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How Should a Government Invest in Startups?

The report was created for Kuwait Fund of SMEs, but I'm sure it can be used by any government considering to invest in startups and to help in establishing a healthy Startup Ecosystem.

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How Should a Government Invest in Startups?

  1. 1. How Should a Government Invest in Startups? (Report done for Kuwait Fund of SMEs) Done by: Abdullah Alshalabi Email:
  2. 2. Table  of  Content  1.  The  purpose  of  the  report………………………………………………………..............  p2  2.  Introduc<on……………………………………………………………………………………......  p3  3.  Execu<ve  summary…..………………………………………………………………………….  p4  4.  Common  misunderstandings………………………………………………………..……..  p5-­‐7  5.  What  can  we  learn  from  previous  experiences?  ………………………………….  p8   a.  Chile……………………………………………………………………………………………..  p9-­‐14   b.  Finland………………………………………………………………………………………….  p15-­‐20  6.  The  new  law  of  Kuwait  Fund  of  Small  and  Medium  Size  Enterprises  ……  p21   a.  Goals  and  objec<ves…………………………………………………………………….  p21   b.  Major  concerns…………………………………………………………………………….  p22-­‐25   c.  Suggested  solu<ons……………………………………………………………………..  p26-­‐31  7.  Roadmap……………………………………………………………………………………………..  p32  8.  Global  brilliant  minds……………………………………………………………………………  p33  9.  Local  and  regional  brilliant  minds…………………………………………………………  p34  10. Recommenda<on…………………………………………………………………………………  p35   2  
  3. 3. The  purpose  of  the  report  -­‐  The  new  law  is  a  right  step  in  the  right  direc7on,  however  it  needs  to  be  improved  and  executed  in  the  right  way     The  purpose  of  the  report  Last  month  Kuwait  approved  the  new  law  of  Kuwait  Fund  for  Small  and  Medium  size  Enterprises.  While  the  new  law  is  a  posi%ve  sign,  we  believe  that  its  going  to  fail  to  achieve  its  stated  goals  because  of  many  reasons  that  will  be  explained  in  this  report.    The  goal  of  this  report  is  to  raise  concern  of  some  major  drawbacks  of  the  new  law  and  to  share    some  of  key  leanings  from  other  countries  that  have  similar  previous  experiences.  Moreover,  the  report  includes  suggested  solu%ons  for  some  of  the  major  concerns  and  a  roadmap  to  show  how  our  vision  can  be  best  executed.     Disclosure:  The  team  that  worked  in  this  project  are  not  interested  or  expec4ng  any  compensa4on  for  submi:ng  this  report.  The   only  reason  that  drove  us  to  put  the  effort  to  write  this  report  is  to  help  Kuwait  to  move  forward  and  to  become  a  be@er  place   for  the  next  genera4on  and  for  everyone  living  in  it.   3  
  4. 4. Introduc7on  While  Kuwait  is  considered  a  rich  country,  it  is  obvious  that  this  wealth  will  not  sustain  and  there  will  come  a  <me  that  Kuwait  will  go  through  an  economic  disaster  if  it  doesn’t  act  wisely  soon.  The  new  Kuwait  Fund  for  Small  and  Medium  Size  Enterprises  (KFSM)  is  established  to  solve  the  following  problems:   1.  Create  new  jobs  for  Kuwai<s  and  move  away  from  the  reliance  on  the  public  sector  as  a   major  employer   2.  Create  a  healthy  Ecosystem  for  small  and  medium  size  businesses   3.  Diversify  the  na<onal  revenue  source  (through  taxing  companies)  The  problem  is  clear  to  everyone,  however  the  solu<on  is  not  as  clear.  The  obvious  solu<on  is  to  push  people  to  create  their  own  companies  and  start  their  own  businesses  to  help  them  be  more  independent  and  less  reliant  on  government  support.  It’s  clear  that  the  persons  behind  the  law  are  aware  that  the  problem  is  not  with  availability  of  money.  They  know  that  the  problem  is  with  the  Ecosystem  and  the  environment  surrounding  the  small  businesses.  However,  the  solu<ons  men<oned  in  the  law  are  incomplete  and  falls  into  common  mistakes  that  other  countries  have  fallen  into  5-­‐10  years  ago.   4  
  5. 5. Execu7ve  summary   Common  Misunderstandings   Recommenda7on     The  differences  between  Scalable  Startups  and     No  direct  funding   small  businesses     Divide  the  fund  into  4  separate  en<<es     Startup  life  cycle  and  funding  rounds     An  interna<onal  fund  manager     Startups  are  not  a  small  version  of  large     A_ract  interna<onal  skilled  labor   companies     A  great  focus  on  alterna<ve  energy  startups  The  Chilean  Experience    Startup  Chile  program  a_racted  320  startups   from  all  over  the  world    With  only  US$12.8M  of  investments,  Chile   Road  Map   Startup  Ecosystem  is  developing  very  fast      Chileans  s<ll  don’t  understand  the  difference   between  a  Small  Business  and  a  Scalable  Startup     The  Finnish  Experience   Major  Concerns  and  Suggested  Solu7ons     The  government  was  very  generous  to  support     Types  of  companies     Lack  of  skilled  labor   entrepreneurship  during  the  last  2  decades,     Funding  strategy     University  role   however  it  s<ll  failed     Selec<on  process     Large  companies  role     Direct  funding  was  one  of  Finland’s  major     Direct  Funding     Fund  manager   mistakes     Lack  of  focus  in  a  specific  field   5  
  6. 6. Misunderstanding#1  –  Startups  are  all  the  same   KFSM   Fully  commi_ed  to  support  and  boost   entrepreneurship,  small  businesses  and  innova<on       Scalable  Startups:   Scalable  Startups   Small  Businesses     Small  Businesses:   -­‐  New  product   -­‐  Known  product/ -­‐  New  market   service   -­‐  Unknown   -­‐  Known  customer   customers   -­‐  Low  risk   -­‐  Seeking  to  create  a   -­‐  Want  to  keep  it   big  company  with   small  within  the   high  poten<al  of   Key  Characteris<cs   Key  Characteris<cs   family   growth   •  Create  1,000s  of  jobs   •  Create  10-­‐100  of  jobs   -­‐  Have  small   -­‐  Very  risky,  but   •  AKract  interna7onal  talents   •  AKract  cheap  labor   poten<al  to  grow   very  rewarding   •  Revenue  >  US$100M   •  Revenue  >  US$1M       •  Change  the  world  to  a  beKer  place     •  Want  to  feed  the  family    What  do  they  need?  (Ecosystem  elements)   What  do  they  need?  (Ecosystem  elements)  •  Mentorship  and  advice   •  Early  stage  investors   •  Ini7al  investment  •  Talent  and  skills   •  Late  stage  investors   •  Grants  and  Loans  •  Educa7on   •  Easier  regula7on   •  Land  •  incubators   •  Global  network   •  Regula7ons  that  support  their  products   6  
  7. 7. Misunderstanding#2  –  You  can  es7mate  how  much  funding  a   startup  needs  from  day  one!!  Of  course  not     Amount  of  Funding   When  a  startup  raises  money  it  <es  the  amount  of  money  being  raised  with  <me,   number  of  new  employees  and  other  related  costs.  A  startup  should  raise  a  round  for   a  period  of  <me  between  12-­‐18  months.  The  other  variables  (No.  of  new  employees   and  other  costs)  are  highly  unpredictable  and  dependable  on  the  performance  of  the   startup.  Moreover,    the  idea  will  most  probably  change  drama<cally  during  the  startup   life  and  will  end-­‐up  being  something  completely  different  than  the  ini<al  idea.   Ques%ons   -­‐  In  which  stage  the  government  is  willing  to  fund?   -­‐  When  is  the  Gov.    willing  to  pull  the  plug  from   Growing  Stage     US$300M   zombie  companies?   •  Most  of  the  money  is   -­‐  What  is  the  <me  period  for  the  funding  round?     spent  in  acquiring  Private  Equity   Series  C,D   new  customers  Late  stage  VCs   Building  Stage   •  Building  the  team  to   run  the  business   US$10M   •  The  funding  is  spent  in  Angel  group   building  the  product  to  Early  stage  VCs   Series  A,  B   be  able  to  support  a   bigger  base  of   Searching  stage   customers/users   US$100K   •  Customer  discovery  Angel  investors   •  Changing  and  Incubators   Seed  stage   modifying  idea,  Family  and  friends   product  and  business  Bootstrapping   model   Time   US$20K   3-­‐6  months   18-­‐  24  months   3-­‐5  years   7  
  8. 8. A  Startup  is  not  a  smaller  version  of  large  companies   Large  companies   Startup   Large  companies  are  organiza7ons  with  proven   Startups  are  temporary  organiza7on  designed  to   business  model   search  for  repeatable  and  scalable  business  model.       Known   Unknown  •  Customers  segments   •  Customer  needs   •  Customers  segments   •  Customer  needs  •  Business  Model   •  Market  size   •  Business  Model   •  Market  size  •  Market  environment   •  Market  environment   Ready  to  execute   S7ll  need  to  learn  before  star7ng  execu7on     Use  Business  Plan   Don’t  use  Business  Plans   Business  plans  are  execu<on  plans.  In  a   In  a  startup  everything  is  based  on  assump<ons.   business  plan  we  assume  that  we  know  our   Startups  change  and  pivot  many  <mes  during  its  life   <me,  following  an  execu<on  plan  (Business  Plan)  that   customers,  their  needs,  the  market  size  and   was  built  before  even  star<ng  the  company  is  like   everything  else  and  this  is  how  we  are  going   commu<ng  suicide.  Business  plans  is  a  good  exercise   to  make  money.    It  includes  the  steps  that   to  visit  all  parts  of  the  project,  however  a  person   we  need  to  follow  to  generate  the  5  years   should  know  that  he  will  need  to  change  it  frequently   financial  projec<ons.  Once  agreed  is  hard  to   during  the  life  of  the  project.  This  lead  to  the  crea<on   be  modified  or  changed   of  the  Business  Model  Canvas.   Business  Model  Canvas  
  9. 9. What  can  we  learn  from  previous  experiences  and  other  countries?    •  During   the   last   10   years   many   countries   realized   that   suppor<ng   small   business   and   new   startups   is   the   best   way   to   create   jobs   and   have   a   sustainable   economy   and   living   condi<ons.   In   this   report   we   only   focus   in   three   countries   that   have   some   similari<es   with   Kuwait   in   terms  of:   -­‐      Popula<on    -­‐    GDP  per  capita  -­‐    Level  of  support  from  government   -­‐  Life  style  and  work  culture    -­‐    Government  plans  to  support  new  startups  •  The  two  countries  that  will  be  covered  in  this  report  are  Chile  and  Finland   Finland   Popula<on  =  5.3M   GDP  per  capita  =  $36,230     Chile   Kuwait   Popula<on  =  17M   Popula<on  =  3M   GDP  per  capita  =  $17,000     GDP  per  capita  =  $41,000   9  
  10. 10. Chile  A  brief  about  Chile      Chile  is  considered  the  wealthiest  and  safest  country  in  South  America    Chile   has   a   diversified   GDP,   however   natural   resources   such   as   Copper,   Agriculture  and  fishery  represent  more  than  30%  of  their  na<onal  GDP    Chile  established  a  Cornfo  to  boost  entrepreneurship  more  than  70  years   ago,  however  the  results  were  modest  un<l  Startup  Chile  is  established  2   years  ago    Other  interna<onal  organiza<ons  helped  to  play  a  major  role  to  increase   the  entrepreneurship  ac<vity  such  as  Endeavor   10  
  11. 11. Chile  –  CORFO  Chile  Established:  1939  Team:  Board  members:  6  (Chairmen  is  the  Minister  of  Commerce)  No.  of  Employees:  38  Goal:    Encourage   entrepreneurship   and   innova<on   to   improve   produc<vity   in   Chile   and   it’s  global  posi<on  in  compe<<veness  Program  descrip7on:    Provide   financing   for   startups   and   small   businesses   to   start   or   grow   their   businesses  through  different  types  of  tools  and  funds  (both  debt  and  equity).      It   also   organizes   compe<<ons   and   provides   the   winners   with   up   to   70%   funding.  Compe<<ons  covers  many  sectors  and  vary  from  producing  movies  to  energy  projects.      Results:    -­‐  More  than  16,000  transac<ons  are  guaranteed  during  the  period  from  1st  of  Jan  to   end   of   March   2012,   helping   mostly   small   businesses   and   farmers   working   in   the   agriculture  sector  -­‐  More   than   40   different   programs   and   compe<<ons   to   boost   technology   and   innova<on   in   different   fields   such   as   business   innova<on   compe<<on,   packaging   compe<<on  and  R&D  compe<<on.   11  
  12. 12. Chile  –  CORFO  Chile  Advantages:  •  Helps  to  increase  the  produc<vity  and  the  growth  of  small  businesses  •  Helps  in  crea<ng  jobs  •  Bootstrap  R&D  and  innova<on  ac<vity    Challenges:  •  Didn’t   succeed   in   establishing   mul<   billion   companies   that   can   expands   globally  and  create  a  huge  number  of  jobs  •  Most   of   the   business   benefi<ng   from   the   program   are   small   and   family   businesses.  The  owners  of  these  type  of  businesses  don’t  have  the  vision  to   grow  beyond  his/her  local  region  •  The  challenges  men<oned  above  led  to  the  crea<on  of  Startup  Chile   12  
  13. 13. Chile  –  Startup  Chile  Established:  2010  Team:  Board  members:  8  (4  global,  4  locals)  (2  from  Stanford  University,  1  from  HP)  No.  of  Employees:  16  Goal:    To   convert   Chile   into   the   defini<ve   innova<on   and   entrepreneurial   hub   of   La<n  America  by  a_rac<ng  the  world’s  best  and  brightest  entrepreneurs  to  bootstrap  their  startups  in  Chile,  and  create  the  next  US$1  billion  company.  Program  descrip7on:    Provide  US$40,000  of  equity-­‐free  seed  capital  (no  shares  or  equity  is  given,  nothing),  and  a  temporary  1-­‐year  visa  to  develop  their  projects  for  six  months,  along  with  access  to  the  most  important  social  and  capital  networks  in  the  country.    Results:    -­‐  320    Startups  benefited  from  the  program  un<l  the  end  of  2011  -­‐  630  apx.  Is  the  number  of  people  that  benefited  from  the  program    -­‐  Startup  teams  that  represent  36  countries  around  the  world  (US$40,000/team)  -­‐  Money  spent  on  the  startups  =  US$12.8M  -­‐  Total  funds  raised  by  some  of  the  startups  =  US$5M  (outside  investors)  -­‐  More  than  20%  of  startups  in  the  program  are  local  startups   13  
  14. 14. Chile  –  Startup  Chile  Advantages:  •  Encourage  local  Chilean  people  to  become  entrepreneurs  •  Interna<onal  teams  are  contribu<ng  to  build  a  first  class  Startup  eco-­‐system  •  The  increased  a_en<on  from  global  entrepreneurs,  media  and  investors  was   a  wakeup  call  to  all  Chileans  that  they  are  capable  to  change  the  status  quo   and  become  the  leading  des<na<on  of  innova<on  in  South  America  •  A_racted   many   speakers   and   brilliant   minds   around   the   world   to   help   achieve  the  new  Chilean  dream  •  A_racted   back   some   of   the   local   talents   that   migrated   to   pursue   their   dreams  in  other  parts  of  the  world  Challenges:  •  Startups  from  abroad  usually  leave  aoer  they  spend  the  6  months  required  •  The   success   of   the   program   in   recent   years   doesn’t   guaranty   success   in   future  years  if  Chile  doesn’t  have  a  compe<<ve  advantage  other  than  giving   up  money  for  free   14  
  15. 15. Chile  Analysis  What  can  we  learn  from  Chile  experience?    The  Good:  -­‐  Even   small   programs   with   small   budgets   can   have   big   impact   on   the   entrepreneurship   community  -­‐  Having  interna<onal  teams  helped  to  contribute  in  shaping  a  high  quality  startup  ecosystem  The  Bad:  (Analysis  by  Steve  Blank  aoer  visi<ng  Chile  late  2011)  -­‐  Small   Business   versus   Scalable   Startup:   there’s   confusion   in   both   the   Government   and   Universi<es  about  the  difference  between  small  business  entrepreneurship  (startups  designed   to  be  family  businesses,)  scalable  startup  entrepreneurship  (startups  designed  from  day  one  to   scale  big  inside  Chile  and  then  expand  globally)    -­‐  There   is   no   focus   in   a   specific   field:   Entrepreneurship   and   innova<on   in   what   field?     Where   will   Chile  establish  technical  and  innova<ve  leadership?    Is  the  only  way  they  will  a_ract  talent  by   paying   entrepreneurs   to   come   to   the   country?   Or   will   students   and   entrepreneurs   come   to   Chile  because  it  is  one  of  the  best  places  in  the  world  for  innova<on  in  certain  specific  industries   (pick  your  favorite  –  alterna<ve  energy?  materials  science?  food  science?    -­‐  Lack  of  connec%on  with  big  enterprises  -­‐  Lack  of  Venture  Capital  and  Angel  investors   15  
  16. 16. Finland  A  brief  about  Finland    Finland  is  ranked  no.  21  in  terms  of  GDP  per  capita;  higher  than  UK,  France  and  Japan    Finland  is  considered  one  of  the  most  ac<ve  countries  in  terms  technology  and  innova<on.   Regardless  of  it’s  small  popula<on,  Finland  is  the  home  of  Nokia  and  some  other  successful   companies  such  as  MySQL,  Linux  and  Rovio  (the  famous  game  maker  of  Angry  Birds)    Finland  has  one  of  the  best  educa<on  systems  in  the  world    Finland   entrepreneurship   scene   is   fairly   ac<ve   and   consists   of   many   organiza<ons   and   companies   supported   by   a   mix   of   public   and   private   en<<es.   The   main   drivers   of   the   startup   eco-­‐system  are  shown  below:   Government  Funding   Venture  Capital   Universi7es   Startup  Accelerators   16  
  17. 17. Finland  –  Government  Organiza7ons  Established:     Established:     Established:    1983   1999   1967  Annual  Budget:     Annual  Budget:     Annual  Budget:    Around  EU500M   More  than  EU500M   More  than  EU500M  Team:     Team:     Team:    7  board  members   11  board  members   Undisclosed  400  employees   Undisclosed  no.  of  employees   Goal:    Regions:     Goal:     We  are  forward  thinking  and  an<cipate  Finland,  Beijing,  Silicon  Valley,  Tokyo   Finnvera  strengthens  the  opera<ng  poten<al   social  change  and  its  effect  on  people.  Our  and  Brussels   and  compe<<veness  of  Finnish  enterprises   ac<vi<es  promote  new  opera<ng  models  Goal:     Program  descrip7on:   and  s<mulate  business  that  aims  at  Tekes  works  with  the  top  innova<ve   Offering  loans,  domes<c  guarantees,  venture   sustainable  well-­‐being.  companies  and  research  units  in   capital  investments,  export  credit  guarantees   Program  descrip7on:  Finland.  Every  year,  Tekes  finances   and  other  services  associated  with  the  financing   Invests  in  Venture  Capital  funds  locally  and  some  1,500  business  research  and   of  exports.     globally.  Currently  invested  in  more  than  40  development  projects,  and  almost  600   Results:   VC  funds,  mostly  to  help  Finnish  startups  to  public  research  projects  at  universi<es,   Domes<c  Financing  €  3.0  billion   grow  and  expand  globally.  research  ins<tutes  and  polytechnics.     Export  Financing  €  10,4  billion   Results:  Program  descrip7on:   Sitra  is  the  oldest  organiza<on  in  Finland  Tekes  offers  businesses  a  low-­‐interest   that  was  established  to  boost  innova<on  loan  or  a  grant,  depending  on  the   and  entrepreneurship.  Its  investments  and  distance  to  the  market  and  on  the   ac<vi<es  through  the  last  40  years  are  nature  of  the  proposed  project.     enormous  and  is  spread  into  many  other  Results:   sub-­‐organiza<ons.  The  organiza<on  In  2011  Tekes  made  funding  decisions   currently  reports  directly  to  the  Finnish  regarding  1,928  projects,  which  resulted   parliament.    in  total  investment  of  610  million  euros   17  
  18. 18. Finland  –  Incubators  Established:     Established:    2005   2009   Established:    Goal:     Goal:     2010  Seeking  opportuni<es  from   Finland  has  many  promising  start-­‐ups  with  lots  of   Goal:  discon<nui<es  in  the  way  we  use   poten<al.  Yet  very  few  of  them  ever  reach   We  push  the  selected  startups  develop  to  natural  resources.   interna<onal  scale.  We  want  to  change  that.   a  stage  where  they’re  ready  to  take  over  Benefits  of  the  program:   Benefits  of  the  program:   the  interna<onal  markets.  Crea<ng  success  stories  by  combining   Helps  entrepreneurs  realize  their  dreams  by   Benefits  of  the  program:  capital,  technology  &  sector  know-­‐how   making  seed  investments  and  par<cipa<ng  in  the   Incuba<on,  coaching  and  hopefully  and  access  to  key  players  in  the   opera<onal  running  of  the  company  –  whether   funding    cleantech  sector,  globally   strategy  and  customer  development,  go-­‐to-­‐ Funding:    Project  Funding:     market  execu<on  or    globaliza<on.   They  help  startups  to  secure  funding  aoer  1-­‐2  Million  Euros   Project  Funding:     the  program.  They  only  provide  1,500  Program  dura7on:   Depends  on  project   Euros  during  the  program    No  specific  dura<on   50K-­‐750K  Euros   Program  dura7on:  Requirements:   Program  dura7on:   6  weeks  Providing  capital  and  support  for   None   Requirements:  ventures  with  significant  global   Requirements:   Startups  should  be  from  Northern  Europe,  poten<al.  We  look  for  entrepreneurs   An  idea  with  poten<al    to  disrupt  exis<ng   Bal<cs  or  Russia    with  the  ability  and  will  to  build  a  global   businesses   Results:  success  story.   Target  market  is  big  and  growing   70  startups  benefited  from  the  progrma  Results:   Studied  the  customer’s  needs  really  well   Team:    Invested  in  9  companies  working  in  the   Results:   5  full-­‐<me    employees  cleantech  industry   Investment  in  16  companies   20  coaches  Team:     Team:    3  employees   4  execu<ve  employees   www.   18  
  19. 19. Finland  –  Aalto  University  Ecosystem  Startup  Sauna  is  an  incubator  funded  by  Aalto  university  and  takes  Aalto  Venture  Garage  as  its  base.  Startup  Sauna  serves  as  the  main  incubator  of  Aalto  students,  however  teams  and  startups  are  not  restricted  to  be  from  Aalto  university  neither  are  supposed  to  be  from  Finland.     Aalto  Entrepreneurship   Society  gathers  the  most   Startup  Sauna   talented  students  and   (Incubator)   researchers  to  create  more   startups  and  build  interna<onal   Aalto   Aalto  Center  for   connec<ons  in  and  around  Aalto   University  in  Helsinki,  Finland.   University   Entrepreneurship   Aaltoes  organizes  lots  of  events   Aalto   and  gathers  every  week.  The   Entrepreneurship   main  two  programs  are  the  10   Society   weeks  Summer  of  Startups   (Students  society)   program  and  the  interna<onal     exchange  programs  Aalto  Center  for  Entrepreneurship  (ACE)  offers  innova<on,  commercializa<on,  and  start-­‐up  services  for  Aalto  University  researchers,  students  and  other  stakeholders.  The  center  serves  as  a  bridge  between  the  academic  and  real  life  entrepreneurship  scene.  The  main  goal  of  the  center  is  to  push  graduate  students  to  become  entrepreneurs.   19  
  20. 20. Finland’s  analysis  What  can  we  learn  from  Finland’s  experience?    The  Finland  government  realized  that  they  failed  to  build  a  first  class  startup  ecosystem  because  they   realized   that   even   aoer   more   than   20   years   of   government   support   for   innova<on   and  startups,  they  failed  to  produce  not  even  one  successful  global  company.      Below  are  some  of  the  major  reason  of  Finland’s  failure:  -­‐  Public   direct   funding:   The   government   tracked   it’s   performance   by   measuring   the   number   of   companies  funded  every  year.  But,  it’s  not  about  quan7ty,  it’s  about  quality.  The  government   gave  money  like  crazy,  most  companies  created  are  lifestyle  companies  that  don’t  become  large   companies  at  the  end  and  don’t  actually  create  any  jobs.  Its  nice  to  give  everyone  a  chance,  but   that  wasn’t  what  the  whole  system  was  built  for  -­‐  Risk  aversion:  Risk  aversion  autude  leads  to  accep<ng  businesses  that  have  a  high  possibility  to   survive,   but   that   do   not   have   a   high   poten<al   to   become   large   companies   that   change   the   world.   Lack   of   interna%onal   skills:   Lack   of   global   business   competence   and   serial   entrepreneurs.  Talented  people  only  work  in  big  companies.  -­‐  No   viable   VC   industry:   Lack   of   real   venture   capital   ac<vity.   Most   of   the   ac<vity   is   derived   by   public  funding.    -­‐  Lack   of   business   competences:   Lack   of   business   competence   that   help   companies   to   grow   globally  and  a_ract  global  investors  and  interna<onal  talent.  -­‐  Finland  didn’t  consider  the  globally  exis%ng  systems  to  learn  from  their  experiences   20  
  21. 21. Finland’s  analysis  Suggested  solu%ons  for  Finland’s  situa%on  (by  Steve  Blank  2011  and  VICTA  2007)        -­‐  Indirect   funding:   The   government   should   stop   funding   startups   directly   and   should   instead   fund   global   incubators   and   VC’s   that   can   then   start   funding   Finnish   startups   based   on   commercial   and   market   driven   criterias.    -­‐  Remove   lifestyle   (such   as   restaurants,   fashion   store..etc)   companies   from   the   equa%on:   Lifestyle  companies  are  not  growth  companies,  they  will  not  create  jobs  or  add  value  to  the  society.  This  type   companies   should   be   removed   or   separated   from   the   startup   ecosystem.   These   companies   are   sucking   resources  (<me  and  money)  and  distrac<ng  the  government  performance  measurement  indicators.  -­‐  AOract   global   talents:   Transform   the   Finnish   early-­‐stage   startup   ecosystem   to   support   the   infusion   of   talent  from  the  leading  global  talent.  Laws,  regula<ons  and  tax  incen<ves  should  all  be  fixed  to  support  this   goal.  -­‐  Fix  government  strategy:   The  government  should  shio  it’s  strategy  from  just  helping  Finnish  people  to   start  their  own  business  to  crea<ng  mul<  million  companies.  The  vision  should  be  driven  to:  generate  more   jobs,  a_ract  foreign  investments,  create  global  successful  companies,  and  a_ract  interna<onal  talents.  -­‐  Fix  culture  and  aPtude  challenges:   The  government  should  have  a  plan  for  a  campaign  to  change  the   an<  entrepreneurial  culture.  Challenges  such  as  “Money  takes  care  of  problems”,  Risk  vs  Reward  and  Failure   vs   Success,   this   mentality   should   be   changed   through   educa<ng   the   young   genera<on   and   through   some   awareness  campaigns.  -­‐  Fix   incubators   structure:   Currently   most   incubators   are   owned   by   the   government.   Incubators   should   op<mally  be  owned  by  4  shareholders:  a  local  VC,  a  global  VC,  the  government  and  a  local  university.  Also   the  manager  of  the  incubator  should  be  either  a  serial  entrepreneur  or  from  a  VC  background.  The  incubator   manager   should   also   have   direct   or   indirect   share   in   the   companies   being   accepted   in   the   program.   Moreover,  the  incubator  should  not  accept  more  than  20  companies  per  year.   21  
  22. 22. Kuwait  Fund  of  Small  &  Medium  Size  Enterprises  (KFSME)  Goals  &  Objec7ves     Goals  and  Objec7ves  stated  in  the  law:   -­‐  Create  more  jobs     -­‐  Diversify  na<onal  income  resources   -­‐  Reduce  number  of  Kuwai<s  working  in  the  public  sector  and  resolve  the  problem   of  fake  unemployment     While  the  goals  stated  in  the  law  makes  sense,  they  lack  the  clarity  of  answering  the   ques<on  “How?”     -­‐  How  are  we  going  to  create  more  jobs?     By  crea7ng  high  growth  companies  that  generates  millions  of  dollars  and  compete  globally   -­‐  How  are  we  going  to  diversify  our  income?   By  crea7ng  high  growth  companies  that  generates  millions  of  dollars  and  compete  globally   -­‐  How  are  we  going  to  reduce  the  number  of  Kuwai4s  working  in  the  public  sector?   By  crea7ng  high  growth  companies  that  generates  millions  of  dollars  and  compete  globally   Our  goal  should  be  clear  and  simple:   “Create  high  growth  companies  that  generates   millions  of  dollars  and  compete  globally”  Any  company  that  doesn’t  fall  within  this  goal,  should  be  removed  or  separated.  Otherwise,  it  will  distract  and  suck  our  resources  without  any  real  return.   22  
  23. 23. KFSME  -­‐  Major  Concerns   Types  of  companies   The  fund  is  heading  to  in  the  direc<on  of  funding  all  types  of  companies.  However,  not  all  of  companies  will   lead  the  fund  to  reach  it  goals.  The  fund  should  focus  only  in  funding  companies  that  have  the  poten<al  to  1        become  global  companies  that  generate  mul<  million  dollars  and  can  employ  thousands  of  people.       Restaurants,  fashion  stores  and  mechanical  garages  will  not  employ  thousands  of  people  and  will  not  create   millions  of  dollars  for  Kuwait  government.   What  type  of  companies  the  fund  is  going  to  support?  Why?   Funding  strategy   Technology  startups  don’t  need  much  funding  in  their  ini<al  stages.  The  co-­‐founders  just  need  to  cover  their   personal  expenses  and  some  of  the  development  costs  (  a  programmer  and  a  designer).  This  means  to  test   the  ini<al  idea  they  just  need  around  US$20,000  –  US$100,000.  This  is  the  global  standard  and  any  more  than   that  is  a  waste  of  money.  The  funding  should  be  in  stages,  first  stage  (Seed  Stage)  should  be  small  (US$20K  –   US$100K)  and  the  second  stage  should  be  larger.  This  structure  is  the  standard  that  is  being  used  globally,   and  is  as  the  following:  2        •  Seed  Stage  –  (US$20K  –  US$100K)  -­‐  (Investors:  family  &  friends,  incubators,  angel  investors,  early  VCs)       •  Series  A  &  Series  B  –  (US$250K  –  US$50M)  –  ((Investors:  Angel  group,  Early  stage  VCs)   •  Series  C,D  –  (US$50M  –  US$500M)  –  (Investors:  Late  stage  VCs,  Private  Equity)   In  which  stage  the  government  is  going  to  invest?  How  many  rounds  the  government  is  going  to  par7cipate   in?  What  does  sweat  equity  means  to  the  government?  Why  should  an  entrepreneur  share  to  pay  the   capital  if  at  he  just  need  to  cover  his/her  co-­‐founders  salaries?  Does  the  government  s7ll  need  to  own  80%   in  a  project  funded  by  US$50,000?   23  
  24. 24. KFSME  -­‐  Major  Concerns   Selec7on  process   Ideas  cannot  be  converted  to  successful  companies  without  having  a  great  entrepreneur  behind  them.  The   management  team  is  the  single  most  important  element  of  having  a  successful  startup.  Having  a  great  idea   will  take  you  no  where  if  its  not  managed  by  a  capable  team.  Selec<ng  projects  should  not  be  based  on   Business  plans  and  numbers  in  papers,  it  should  be  about  people.  If  a  person  or  a  team  have  what  it  take  to   create  a  successful  company  then  he  should  be  accepted  even  if  his  idea  is  not  as  good  as  others.  The  process  3        of  accep<ng  companies  based  on  people  sounds  so  subjec<ve  and  unfair,  but  if  you  did  a  research  with  global       VCs  and  global  incubators  you’ll  find  that  all  of  them  invest  in  teams  and  persons  not  in  ideas.  This  skill  is   developed  with  <me  and  experience.   How    much  emphases  are  put  in  the  co-­‐founders  team?  Did  the  law  considered  diversity  The  law  is  trying   to  invest  in  companies  that  are  financially  feasible,  however  great  companies  start  as  crazy  ideas  with  very   high  risk  and  low  probability  of  success?  Is  the  government  willing  to  take  high  risks  to  get  the  high   reward?  Or  will  it  only  invest  in  safe  projects  that  have  low  risk  and  low  return?     Direct  funding   The  government  should  not  invest  directly  in  startups.  When  the  government  invest  in  companies,  it  doesn’t   really  care  if  the  company  will  become  a  US$1  billion  dollar  company  or  not.  They  don’t  invests  based  on   commercial  bases,  even  if  they  say  they  will.  Instead  the  fund  should  fund  incubators  and  VC’s,  that  way  they  4        will  invest  indirectly  in  startups  and  only  based  on  commercial  and  market  driven  principals.       Does  the  government  have  a  clear  vision  how  to  pull  it-­‐self  out  from  the  system  to  leave  everything  for  the   private  sector?  Does  the  government  provide  the  added  value  that  a  regular  VC  firm  brings  to   entrepreneurs?  Are  they  aware  that  they  can  actually  harm  more  than  help  the  startups  if  they  invest   directly  on  them?   24  
  25. 25. KFSME  -­‐  Major  Concerns   Lack  of  skilled  labor   There  is  a  lack  of  skilled  labor  in  Kuwait.  It’s  hard  to  find  the  required  talented  people  to  create  great   innova<on  products.  Many  companies  in  Kuwait  end-­‐up  outsourcing  there  key  ac<vi<es  to  India  and  other   countries.  However,  to  build  a  sustainable  and  a  healthy  ecosystem,  these  talented  skills  should  be  available   5        in  the  market  to  help  companies  to  produce  high  level  products  that  can  compete  in  global  markets       Does  the  fund  have    a  plan  in  how  to  aKract  skilled  labor?  Do  the  current  laws  and  regula7ons  help  in   aKrac7ng  talented  people?  Is  there  any  reason  for  skilled  people  to  move  to  Kuwait?     University  role   Universi<es  are  the  biggest  place  to  produce  passionate  and  innova<ve  entrepreneurs.  However,  Kuwait   university  is  not  being  ac<ve  enough  to  support  these  students  to  become  successful  entrepreneurs.    6        Is  universi7es  preparing  students  to  become  entrepreneurs?    What  is  the  university  role  in  the  startup       ecosystem?  How  can  we  integrate  universi7es  to  this  new  ecosystem?     Large  companies  role   Kuwait  has  some  huge  companies  that  can  contribute  to  the  startup  ecosystem.  Companies  such  as  Zain,  NBK   and  KPC  are  leading  companies  in  their  field  and  they  have  a  good  amount  of  skilled  employees  and  7        advanced  technologies  that  can  benefit  the  startup  ecosystem.         Is  the  fund  willing  to  corporate  with  these  large  companies?  Does  the  fund  realize  the  value  that  can  be   extract  from  these  companies?  Does  the  fund  have  a  clear  plan  in  how  to  integrate  and  mo7vate   companies  to  be  part  of  its  vision?   25  
  26. 26. KFSME  -­‐  Major  Concerns   Lack  of  focus  in  specific  field   If  Kuwait  wants  to  be  one  of  the  leading  startup  hubs  in  the  region,  then  it  should  have  a  key  differen<a<on   factor  than  other  startup  hubs.  Kuwait  have  two  well  established  sectors:  energy    and  finance.  Kuwait  should   have  one  major  focus  field  of  innova<on  that  will  a_ract  global  companies  and  global  talents.  Money  by  itself   8        is  not  enough  to  build  a  global  des<na<on  for  innova<on.       Does  Kuwait  want  to  be  a  global  startup  hub  or  just  a  friendly  place  for  locals  to  start  small  businesses?  Is   the  government  aware  of  some  of  the  strength  points  that  can  be  currently  used  to  create  a  bright  future?   Fund  manager   The  fund  manager  should  be  an  experienced  entrepreneur  with  a  successful  track  record.  The  manager   should  have  a  previous  experience  in  raising  money  and  building  a  successful  business.    Kuwait  doesn’t  have  9       much  of  experienced  entrepreneurs  that  can  run  the  fund.     What  are  the  key  characteris7cs  of  the  fund  manager?  Did  the  government  consider  recrui7ng  a  non-­‐ Kuwai7  fund  manager?  Does  the  government  understands  the  full  implica7on  of  recrui7ng  an  incapable   fund  manager?   26  
  27. 27. Suggested  Solu7ons  for  the  types  of  companies  being  funded     The  fund  should  divide  its  opera7ons  into  4  separate  Funds:     1-­‐  Scalable  Startups  Fund:  This  en<ty  is  specialized  to  support  companies  that  have  high  poten<al  for  growth  and  to  become   large  companies.  The  fund  should  denote  50%  of  its  resources  (Money,  human  resources…etc)  to  this  type  of  companies,  since   these  companies  will  most  probably  create  most  of  the  jobs  in  the  market  and  will  generate  most  of  the  revenue.     2-­‐  Small  and  Medium  Size  Businesses  Fund:  this  en<ty  is  focused  in  providing  financial  help  to  small  and  lifestyle   companies.  Fashion  stores,  restaurants  and  small  grocery  shops  are  all  considered  small  businesses.  These  types  of  businesses   require  some  financial  support  and  some  land  space.  The  fund  should  provide  only  15%  of  its  resources  to  this  type  of   companies.   3-­‐  Industrial  Projects  Fund:  Factories  and  heavy  industrial  driven  projects  fall  into  this  category.  There  needs  and  type  of   support  is  different  than  other  businesses.  The  Industrial  Bank  is  specialized  to  help  this  sector,  however  the  fund  could  also   contribute  to  help  in  crea<ng  a  be_er  environment  for  industrial  projects.  Fund  should  provide  15%  of  its  resources  to  support   this  type  of  projects.   4-­‐  Research  and  Development  Fund:  The  Fund  should  establish  a  separate  en<ty  to  support  research  and  development   studies  done  by  individuals  and  teams  working  in  Universi<es,  research  centers  or  private  companies.  These  research  studies   should  be  funded  to  boost  innova<on  and  also  to  help  them  to  convert  their  inven<ons  and  findings  into  real  products  that  can   be  sold  in  the  market  to  real  customers.  The  fund  should  provide  around  20%  of  its  resources  to  support  this  part.   50%  of  resources   20%  of  resources   KFSME   15%  of  resources   15%  of  resources  Scalable  Startups   Small  and  medium   Industrial   R&D  Fund   Fund   size  businesses  Fund   projects  Fund   27  
  28. 28. Suggested  Solu7ons  –  The  funding  structure  suggested  below  solves  many   problems  related  to  selec7on  process,  funding  strategy  and  direct  funding   KFSME  –  Scalable  Startups   10  Global  and   5  Global  Early   3  Global  Late   local  Incubators   stage  VCs   Stage  VCs   Structure   Structure   Structure  •  Support  each  incubator  with  a  loan   •  Support  each  VC  with  a  loan  of  US •  Support  each  incubator  with  a  loan   of  US$25M.  This  loan  should  be   $50M.  This  loan  should  be  returned   of  US$50M.  This  loan  should  be   returned  within  a  period  of  8-­‐10  yrs   within  a  period  of  8-­‐10  yrs   returned  within  a  period  of  8-­‐10  yrs  •  Covers  50%  of  incubator  opera<onal   •  Covers  50%  of  VCs  opera<onal   •  Covers  50%  of  VCs  opera<onal   expenses  for  first  3  years   offices  in  Kuwait  up  <ll  3  yrs   offices  in  Kuwait  up  <ll  3  yrs  •  The  incubator  can  incubate  up  to   •  VCs  should  employ  at  least  2  full   •  VCs  should  employ  at  least  2  full   50%  of  foreign  companies,  but  they   <me  Kuwai<  employees   <me  Kuwai<  employees   should  all  agree  to  move  and  to  have   •  The  VCs  can  invest  up  <ll  50%  of  its   •  The  VCs  can  invest  up  <ll  50%  of  its   their  HQ  in  Kuwait   capital    in  regional  opportuni<es     capital    in  regional  opportuni<es     Benefits   Benefits   Benefits   •  Selec<on  of  startups  is  based  solely   •  Selec<on  of  opportuni<es  is  based   •  This  stage  of  financing  is  necessary   on  commercial  bases   solely  on  commercial  bases   for  startups  to  grow  interna<onally.   •  Incubators  have  higher  incen<ves  to   •  Global  VCs  add  much  value  to   Global  VCs  can  provide  global   push  startups  to  the  limits   startups  in  terms  of  interna<onal   network  and  guidance  for  possible   exposure  and  business  competences   exit  strategies.   28  
  29. 29. Suggested  solu7on  for  the  lack  of  skilled  labor  problem   1-­‐  Regula7on  Easing   The  government  should  be  serious  in  lowering  the  barriers  for  skilled  labor  to  work  or  to   start  a  company  in  Kuwait.  Also  the  government  should  consider  lowering  tax  burdens  and   any  other  difficul<es  associated  with  foreign  investments  in  Kuwait,  The  current  situa<on  is   a  complete  disaster  and  no  smart  person  will  consider  moving  to  Kuwait.  These  regula<ons   should  be  all  changed  to  make  it  easier  for  both  Kuwai<  and  non  Kuwai<  startups  to  a_ract   global  skills  and  for  foreign  capital  to  invest  in     2-­‐  Global  offices   Opening  global  offices  in  key  ci<es  to  serve  three  main  goals:   1-­‐  Find  skilled  labor  and  help  them  find  jobs  in  Kuwait   2-­‐  Serve  as  a  bridge  between  global  startups  and  startups  that  wants  to  enter  MENA  region   3-­‐  Help  and  convince  interna<onal  startups  to  apply  for  incubators  based  in  Kuwait.   Bucharest   Beirut   Amman   Silicon   Mumbai   London   Beijing   Valley   29  
  30. 30. Suggested  solu7ons  on  how  to  engage  universi7es  and  large   companies  in  the  ecosystem     Universi<es  own   5%-­‐10%  in   Educa7on   Source  of  innova7on   incubators   Entrepreneurship  track   Research  and  studies   Fresh  graduates   Global  network  and   partnerships   Gradua7on  Projects     Talks  and  seminars  Large  companies  can  add  much   Universi%es  are  the  biggest  source  of  value  to  the  ecosystem  if  they   innova<on  and  talent.  Moreover,  universi<es  are  integrated  in  the  right  way.   are  the  best  place  to  educate  the  public  and   University   incubators   to  change  some  common  mispercep<on  and  Large  companies  wants  to  be  up-­‐to-­‐date  with  the  latest   cultural  autudes  such  as  Success  vs  Failure      technologies.  Being  part  of  the   Large    and  Risk  vs  Reward.  The  university’s      incubators  and  latest    role  is  central  to  the  startup   Companies    ecosystem  and  it  should  be  directly          development  in  terms  of  technology  and  startup        linked  to  the  work  of      scene  gives  them  a        incubators  since  they    can  add  compe<<ve           Source  of  talent   Real  experience        much  more  value  working  advantage        together.     Closer  to  market       Experienced  employees   Closer  look  to  market  needs   Interna7onal  talents   Real  world  working  environment   Professors  from  different   fields   Companies  own   Technical  support   5%-­‐10%  in  incubators   30  
  31. 31. Suggested  solu7ons  –  A  great  focus  in  Alterna7ve  energy  startups  Kuwait   is   like   a   large   oil   company.   While   Kuwait   might   be   able   to   produce   oil   for   more  than  70  years  ahead,  there  is  a  big  possibility  that  oil  will  not  be  the  major  resource  for  energy  any  <me  soon.  The  world  is  in  a  con<nues  search  for  an  alterna<ve  source  of  energy,   mostly   driven   by   natural   resources.   During   the   last   60-­‐70   years   it   accumulated  a   lot   of   experience   in   the   energy   sector.   This   experience   should   not   be   wasted,   as   a  ma_er   of   fact   it   should   be   leveraged   to   build   our   future.   Alterna<ve   energies   have  been   always   a   threat   to   oil   prices   and   to   our   na<onal   income.   However,   major   oil  companies   such   as   Shell   and   Exon   realized   this   threat   and   already   took   ac<on   and  started  inves<ng  in  this  field  to  prepare  themselves  for  the  future.    Similar   steps   should   be   taken   by   Kuwait’s   government   to   prevent   a   disaster   from  happening.    Our  sugges<on  is  to  focus  big  part  of  the  fund  in  suppor<ng  startups  focused  on  the  energy   sector   and   in   finding   alterna<ve   sources   of   energy.   We   also   suggest   that   the  fund   creates   a   separate   en<ty   or   a   separate   department   focused   only   on   alterna<ve  energy   projects   and   providing   them   with   their   needs.   The   support   should   extend  beyond  the  local  market  and  should  cover  the  whole  scope  of  innova<ons  happening  around   the   world.   Kuwait   should   be   the   place   for   anyone   that   wants   to   start   his  alterna<ve  energy  project.  Kuwait  should  provide  funding,  space,  facili<es,  talent  and  labs  that  entrepreneurs  needs  to  test  and  build  their  projects.   31  
  32. 32. Suggested  solu7on  on  who  should  be  the  fund  Manager?   The  fund  manager  should  have  a  previous  experience  in  going  through  the  process  of  establishing  a   company,  hiring  employees,  raising  money,  building  a  product  and  dealing  with  the  government.  The   fund  manager  should’ve  went  through  the  pain  of  star<ng  a  company  and  all  of  the  difficul<es  and   hurdles  associated  with  it.  Moreover,  the  fund  manager  should  have  a  previous  experience  in  star<ng   a  company  in  a  well  developed  ecosystem  (such  as  the  US  or  UK).     A  Kuwai<  person  with  this  characteris<cs  is  hard  to  find  and  the  only  person  that  we  believe  have   similar  quali<es  is  Mr.  Naif  Al-­‐Mutawa.  We  believe  that  having  an  experienced  serial  entrepreneur  is   more  important  than  being  Kuwai<,  we  believe  filling  the  manager  posi<on  with  an  experienced   interna<onal  serial  entrepreneur  is  for  the  best  interest  of  the  fund  and  Kuwait  as  a  whole.     Started  more  than  one   Started  a  scalable  startup   company   Raised  several  rounds  of   Fund   One  of  his  startups  resides  in   funding   Manager   a  well  developed  ecosystem   Dealt  with  incubators  and   Have  a  global  network   VCs   32  
  33. 33. Roadmap  –  Unfinished  part   Year  1-­‐3   Year  4-­‐5   Year  5-­‐10   Year  11-­‐14   Year  15-­‐20   33  

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    Feb. 8, 2013
  • MariaQanita

    Nov. 28, 2013
  • ayoobok

    Sep. 15, 2016

The report was created for Kuwait Fund of SMEs, but I'm sure it can be used by any government considering to invest in startups and to help in establishing a healthy Startup Ecosystem.


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