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Month: March 2017

Mistake 3: Wrong Fund (or Incubation)

Mistake 3: Wrong Fund (or Incubation)

Securing your startup financially is one of the most important achievement you should look for. You had an idea, you built a prototype, you assembled a team, and now it’s time to bring some money to grow the idea to a fully sustainable business.

As mentioned in many books and articles, there are many ways to secure a fund, either through family and friends, or through bootstrapping, or having an investor on board, etc. However, since I only have an experience with the last approach (securing an investor), I will be talking about that here.

Please note that I am not here to lecture, I know sometimes the entrepreneur feels so desperate for fund that he doesn’t care much where it is coming from. This is totally understandable and even sometimes encouraged. At the end, to struggle with some challenges with the investor is much better than seeing the idea die because of the lack of fund.

Anyway, IF YOU HAVE A CHOICE, I would highly recommend thinking wisely about the type of investor you are bringing on board. This decision could be the difference maker in terms of succeeding or failing. Now, I know I might say this exact statement for many of the mistakes in this series, partially because in reality they do have a large impact and partially because I lived through them and some mistakes could affect us more than other startups, as each startup has its own flavor and nature.

Depending on your stage and progress with your startup, you might need different types of investors. Below are some examples:

  • A startup might need only cash from the investor, without any need for management or development support. They might be advanced with their product and created a sustainable revenues, and now they just need to grow
  • A startup might need cash and guidance, as they are still in the early stages and the experience of the investor will help them make better decision. In this case, make sure you choose the right investor who will add value and who has invested in similar companies before. A lot of investors give promises of support and help, but when the “wind” hits the fan, you might be left all alone.
  • A startup might need only strategic partnerships and connections and they use the investor’s big outreach for that, while trading in return some shares

The point here is that you have to define the purpose of the fund / incubation you are targeting, if you define the end goal then you can investigate whether this investor is fit for that journey or not. Picking the wrong investor could not only harm your business growth, but it could also harm your potential for partnerships and further rounds of funds in the future. I can’t stress it enough, BE CAREFUL. Here are some points that could help you tackle this:

  • Does the investor (or the investment team) have experience in your line of business?
  • Did the investor (or the investment firm) invest in similar companies? and if so, were they successful? Visit these companies and learn from them about the experience with the investor
  • Does the investor’s expectations match yours? For example, if you are B2C focused, would they be? if you are looking to gain user base not revenues, will they support that?
  • Is the investor capable of assembling a great advisory board for your startup? Do they have the connections?
  • What other support could the investor / incubator provide? (marketing channels, sales connections, business partnerships, financial knowledge, etc). Obviously the more the better.
  • Can the investor be also a client? (directly or through a sister-entity)

Even sometimes you might feel option-less, push your creativity to the limit and try to find other options in order for you to think better and who knows, maybe negotiate better.

The more efforts you put into securing the RIGHT investor (incubator), the bigger chances of success you would have.


Mistake 2: Wrong Location

Mistake 2: Wrong Location

Say you assembled the team, and you are ready to share with the world your genius idea. The next question would be, where should my company be located?

Now, I understand that some ideas and startups can work anywhere anytime given the nature of their business, but nonetheless you still need a location of some sort to handle the legal matters such as CR (commercial registration, no not cute rabbit), the financial transactions (getting paid and what not), the documentation of shareholders agreements, and others.

A friendly alert: be careful of your choice as it could impact the future of your business dramatically.

In our case for example, we decided to locate our business fully in Saudi Arabia. Now that had its advantages and disadvantages, but we agreed that it’s the location that makes sense for us.

Here are few things to consider while thinking of your startup location:

  • How easy is it to set up the legal entity? (you can use the “Ease of Doing Business Index” as a reference)
  • What type of investor are you looking to attract? (local vs international, is there a certain risk that might discourage international investors? laws and regulations that protect both you and the investors)
  • Where do you expect the biggest chunk of your revenues to come from? (online vs offline, which country, etc).
  • You have to also consider the social norms in the location, and the views of local companies vs international ones.
  • How efficient is the payment system in that location, and does it have several options? (for example credit cards in certain countries are not as common as others)
  • (—>  this is a commercial break .. in case you got bored of this article already <—-)
  • Trade regulations (specially external ones like export and import, customs, etc)
  • Taxes and IP / patent registration

Finally, in brief I would highly recommend avoiding registering your company in a place where it could:

  • Give you a lower level of protection for your own IP, ownership, or personal liability
  • Hinder your business progress by having complicated and inefficient regulations and laws (where you end up spending a lot of money and effort to deal with legality that you lose focus on your core business)
  • Hinder your company’s growth and potential for international markets / partnerships


Obviously, I can’t cover all risks and issues that could result in choosing a certain location for your startup, as I am not the oracle of that topic, and for sure there’s no such location as the perfect location, but all what I am trying to say here is that please think carefully before registering your company somewhere and make sure it has low risks on your business.

Thanks for reading the second article, almost there, 38 to go.


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