Spring Studios empowers MENA founders to build the next wave of exceptional fintech startups. Backed by Sovereign Wealth Fund of Bahrain, Al-Waha Fund of Funds, and global venture capital firm Hambro Perks, we equip founders with capital, expert in-house capability, and verification from MENA’s leading investors to build startups with a greater probability of success.

Welcome to part two of our introductory series on Spring Studios:

• Part I: “Why we launched Spring Studios”
• Part II: How Spring Solves Problems for Founders ← this article
• Part III: Bahrain - The Fintech Launchpad in MENA
• Part IV: Our Fintech Thesis

Introduction

In our first article, “Why We Launched Spring Studios”, we highlighted the compelling opportunity we see in MENA. It’s a region going through unparalleled growth and invariably, experiencing growing pains as a result. For founders in the region, these pains represent compelling opportunities to build solutions and capture value. There are very few places in the world exhibiting the same emerging market growth rates with an abundance of liquidity and buying power as seen in MENA (particularly the Middle East).

We have been investing in MENA-based early-stage technology companies since 2017, and have since become one of the most established international investors. We review around 2000+ deals per year and partner with the region’s top family offices, institutional investors, corporations, and sovereign funds. We have seen first-hand how fast MENA is growing and yet, recognise the many problems still experienced by founders where capital alone is not enough to alleviate these issues.

The problems we are referring to range from access to talent, customers, regulatory clarity, and the ability to validate ideas in a capital-efficient way. These problems have been validated through hundreds of first-hand conversations with founders actively building in this region. They are often highly specific to the local market and cannot be solved through generic, globally accepted venture models. Localised problems require hyper-localised strategies to remove friction and future-proof startups for growth beyond borders.

This article explores how Spring Studios has been designed from first-principles thinking to solve for the specific local problems we hear repeated by founders, using Bahrain as a launchpad to the rest of the region.

Problem #1 - “I have burnt a lot of capital, with very little to show for it”

The most common problem we hear on a regular basis from founders is, “I have spent hundreds of thousands on my startup (on product, team, a license), but the market doesn’t want my solution and I can’t raise capital.” There are usually a few root causes:

1. Excess liquidity: The average GNI per capita in the UAE is around $49,000, which is above successful startup hubs like the UK at $48,000 (World Bank - GNI Report). Individuals have relatively more in their pockets than in other regions, allowing founders to bootstrap startups for longer without going to investors. This might sound good but, it causes founders to delay learning what investors want to see from early-stage startups. The overall effect is lots of startups with very poor capital efficiency (the most popular startup ratio here would be the burn multiple).
2. Cost of doing business: Although ease of doing business, in particular in the GCC, is improving, the costs of doing business compared to other leading startup hubs are still relatively high. It costs an average of 17% of income per capital to start a business in the UAE, compared with below 1% in the US and UK (World Bank - Doing Business 2022). Fintech is particularly susceptible to high regulatory requirements and costs. Founders need to get creative on how they approach early go-to-market.
3. The wrong approach: Founders we speak to in the region are typically optimizing for product progress over learning and validation. In other words, they rush into building a product but fail to validate some of the core hypotheses that cause the solution to fail, like whether customers want to use the solution in the first place. This often means putting a lot of time, cost, and effort into building and launching a product and then finding out 3 months later there is no demand.

Spring’s solution

At Spring Studios, both the approach taken and the relationships we build tackle this problem by design.

The venture building methodology at Spring focuses on crafting clear problem statements with a deep awareness of assumptions made in the process; enabling learning and validation by iterating rapidly on the problem before a solution is identified - Shashank Narayanan (Spring Founder in Residence)

Firstly, we believe you can get from zero to one without building any code. Rather than focusing on building the product right up front, we borrow Gagan Biyani’s Minimum Viable Testing methodology. Instead of stressing a product in distinct form from day one, we break down our value proposition into its constituent hypotheses, before designing individual tests to validate these specific assumptions. This approach allows us to learn fast, build and develop customer relationships early on, and most importantly, translates into strong leading indicators of product-market fit with good capital efficiency.

Bahrain, where Spring is headquartered, lends itself extremely well to the approach above. Although a small market, we have found this to be a double-edged sword. We have spent years developing strong relationships with major banks, insurers, and corporations, enabling our founders to immediately run discovery sessions, validate ideas, and develop enterprise traction faster than a founder outside the studio would otherwise be able to do. Once launched, Spring handles both the administrative time and the cost of setting up, whilst the cost of doing business in Bahrain remains around 30% cheaper than in the UAE.

All the above means startups that have achieved strong early traction (often with large corporations) with excellent capital efficiency.

Problem #2 - “The market is so hot, top-level talent is way out of my reach”

Finding world-class talent at an affordable price is a challenge for founders in the MENA region. There is a significant talent gap between the amount of open roles and the pool of available skills within the region. This scarcity drives up the cost of hiring qualified individuals, putting additional financial strain on startups that are already navigating the complex terrain of initial funding and market penetration. This problem is particularly difficult to overcome for founders in the early stages when cash is in short supply and equity incentives are less appealing.

Spring’s solution

Spring’s core team of experts covers everything from full-stack engineering to product management and UX/UI. The Spring core team acts as a founder’s fully-equipped, dedicated team in the early days, removing the trade-off between runway (how long the company can last on current cash levels and burn) and hiring world-class individuals from the start.

Moreover, our team goes on to work closely with our startups post-spin-out to identify full-time founding team members. We leverage our network as well as specific third-party partnerships to identify, screen, and hire the best possible talent across the region. Our senior leadership team will often go on to sit in fractional roles, like fractional CTO, to support the strategic direction of the company in the short term whilst we identify additional co-founder roles.

Our experience as venture capitalists in the region means we value future-proofing cap tables for further funding rounds alongside other value-additive co-investors. We take a founder-friendly approach to equity leaving significant room on the cap table for additional co-founders and encouraging our founders to allocate meaningful equity to the options pool to incentivize and attract high-quality talent in the future.

Problem #3 - “Most investors, especially VCs, don’t look early enough”

The amount of successful fundraises reported on across the region can sometimes hide how difficult it is to get off the ground for early-stage companies. Mega later-stage rounds often make up a large proportion of total VC funding within the MENA ecosystem. This held true for Q3 2023, with 40% of the total funding raised in the quarter coming from just three deals alone.

Meanwhile, the number of early-stage rounds (anything below $1m) has fallen from 80% of total deals to 44% of total deals over the past 5 years. In the context of this difficult funding environment, network, strategy, and timing all play a critical part for founders when they are looking to raise their pre-seed round.

Spring’s solution

Spring is designed to help fill part of the early-stage funding gap in the market. For our Founder in Residence program, we invest in promising founders with unique insights who don’t currently have an existing product or company. On our fund side, we invest true pre-seed capital at the earliest stages, often pre-revenue. Both streams have a strict limit on total deals per year so you get the right level of support you need to help you grow your business.

We have spent the past decade building relationships and co-investing alongside a network of angel and early-stage investors in the region. We continue to curate and engage with this network, providing them with early transparency into our pipeline so when it comes to spin-out and investment, they are often ready to co-invest alongside us.

It’s clear the region has a long way to go to alleviate the problems experienced by founders in the earliest stages. That being said, we believe Spring Studios goes a long way to solving the most pressing problems listed above. We make a point of listening to our founders and the market, and continuously feeding these insights back into our model to make sure we adapt as the market progresses.

If you are interested in co-founding a startup alongside us, you can get in touch here.