Iraq’s Startups Get Real About Investment

Over the past few years, we have worked closely with both Iraqi founders and investors. The major complaint we hear from growth-stage startups is that investors in Iraq are risk-averse and do not know “venture investing.” On the other hand, investors emphasize that there is no pipeline of investment-ready startups in Iraq. So, we decided to go on a fact-finding mission and get to the bottom of this puzzle. The first step in our journey was to gather the founding entrepreneurs of Iraq’s startup ecosystem into one room. In November 2023, we then had a frank discussion of the challenges facing the investment landscape and the repercussions on the entrepreneurial ecosystem.

One key subject drove the conversation, and that was investor appetite. We dug deep to uncover the entrepreneurs’ perceptions of barriers and potential motivators of investor risk appetite. Below is a sneak preview of what the discussion unveiled! 

Investor Risk Appetite

Roundtable participants zeroed in on the main barrier to accessing venture capital: investors’ risk appetite. The founders discussed two components impacting their perceived lack of risk appetite: a traditional investment mindset and local investors' lack of startup endorsement. 

Barriers 

“Many investors put their money into primary schools because there is a fast return on investment. They are still stuck in an old-fashioned mindset.”

• A Traditional Mindset

The founders believe Iraqi investors have yet to understand the concept of patient capital, where high returns imply high risk. Local investors still maintain a traditional investment mindset. One founder noted that investors prefer to invest in schools and restaurants where they would witness a return on their investment in less than two years. This traditional mindset emphasizing fast gains deters Iraqi investors from venture capital (VC) investing. The concept of investing in businesses that may need to “burn money” in order to scale rapidly is still alien to local investors. An entrepreneur voiced, “Local investors with conventional mindsets have no faith in the startup community.”

• The Lack of Endorsement by Local Investors

A hindrance to regional and international investor appetite is the lack of advocacy from local investors. Iraqi investors are failing to persuade regional and international investors, who are unfamiliar with Iraq’s ecosystem, to take interest and action. Another (similar) point of contention harming the interests of the Iraqi startups is when local investors invest in regional companies, such as Careem or toters, to enter Iraq. One founder pointed out, “I don’t think the issue is lack of [local] startups; I just feel like local investors are not doing enough.” Entrepreneurs stressed the need for local investors to be more prominent in supporting and advocating for local startups in the Iraqi startup ecosystem. 

Motivators

• FOMO

“We need to understand that the investment game is a jealousy game.”

In 2023, Iraq’s ecosystem noticed a drop in investment activity (this is aside from exits and acquisitions). Participants attributed this decline to the lack of success stories, as one founder voiced, “We lack success stories that would encourage investors.” Roundtable attendees agreed that an exit or international acquisition would ‘generate FOMO’ and attract local and regional investors. Founders believe a success story would also attract international interest despite the political and financial complexities of operating in Iraq. One participant pointed out, “There are some examples, such as South Africa and Pakistan. They are also unstable but still receive investment. We need to understand that the investment game is a jealousy game.” Irrespective of the political and economic climate, manifesting a local success story could jumpstart the investment ‘jealousy game’ and boost investment activity in the country. 

Steps to Increase Investor Risk Appetite

Education and Culture

“We need the culture of investors in Iraq to make people aware of startup investment. They need to be educated on the startup process.  

Cultural attitudes that support innovation, risk-taking, and learning from failure drive entrepreneurship forward. Shifting societal attitudes through education would create a culture more conducive to entrepreneurship. The founders discussed the areas of education investors needed the most help with: patient capital, startup cash flow needs, and the difference between small businesses and tech startups. Investors need to learn that successful companies garnering international attention do not appear out of thin air. These success stories endured years of risk-taking, struggle, and limited access to resources to scale rapidly. One founder noted, “Even if they see success stories, like Baly or Careem, local investors still don’t understand that successful startups are burning money…they don’t understand how much money is needed for a startup like Careem to reach that level of success.”  

Setting Precedent 

“The wave of local investors willing to take a risk, it’s the people on this call right now. It’s not going to be anyone else. It’s going to be us in the future.  

As early as 2009, local Jordanian angel investors believed in the ecosystem and took a leap of faith. For example, Jawaker, a startup founded in 2009 and acquired in 2021, was initially funded by high school friends. An attendee discussed how local Egyptian startups received local validation before attracting big international players, “They raised 10x more in the US because they had already gotten validation in Egypt.” Egyptian entrepreneurs were lucky enough that the local ecosystem displayed faith in them and were able to attract international attention. However, the modern-day history of Iraq has left the startup scene at a significant disadvantage. People unfamiliar with Iraq’s particular entrepreneurial narrative may not truly appreciate the startup scene and all it had to overcome against the odds.

The founders are very much aware that the fate of Iraq’s ecosystem lies in their hands. They are the ones to set a precedent and invest when others will not. The entrepreneurs clearly stated that to drive the ecosystem forward and to fuel investor appetite, the change must come from within - from the entrepreneurs themselves. Frustrated that local investors do not believe in the local ecosystem, entrepreneurs “have faith in the local talent and the founders we have here. It will only change if one of us builds the courage and establishes a precedent for future generations.” 

Stay tuned for the full report, where we will share all the juicy insights!