When Derek Watson quit the traditional world of finance to help start-ups find their footing, he knew he had made the right decision.
“The crash of 2008 to 2009 essentially just sort of killed my enthusiasm for capitalistic models. I kind of saw right through them,” says Mr Watson, 52, founder of N2 Technology, which connects start-ups to investors.
“Capitalism isn’t really what it set out to be; it doesn’t really do what it says ... any longer.”
There are many parallels between the financial sector after the crisis and a world struggling with the effects of the Covid-19.
The pandemic, which disrupted trade and travel, has fuelled unemployment worldwide. According to the International Labour Organisation, labour income around the world fell by $3.5 trillion in the first three quarters of 2020, a 10.7 per cent reduction compared with the same period in 2019.
Job creation is a top priority for several countries around the globe today and N2 Technology is helping the region by fostering entrepreneurship.
A veteran banker with more than two decades of experience in trading and wealth management in London and Switzerland, Mr Watson moved to the UAE seven years ago to start Wake2o, which specialised in providing liquidity solutions in the alternative asset management industry.
N2 Technology, which he founded in 2018 and launched in September last year, was formed as he became more focused on private markets and the technology revolution that was under way in the region.
Mr Watson realised there was a gap to be filled after he sensed a mismatch between start-ups and their access to finance, particularly in finding the right investor.
“I come from finance, so I understand how those mechanisms work. But for these guys to get in front of the right person to raise investment is incredibly difficult. And one of the big problems is that they basically do not know what the starting point is – they don’t know where to start,” he says.
N2 Technology, which looks to bridge this gap, allows start-ups to sign up and be matched with venture capitalists for a sum of $799.
The matching process is based on an algorithm, which Mr Watson likens to a “decision tree”. Investors and start-ups are matched based on their requirements. Some venture capital companies, for instance, may only focus on start-ups that are halal-compliant, run by women or that promise greater diversity and compliance with environmental, social and governance standards.
N2 Technology’s algorithm considers the needs of both investors and start-ups and helps connect those with mutual interests.
The platform vets and qualifies investors to ensure they have the capital and interest in the start-ups they are matched with.
Mr Watson says the vetting process ensures that all the registered investors have the capital to invest in start-ups.
“It surprised me actually, the number of guys out there that actually do not have any money,” he says.
The process filters funds that may be gathering data to do another possible round of fund raising.
“We don’t put them on there because we don’t want to waste the entrepreneurs’ time sitting down for hours, writing up a whole bunch of different pitch books and stories,” he says.
Mr Watson said the shortest time taken to match a start-up to an investor was nine minutes. However, the process could take longer if a company is not ready with its pitch book.
Pitching online is now the only way for many start-ups to connect with investors due to the cancellation of roadshows as a result of the pandemic.
The online process has not taken away any of the hustle from entrepreneurs that intend to grow their businesses, Mr Watson says.
“They love the hustle; they want to get in front of people. Absolutely. And what we are saying is, at least get in front of the right people,” he says.
“Use your best ammunition, use your best sales pitch and that is what we want these guys to do at the end of the day.”
N2 Technology has so far attracted 260 investors to its platform and about 200 start-ups have uploaded their profiles to the website.
“So, we have ... [helped arrange] about $150 million worth of deals so far,” he says.
About half of the start-ups on the platform are at the seed stage while 28 per cent are looking for pre-series A funding. About 16 per cent are at the series A round and 5 per cent of them are at series B stage.
Mr Watson, who also mentors entrepreneurs, plans to use his skills to boost N2 Technology’s growth in the future.
The UAE’s signing of the Abraham Accord last year with Israel also helped N2 Technology attract start-ups from Tel Aviv’s thriving entrepreneurial ecosystem.
“I think we have signed up 40 investors out of Israel, immediately on the back of that,” says Mr Watson.
N2 Technology, which has a presence across South Asia – notably in India, Pakistan and Bangladesh – intends to leverage on the business ties between entrepreneurs in the region and the UAE.
Meanwhile, the company has set a growth target of 40 per cent.
N2 Technology, which is partly self-funded has raised $1.7m so far and is currently in pre-series A round of funding.
Most of its investors are high-net-worth people, Mr Watson says. The company is not financed by any institutional investors, in order to avoid bias on the platform.
Mr Watson plans to take his platform global in the long term and has his sights on the significant private market ecosystem.
“Fifty-two million people have private market investments. So, it is an absolutely enormous market.”
Q&A with Derek Watson, founder of N2 Tech
How has Covid-19 affected the start-up community?
Covid-19 created a massive problem. And what happened with the pandemic was that essentially everybody had to go and look at their portfolio companies. Every single bit of history, every single investment that they had received before that, you could literally throw it away. Every single entrepreneur either failed or their business took off, or they were busy pivoting. This meant that the data that you had out as an investor, outside of your portfolio companies was kind of irrelevant.
Do any of the venture capitalists have a stake in your company?
No, they do not have a stake in our company. That is one thing we wanted to be sure of. First point was how do we arrange access for start-ups very quickly and that was by taking fees off the table that made it transparent.
Do you make any profit from possible deals that the start-ups and venture capitalists enter into?
We cannot sell and we do not sell your product to investors. What we do is simply connect you in a nanosecond. Our success is not based on how many people have raised [funds] on the platform. That would be similar to asking Tinder how many people [who met through their platform] ended up married.
How do you match start-ups and venture capitalists?
They have all given their live investment preferences so when you are matched you know it is going to someone that is actually asked for it. So, it is this reverse solicitation. Actually, this is what I am looking to buy. It is what I am looking to invest in, right now, today, and not what I was doing a year ago.
How are South Asian venture capitalists different to the ones in the Middle East?
In India, in particular, what you see is they have not labelled themselves as venture capital companies. There are several family offices there that understand business from the roots up and they make a huge difference.