it's not the business we necessarily invest in, rather the entrepreneur herself/himself. Because, at the end of the day, the things that count is whether the entrepreneur is serious and passionate about what s/he is doing, whether they are both conscious and conscientious about any form of financing that they receive and about the fact that they have to generate return on that. That is what determines whether an investment is attractive or not.
Nowadays even pivoting is possible. Your business model or idea/vision might not turn out to be great. But then you can pivot to a relatively more successful one. And ultimately the success depends on the entrepreneur.
Future Startup
You believe that an entrepreneur is more important than an idea or business. So, what kind of characteristics or qualities you look for in an entrepreneur when you decide to invest in?
Shama-e-Zaheer
The first thing I look for is hunger. And the second is morality. I think hunger tempered by a sense of ethics is what differentiates an entrepreneur from somebody who is just out there ready to take any means necessary to make a quick buck.
So, basically, I look for or I prefer working with somebody who has the hunger to achieve something, to solve a problem, ethical about how s/he goes about it, and who's in the game for the long haul.
Business models and revenue models have become relatively easier in the recent times. Traffic now translates into revenue; data translates into revenue; proprietary technology translates into revenue. So, it's not the revenue I am too concerned about; it's the viability of the operational approach to and the passion behind the concept that I look for when someone comes to me to pitch an idea.
Future Startup
Do you have a list of sectors you are interested in investing or you are sector agnostic?
Shama-e-Zaheer
I'm interested in a couple of sectors. The tech, in particular, has to offer a vast array of opportunities that is yet to be explored.
I'm also interested in the finance sector, specifically in mobile financing, and data business, not large or small data but intermediary data to work within an organization not essentially across companies.
Future Startup
What is the process of pitching a business idea to you? What are the qualities do you look for in an idea or a pitch?
Shama-e-Zaheer
Actually, I look at the person. I try to understand how passionate s/he is and how truly s/he believes what is being pitched. Passion is although not the only thing I look for. I also assess the logic in the idea--both business and operational, because, in my opinion, if you have a sound operational logic, business will eventually follow.
Business models and revenue models have become relatively easier in the recent times. Traffic now translates into revenue; data translates into revenue; proprietary technology translates into revenue.
So, it's not the revenue I am too concerned about; it's the viability of the operational approach to and the passion behind the concept that I look for when someone comes to me to pitch an idea.
By operational model, I mean solving any tangible problem in a feasible manner. Sound operational model means meeting a need that exists in the market that was not sought after before.
Future Startup
You mentioned that you discussed with several early-stage entrepreneurs about investment. What's your take on what is going on in the Bangladesh startup space?
Shama-e-Zaheer
I think this is true for any country as it is for Bangladesh that only a small number of startups will be successful and those are actually run by entrepreneurs who are really serious about it.
Talking to different early-stage entrepreneurs, I've gathered that there's somewhat an early rush to get angel funds among them, even when they're not prepared or don't really have an operational model.
I think the majority of the startups out there are falling victim to this rush. But there obviously are startups, maybe only a handful of them, though, who are really serious, know what they are doing, and will actually be able to scale up the business in the future if provided with proper financing and guidelines.
Future Startup
How do you define a sound operational model?
Shama-e-Zaheer
By operational model, I mean solving any tangible problem in a feasible manner. Sound operational model means meeting a need that exists in the market that was not sought after before.
You can't invent a problem and then solve it. You can't reinvent the wheel or solve a problem that has already been effectively solved by others. The only thing you can do is to take a need that has not been largely met. So, an op-model needs to be inventive and disruptive.
Future Startup
What suggestions would you give to early-stage entrepreneurs looking for funding?
Shama-e-Zaheer
First of all, ensure that you can generate enough cash-flow to compensate these angel investors for the risk they are taking.
Second, do not rush into raising investment. Bootstrap your startup, even if it seems difficult. Go as far as you can with your money or funds from your friends and family. Have a very lean startup. Make sure that you have some form of evidence that your idea will not die out.
On the other hand, this is what I have to say to the angel investors: a lot of people say that angel investing doesn't pay much, rather only VCs and late-stage investing only yield profits. This is only true if you invest too much or if you get diluted. So, ensure that you have enough provisions in case the startup dilutes when it grows. And make sure that you invest in growth.
Future Startup
For the investments you've made what kind of time frame you are looking for to get the return?
Shama-e-Zaheer
At this point, I'm looking for at least two and a half year to three years. Having said that, it is possible that I may not realize that return. I may go on to re-invest that for over the next seven to ten years.
Do not rush into raising investment. Bootstrap your startup, even if it seems difficult. Go as far as you can with your money or funds from your friends and family. Have a very lean startup. Make sure that you have some form of evidence that your idea will not die out.
Future Startup
How do you work with your investee companies?
Shama-e-Zaheer
I follow an 'arm's length approach' when it comes to working with the companies I have invested in. I provide them necessary guidance, but I try no to get in their way. Because they are the entrepreneurs. They came to me because they know they can execute it. If I don't believe in their potential, I shouldn't have invested in them in the first place. As I've invested, I actually believe in them and their ability to carry it out.
But, at the end of the day, there are certain milestones that I look for. These milestones must be achieved. That's what I always keep reminding them of. And I give them advice whenever they have problems with achieving them.
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Interview by Ruhul Kader | Transcription by Rahatil Rahat
