A Conversation with Iraq’s Latest Venture Capital Fund

Five One Invest sat down with Geoffrey Batt founder of Euphrates Advisors (EA) to discuss the launch of Euphrates Venture Capital Fund. Geoffrey shared his thoughts on the Iraqi entrepreneurial scene, his new fund’s potential contribution to the ecosystem, and the future of investing in startups in Iraq.

“It was just the Euphrates Iraq Fund dipping its toe in the water and then over time realizing that we should have a dedicated fund for this.”

Euphrates Venture Capital Fund (EVCF), launched in July of this year and managed by Geoffrey Batt and Grant Felgenhauer, is a New York-based venture fund dedicated to investing in technology startups across Iraq. Geoffrey founded Euphrates Advisors (EA) in 2010, and established the Euphrates Iraq Fund (EIF), a hedge fund dedicated exclusively to public equities in Iraq, in that same year. Grant joined Euphrates Advisors as a Managing Partner in 2012. Until this year, Grant and Geoffrey did all of their investing in Iraq through the Iraq Fund.

In their work with the Iraq Fund, the two were increasingly exposed to, and impressed by, the founders and companies leading the way in Iraq’s rapidly developing startup ecosystem. At the same time, they noticed the lack of significant growth funding for companies in the market, so they decided to create their new fund to address this need. They are joined in this effort by two Iraqi investors - technology entrepreneur and angel investor Rawaz Rauf, who was recently named Partner for the Euphrates Venture Capital Fund, and Shwan Taha, Chairman of Iraqi investment bank Rabee Securities and active angel investor. 

Five One Invest sat down with Geoffrey to discuss the launch of Euphrates Venture Capital Fund, his thoughts on the Iraqi entrepreneurial scene,  his views on the new fund’s contribution to the ecosystem, and the future of investing in Iraqi startups.

Skepticism in a Nascent Ecosystem

In late 2016, Geoffrey was introduced to Ammar Ameen, Founder and CEO of Miswag. Geoffrey, a veteran in the Iraqi investment landscape with market experience going back 13 years, was shocked to learn that such a company existed in Iraq - what at the time was an early-stage online marketplace platform. Miswag seemed to be the only entrepreneurial venture - alone - in an entirely undeveloped startup ecosystem back then. While intrigued, for Geoffrey, the startup scene was just too nascent to invest in, and he felt that an investment in a fledgling tech startup was out of scope for a public equities fund.

The Starting Point

In the summer of 2019, Euphrates Iraq Fund was approached by an investor who was evaluating a pre-seed investment into Miswag. Miswag had faced many challenges during the economic crisis of 2016 and 2017; however, the company came out stronger in 2019 and had a significantly growing user base. Geoffrey met with Ammar again. The founder, born and raised in Iraq, displayed business savviness and a good work ethic. Geoffrey felt that Ammar had a real vision and was more than capable of achieving his vision. The fund assessed the valuation and determined that it was an attractive entry point. As a public fund, the Euphrates Iraq Fund had leeway to invest up to 5% of the fund in unlisted companies. Geoffrey took a leap of faith and made his first venture investment into Miswag. At the time, Geoffrey viewed it as a one-off opportunity and did not expect to be considering venture investing as part of Euphrates’ future.

The Turning Point

In the first quarter of 2020, Geoffrey was introduced to Alsaree3, a food delivery app. Again, as in the case of Miswag, the Euphrates Iraq Fund team was very impressed by the founder, Bassam Al-Ateia. The startup had displayed resilience in the face of challenging conditions and was growing exponentially. The right mix of ingredients was there for Geoffrey: a competent founder leading a successful startup showing tremendous growth in an adverse environment. Around this time, there was a turning point in Geoffrey's perception of Iraq’s entrepreneurial scene, eventually leading to the creation of the Venture Capital Fund. Geoffrey reflects, “I went to bed thinking I was very skeptical about the startup community in Iraq, and I woke up the next morning, the exact opposite. I'm not sure exactly what was the impetus for that sudden change. Maybe several factors that had been percolating for a long time...some point between 2019 and 2020 just seemed like something had changed. And I really wanted to be involved in that [startup scene].”

In April 2021, Geoffrey and Grant made the bold decision to set up the Euphrates Venture Capital Fund. Geoffrey explains concerning their second investment with Alsaree3, “It was at that point that I think we realized that if we were going to continue making venture investments, the wise thing to do would be to set up a dedicated fund exclusively aimed at venture investing.”   

The Venture Fund

Launched formally in July 2021, the Euphrates Venture Capital Fund is a $20M fund. The fund follows a traditional venture fund model in that it has a four-year investment period, and the life of the fund is ten years with the possibility of a one- or two-year extension. Although the fund is industry agnostic, a startup must tick two boxes: there must be a tech component inherent in the product or service, and the likelihood of scalability must be high. The average ticket size ranges between $100K and $4M. In thinking about stage preferences, Geoffrey explains, “If we find a very attractive company managed by a dedicated and intelligent founding team, then we will invest in any stage provided the valuation is right.”  

Euphrates Venture Capital Fund’s partners do not consider their role as only relegated to funding. There are quite a few challenges to doing business in Iraq, and Geoffrey and his team want to help overcome these obstacles. One of the most significant hurdles for early-stage enterprises is the incorporation of their companies. The Fund supports founders and companies with legal advice; specifically, they focus on all matters related to registration and company structure. The legal process for setting up a business in Iraq is costly, lengthy, and cumbersome. Business regulations will vary from one province to another, complicating matters even further.  Geoffrey explains that “the company formation process is overly burdensome...needlessly complex...too expensive. The most important areas that we were helping with are getting them incorporated and getting them a bank account so that they can start doing business.” 

Not only does the Fund provide legal advice, but also it extends financial and technical advice. Financial guidance is essential to ensure a startup sets up a banking account and integrates it into the banking system. Additionally, the fund will unlock further funding for its companies from its network of investors in the United States and Western Europe. For technical expertise, recently named Partner Rawaz Rauf is very influential in offering advice on matters such as application development, appropriate technology stacks, and linking to other technology providers in the country. Rawaz has been involved in the startup scene in Iraq since its earliest days as one of the first investors in AsiaCell and looks forward to helping portfolio companies broaden their technology capabilities.

Geoffrey and Euphrates are very excited to work in these capacities with their newest portfolio company, KESK. The Fund’s second investment was made recently in the Erbil-based startup, which offers green building services and products. KESK was founded in 2018 by Basima Abdulrahman, the 2021 winner of the prestigious Cartier Women’s Initiative Award. The six-figure seed round from the Fund will be used for general corporate purposes and to roll out the company’s proprietary solar AC units.

Valuation

The Fund recognizes that valuation can be a tricky balance; as an investor, Euphrates wants a meaningful ownership percentage of its investees. It also wants entrepreneurs to feel like their success is recognized appropriately. Hitting the proper valuation is crucial, as it affects a company’s future funding rounds if the valuation is too high or early investors have taken too much of the company. Geoffrey recognizes that prospective investors may shy away from a future investment if a valuation is off the mark. For a mutually rewarding relationship, the founders need to be the primary beneficiaries. Geoffrey expresses, “we are just looking for deals that are reasonable and fair. We want founders to have the largest stake as they possibly can within the context of a reasonable valuation.” 

Beyond the Present

Faced with the daily struggles of life in Iraq, entrepreneurs are well equipped to deal with adversity. The ability to handle adversity, mixed with passion and creativity, is the key ingredient to an entrepreneur’s success. As the saying goes, necessity is the mother of all inventions. Iraqi entrepreneurs’ attitude embodies this proverb. This outlook is precisely what the Fund seeks to capitalize on. 

Although regional investor interest is still in its infancy, it is growing. As the startup community matures and more funds are established, Iraq will progress into a thriving ecosystem well-equipped to compete with other regional ecosystems. Geoffrey concludes, “So I'm very comfortable investing in Iraq. I have been doing it for a long time. It's extremely encouraging (to see international players) because it validates your work. It's always reassuring when you see other parties come in and do the same sort of thing that they're doing. Because it tells you that you're not alone.”