Waleed A Alballaa

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Nigel Scott

This is a podcast series about how networks of money, talent and buyers come together to create ecosystems of technical innovation.

My guest today is Waleed A Alballaa, General Partner at Sukna Ventures in Saudi Arabia. Waleed was a founding partner at one of the region's largest VC funds.

The key insight that will he delivers in our conversation today is trust is the secret ingredient to unlocking future success. Why? Well, let's begin by asking Waleed about his journey so far and how he came to this conclusion.

Waleed

Great. Well, thank you, so, you know, my story started actually as a question and a wrong answer that I came up with. I was wondering, you know, Saudi you know, had a lot of ingredients for, you know, building a good economy.

Yet it wasn't competitive at the time and talking about the late mid to late nineties when I was considering getting into college and I thought it was because we were missing a very important ingredient, which was technology high tech, and I decided to get into computer science.

Then I worked in high tech and be out for a few years, then moved to the U.S., the West Coast, just before the internet bubble burst. I worked there for eight years for a number of semiconductors, IP design companies, and I ended up in Redmond, working for Microsoft just before Bill Gates retired.

I spent two and a half years there working on that operating system called Windows CE, which has four embedded systems and also in this mobile device. I was there when the iPhone came out and then the Android and Microsoft's reaction to it, and there was an eye opening experience for me.

And I got my master's there. Unfortunately, in computer science as well. But then, you know, I got the eureka moment. It wasn't actually technology that was the missing ingredient. It was something totally else, something less tangible. It's even harder to, you know, you can't manufacture it, you can't buy it.

You can do anything that would quickly resolve it. And you know, then I decided I needed to come back to Riyadh in Saudi Arabia and work on that thing, which is really I could summarize it and having the right mindset and the policies that support the support that.

So I came back work for a company at the time was a small startup called in and they were doing e-Government. Basically, this was in 2008. Everyone was surprised with, You really want to do e-Government in Saudi.

That's just crazy. And you know, the company from from the outside seemed like a, you know, a very technology oriented company. You know, management were all PHDs of science. And, you know, it seemed more like R&D than anything else.

But if you opened the hood, actually, what was happening there was amazing was fascinating. They were doing change management like no one else had done it before.

How do you convince, you know, bureaucrats and, you know, companies and others to actually utilize data that's there to make everyone's life easier, to reduce corruption, to do all of these things?

But that wasn't the selling point. The same point we were just telling you a solution, but the engagement that so that's how I learned, you know, how do you engage with the stakeholders? How do you engage with everyone?

How do you win them over and so on? So I worked and fought for them. And now it's a big company. one of the biggest in the region and they are IPOing soon they're now owned by BPIF. But it was a very great learning experience and I was there.

I came that mainly to work on how do you build an ecosystem? And I thought the Elm would be the seed of that ecosystem. It turned out it was a kind of a seed because a lot of the entrepreneurs and the founders here in Saudi actually went through Elm you know, before in their lives, but not in the way that

I imagined. So this is this is another lesson I learned where you can't actually design ecosystems and centrally, you know, you know, make them happen. I ended up towards the end of my tenure that I gave a proposal that Elm should also be investing in startups, helping them, opening up APIs and so on, so that that could be an ecosystem around it. And they allowed me to create a corporate VC arm. It wasn't really about the money more than, you know, how do we open up the APIs, the interfaces with these startups? So that that happened to the end of my tenure and that was another step in my ecosystem learning.

And in the meantime, I read a few books that also made a big impact on me. So I read a book on the called The Rainforest The Secret of Silicon Valley. It was a great book, and there was focus on why.

Why did Silicon Valley happen? Whereas other places in the same country in the US couldn't actually achieve? It wasn't. Education wasn't money, you know, New York, Chicago, other places. And it was fascinating. It didn't have an answer, but at least you know that it's not a model that you can copy and paste into any other place.

It was also, you know, influenced by the thinking of Professor Bill Jenaway I was also influenced by The Entrepreneurial State. The book that Mariana Mazzucato wrote and that, you know, got me actually to think that I really should go into VC. and work work on, you know, being a big part of shaping that, that ecosystem that I always wanted and I thought, I thought that the startup world, the innovation, you know, that was happening, that that was the core of an ecosystem that could actually answer the question that I had before.

Why Saudi is not competitive. We are a G20 country now. But even so, I see a lot of good potential because you have you have the brands, you have the money you have, you know, a lot of things going on, going for it.

But still the the recipe is not there, the ingredients are there, but not the recipe. So I co-founded a fund called STV. It's $500 million fund, but more important than the money because there's lots of capital. What wasn't there was we actually asked our investors to open up their asset.

To help portfolio companies build on top of that, so redefining how competition looks like, how market participants work, sometimes together. That was part of what we did and the fund. I stayed there for three years. But then I wanted to go even closer to the source of the deal flow.

I wanted to enter and venture into new areas that innovation hasn't tapped into yet, such as energy, health-tech and enterprise, even surprisingly here. So I start think about different models. Besides VCs how can we improve the VC model to help entrepreneurs build a bridge into these areas and get them in

And now I'm working on a new fund where we're doing fundraising for called Sukna Ventures, where we have a venture builder model or a startup studio model that works with the VC fund, similar to what Pioneer Square Labs in Seattle are doing.

And we just concluded the first program for the studio last night and then enterprise area where we brought in a unicorn in the enterprise space called the Unifornica, like the Twilio of of the region. And they also opened up their assets like distribution channels, the data, the engineering talent to help small startups build on top of them and create cloud services and projects and startups on it. So that's that's my journey in terms of, you know what, what got me into this whole thing? It was a question that I got the wrong answer for twice.

Hopefully, I got it right this time, but we'll see. I'm going to keep an open mind and learn and learn as we go.

Nigel

OK, that's great. The specific question I want to look at is the idea of what comes first money, or the talent.

I've got a feeling you're going to say it's a third.

Waleed

Yes. Yes, yes. Like I said, there's plenty of money in Saudi. There's plenty of talent. the government invested heavily in educating, you know, the population here from the best universities you can think of.

And yet we didn't see, you know, the ecosystem growth for a long time. It's picking up now very quickly. I'm very happy about the progress made in the last year and two years. Maybe so this year we actually quadrupled VC funding from last year and we expect even more next year.

We're seeing unicorns, we're seeing companies actually compete on a global scale now. But still, it wasn't money, it wasn't the brands. What happened was it was trust. So how do you facilitate trust in a place right?, so how do founders come together?

How do people trust them, buy from that from them, their products and so on. So trust was one of the missing ingredients that wasn't there. And you know, what happened recently was we we start having these venues for people to come and get to know each other, build relationships, work together on low profile things and build that trust over time. And then we had success stories that beget other successes and so on. So that's one, one aspect of it. I think the second aspect that we're still missing. And I think it's helped a lot in the case of the US.

Is having urgency on the demand side. So, for example, the US World War 2 helped right? And DARPA And you know, the internet can be because, you know, the Cold War and you know, the urgency of having a decentralized system that can function even after a nuclear attack.

And I really believe that kind of urgency is what was missing, maybe in Europe and other places. And maybe we need it here as well. And we're seeing that even more now that, you know, when oil prices went down, the the policymakers understood that you really have to be serious about, you know, allowing the digital economy to to grow. So there were lots of deregulation that happened. There were lots of changes in terms of how the government can actually procure from startups because it was very hard before, you know, how do you compete with a, you know, we have companies from all over the world.

And startups, it's very hard for them to compete with them. And that changed recently, and that's why we're seeing this. So I think this two and the third one is mindset. We were missing in the mindset part, but now that changed dramatically in the last few years.

People now don't see themselves as purely consumers. Now we, you know, been thinking we can produce, we can work with others. And we know that the market is is not too large. You know, we need to actually grow and go to other regions and other places and, you know, compete that as well.

So that kind of global competition helped bring up the the the quality of founders. So I think those are all intangibles that we're missing. But now we're seeing them come together and that's helping the ecosystem grow.

Nigel

Yeah, I mean, if you look at the history of Silicon Valley, it's it's it's a little bit like Hollywood in the sense that it started off as a bit of a real estate play. The US military had land which was obviously not in use after the war, so they had to figure out something else to do with it. And so there was a lot of cheap land and space available, and these tech companies came out of the military and then occupied these spaces. And then we saw that first generation move on. Then something interesting happened, and that was some of the key employees of those. Those initial wave of innovators moved out and VCs came along. And suddenly you had this explosion of tech coming out of that region.

And from what I understand of American history that's happened before because I think Henry Ford worked for Edison. He was in Edison Labs before he got out and said, I didn't know that. Wow, yeah. So that seems to be something of a trick where that the best talent decides Hey, I feel limited here.

I feel boxed in. I'm going to go out and break out and do that. And I've noticed in, say, Europe and particularly in Australia and and in other regions is a talent tends to not be that bothered about being boxed in.

They feel secure in that space and they don't have that wish to jump ship and do it on their own because they're more than comfortable where they are. For example, in Australia, financial services, financial services, historically, has always paid far more than you would ever earn in a startup.

Therefore, the best programmers tend to sit inside the banks on that side of those. Was that part of the challenge that you faced with convincing people to jump from was to what could be?

Waleed

100%, because the opportunity cost is just too prohibitive, right?

And it is a chicken and egg problem before, you know the prospect for a startup. We're very dim. very low. So it would be a, you know, an irrational decision to leave a comfortable job like that and going to startup. Now that we're seeing success stories.

So a couple of years back, we had our first unicorn in the region, which is Careem that will get acquired by Uber for more than $3 billion. And now we're seeing the Careem mafia people who worked in Careem before going out and creating companies and inviting others to come, and so they're in a position where they can convince people to come and work with me, let's create another success story and that is very contagious, contagious. And now now we're seeing this smart people actually designing some of them even, you know, leaving very, very good jobs and going into the startup world.

I know one who is actually it used to be the governor of an agency here who decided, no, you know, bureaucracy is not the thing for me. I want to create a startup and is creating something really amazing that working on that.

So we are seeing a big shift in terms of viewing that opportunity cost before people are looking at the short term costs. But now they're saying, Oh, there's also a long term opportunity cost. If I stay in this comfortable job, then I'm going to miss out on all the things that are happening in the startup world.

So now it's more of a balanced view and people are really seriously considering getting into startups, and we're seeing that in our vehicle as well. The quality of the fund is it's just, you know, increasing rapidly.

It's just amazing. Are you seeing the motivation as we want to change the world or are you seeing the motivation as we want to make more money than we are making in our current jobs? And that's a very important question, and I'm always worried about people who come in at just for the money because you know this

, there's this are more like tourists. If they find another way of doing it, they'll go and do it, I guess, because now it's becoming something that's very popular. We're seeing a mix of the two. And as we say, it's one of our jobs to actually determine as is this for real?

Are they serious about changing and solving a big problem in a way that is sustainable and that makes commercial sense as well? Otherwise, you know, it's just, you know, a matter of time before they get bored or, you know, they take wrong decisions for the wrong reasons and they hit the wall.

So to be honest, I think it's part of the maturity of the eco-system. We're still seeing a mix of the two.

Nigel

And in that entrepreneurial talent. What are you looking for the people who can attract other people to them?

Or are you looking for the big idea in the big vision? What's what's the? Or is it just a mix in the team which gives you the perfect, perfect start up team? To be honest, you know, my view of VC as it's a game of finding outliers and exceptions.

Waleed

So I don't have a a template for what a good founder looks like. I like to get to know the founders, you know, for a while before we invest. Especially in early stage. It's very community based kind of activity.

Yeah. And my from my experience is, you know, you'll never find the perfect founder, but every, every founder that we like has something going for them, whether it's their, you know, a drive and vision, whether it's because they can get others to be inspired and work with them because of that execution and so on.

But it's always different, you know, and I like to keep an open mind, and that's why I'm a big believer in Mark Suster's saying where he says, I don't invest in dots. I invest in lines. So I like to say, you know that this one dot at a time until I make a decision.

Nigel

OK. Let's let's go and have a look at technology, Do you see things like AI, machine learning or even cryptology and blockchain revolutionizing VC. Or, do you think it'll always be that sort of cottage industry, which it has been for decades of people who have basically run on their gut reaction and their their feelings towards the other guy across the table? Do you think it could ever be a game ruled by numbers?

Waleed

I I don't know, but what I know is VC model, as as I spent its days are numbered, right? We're seeing a lot of innovation from, you know, above the VCs and below the VCs in terms of the pipeline.

They work on. We're seeing, for example, rolling funds come to play. We're seeing crowdfunding, we're seeing DAOs come into play. We're seeing Tiger Global and big hedge funds and family offices coming in. Sequoia changed their model recently. Andreessen Horowitz also changed their model.

They got licensed as well. So I think the VC model will have to change. You'll have to adapt. Technology is going to be potentially a important, you know, way for them to think about how they want to do this.

You know, personally, you know my background, I do. I do see that there is a lot of gaps in terms of what VCs can do with technology. But the answer is still not clear to me, but I totally agree it's going to change.

But how? When? That's that's what we need to figure out as we go

Nigel

that that the Tiger Global model seems to be. It's this argument between bundling and unbundling. What we're seeing is a lot of fragmentation like, as you say, crowdsourcing DAOs and that, but you also have the big players moving in who are basically just sweeping up huge tracts of the marketplace. Who do you think is going to win? Do you think it's going to be a fragmented universe that wins out or is it going to end up like almost everything else on the internet?

And that is, it's a huge long tail and at the top of the table, you're going to have your Tiger Global's who basically the Googles of the VC World and then you're going to have that that long tail where everybody's basically eking out a plot of land and hoping they can make a living out of it.

Waleed

I see all of this as operating models, but the basics will always stay the same, they are invariants. For example, trust can you build better trust with the community and the founders value add? Can you actually add value more than the others and so on?

So I think is what will not change? In all these models in terms of what do you need to do to succeed and and focus on that and see what what is the the best model that that can or best vehicle that you can deliver those values on top of and and go with that.

I don't want to see myself married to any particular model. Otherwise, you know, I would miss out on what is really valuable and, you know, I would sink with whatever ship I decide to go with. So I'm fortunately, I'm still thinking about that very deep question, and it's something that we always think about.

We all discuss and to be honest, I still don't have an answer to it.

Nigel

OK, we got it. Let that sort of. Look over the horizon, what what changed and what stayed the same ten years from now.

Because I say that the context that I think around 2010. Which was three years after the iPhone emerged, it was pretty obvious that the iPhone was going to be the dominant technology in 2020, and the whole system would have emerged around that, which is essentially what's happened

Do we see moving forward in the next decade, ten years from now what? What's changed? Are we still looking at slabs of glass or have the glasses emerged and the and the payment rings of all these sort of things actually come through?

Waleed

Yeah, where our flying cars? Right? So I'm, you know, the the geek in me as very frustrated about the set of products today. I think we haven't have, you know, the the what we actually based in terms of R&D around the world.

You know, the experience on phones, on devices, how we talk with each other, how we live our lives. I still see it, you know, as very frustrating the user experience. Very frustrating. You know what we used to call deep tech before, you know, like semiconductors, you know, and some parts of machine learning and so on is mainstream almost now, I think other technologies are working on. Well, you know, computing models, for example, are very, very interesting. What if we actually get quantum computing to work on a scale? What do we if we get neuromorphic computing to work?

You know, there's lots of, you know, work happening on that side. What, what do we get, for example, if we actually figure out VR and AR? Would that change how we study? How do we work? How do we do surgery and so on?

So I think we need more time to master the technology, not just in terms of use, but actually understanding how to what to do with it, right? I don't think we we have figured out what to do with it, and I remember what happened with the electrical motor right when it first came out.

The actually productivity of factories went down because they start to use it the same way they were using a steam engine, and it took them decades until then said No, actually, I can rearrange the fact that it can have a pipeline and can do all these things, but it took them decades.

And I think it's the same happening with digital technology today. We still haven't figured out what what we really want to do with them. And on top of that, there's also the nanotechnology part, which is, you know, technology got ahead of the social and ethical and other stuff that are more important than technology that we haven't even figured it out now with. That's why we're seeing so many wars happening on Twitter and so on, because we we didn't adjust to what technology can do for us. And yesterday I was I was in a a conference for kids and children best technologies.

And it was kind of frustrating because everyone was thinking, Yeah, digital is just, you know, taking what we have and putting it on a screen and saying, wrong, you know, you're losing so much things that you can do with technology that you're making.

The experience is actually worse for students and saying, my my kids actually study online because of COVID, and I'm very frustrated. That's not how technology should. Technology should be an upgrade to the class, not a downgrade from the class.

So I guess over the ten years, even if we don't see any progress in technology, I hope that at least we we start figuring out how we can use it in a better way, how we can utilize it in a better way.

That's my hope, at least.

Nigel

Ok One last question, it if we think in terms of. I would suggest that, to date what we've managed to do is is is eat up the low-hanging fruit and essentially digital technology has disrupted paper Whether it's the phones and the, the Kodak happy snap, as is now Facebook. Yeah, the banking system is no longer checkbooks. It's now mobile apps and mobile payments. So today much of what we think of as digital innovation has really just been about saying, Well, we used to do this on paper.

We are now going to do it on our mobile phones. The question, I think going forward is is there more to digital than just disrupting paper

Waleed

100%? And that's one of the lessons I learned while working for an e-government where we found out it's not about automation.

You actually have. You have this opportunity to re-engineer the whole process and then you bring in automation. Someone else said it better remove, don't automate. So technology gives you a ways to go back and revisit your old assumptions about how things should work and if they're not valid anymore, remove those assumptions.

And now all of a sudden, you can do stuff in a very different manner that you know is even better. So I totally agree with your view, and that's part of my frustration with a lot of the products that's out here nowadays.

Terrific. And we're seeing the same thing happening in Web3. So, you know, they're taking what was in web2 just bring me into the web3 And it's worse. Worst version of what was there instead of thinking, Oh, now we have these new primitives, what can we do with them?

How can we make things even work in a different manner and in a better way? And we're not seeing a lot of that. We went, you know, I think that's that's where time comes in and we need to spend more, more effort time thinking about it.

Nigel

Yeah, I mean, my view of the Web3 is there's a risk there that it's actually coming along as a wave because we can't imagine what we can do more with web2. So therefore we'll just reset and go back to where we were when we first introduced the browser and do it all over again because we've run out of imagination. Yes, we get the worst experience even Yeah, yeah. Yeah. I mean, arguably the web browser when it came along took computing back to the days of the early word processors with text, markup, languages and so forth.

Waleed

I think in economics, they call it the productivity paradox. When a new technology comes in, you know you see a dip in productivity until people figure out how to actually utilize.

Nigel

Yeah. Well, if you look at the maps, it's very much that sense isn't there, that it's heading that way.

And you have to look at the the US Fortune 500. I think there's only five of the 500, which are post year 2000. So the first two decades of the 21st century have proven to be the least disruptive in 200 200 years in the US.

So it's it's it's a it's a very different story to what it was in the eighties and nineties.