Behind The Numbers: Algebra Ventures’ Omar Khashaba Breaks Down The Realities Of Fund Economics

Omar Khashaba is the General Partner at Algebra Ventures, an Egypt-based venture capital firm that is focused on the African continent. For Khashaba, any discussion of funding stages has to begin with the realities of fund economics. The size of a fund, he notes, dictates how early investors need to enter, how much ownership they must secure, and ultimately, how far they can carry a company along its growth journey.

“I think the reality is most larger funds are pre-seed to Series A,” Khashaba says. “Unless you’re an over US$250 million fund, there is an economic imperative to secure ownership early. The appeal to companies of a multi-stage funding proposition that takes the company from seed to Series B is significant. Pre-seed and seed funds have more of an uphill climb, and they thus need to counter-position by offering disproportionate value around a key proposition; for example, access to markets/distribution, deep domain expertise, proprietary networks etc.”

“What’s truly still missing are funds with a real growth mandate, like Series B/C,” he continues. “There are a few out there, but they tend to consolidate around national mandates, and that doesn’t really address the funding gap at a regional level, especially in Africa. There may be structural reasons why those mandates aren’t abundant, but in any event, there’s a need for early-stage funds to carry their companies through to Series C. Smart founders understand these complexities, and, if possible, engineer their cap tables to ensure multiple sources of funding, i.e. they avoid the concentration risk of a single fund not being able or willing to provide the follow-on capital that gets them through to safety.”

If fund structures dictate where capital flows, then Khashaba argues that company milestones define when it flows—and those signals change dramatically between investment stages. “At an abstract level, everything from pre-seed to Series A is, to varying degree, a thesis-driven exercise,” he says. “At pre-seed, things are just conceptual, and you’re effectively making a faith-driven bet on the team or the market. Once you hit product-market fit, you’re ready to raise a larger Series B. It’s impossible to define what signals to look for universally, but generally speaking, it’s when the traction begins to take on a more exponential profile, and you can’t keep up with demand. You usually know it when you see it!”

Pictured in the lead image is Omar Khashaba, General Partner at Algebra Ventures. Image courtesy Algebra Ventures.