To read this interview in Arabic, click here / اضغط هنا للنسخة العربية
When the casual observer thinks of entrepreneurship, they probably think of a visionary founder, or maybe a prominent investor. They often forget the community’s contributors that enable the founder to focus on building an amazing company, and the investor who sourced and put money into that promising venture. Of these, the lawyer’s mission is truly essential – to make sure that the founder, or the investor, don’t run afoul of the laws of the land, or each other. Playing such a central role in the ecosystem’s smooth operation often gives that lawyer an insider’s perspective into the industry as a whole.
Hisham Kassim plays that role in MENA’s entrepreneurial ecosystem. As the Managing Partner of Kassim Legal, he runs one of the region’s only (perhaps the only) boutique corporate firms focused on startups, Venture Capital, and Private Equity. As we chatted, his vast knowledge and network in the region were readily apparent. We covered his background, and that of Kassim Legal (spoiler alert: it’s a family firm), but also discussed the similarities and differences in legal structures and approaches between the U.S. and MENA region. I even managed to pry some legal advice for the region’s early stage founders out of him. I’m joking, of course, about the prying part at least. Hisham also donates his time and expertise freely as part of his desire to contribute to a stronger startup community in the region.
Read on for the full interview!
Can you start by introducing yourself and your legal practice?
I’m Hisham Kassim, the Managing Partner of Kassim Legal. Kassim Legal is a 50-year-old family firm based in Amman, Jordan. We work in the MENA region, specializing in corporate law, with a focus on startups, Venture Capital, and Private Equity. While most of our clients are based in the region, we do a good deal of cross-border work, such as collaborating with European funds that want to invest in the region, or vice versa.
Before getting too deep into Kassim Legal itself, can you tell me more about your studies and professional background?
I did my undergrad, law degree, and masters in the U.S. Then, I worked for a U.S.-based firm for about ten years. I eventually made Partner, but it turned out to not be exactly what I wanted out of my career, so I decided to move back home to Jordan.
How did you get involved with your family firm?
Kassim Legal is my father’s firm. When I moved back, I took over. He’s now retiring, begrudgingly. He did more of a litigation practice, but since I’ve taken it over, and revamped it for the 21st century.
How did you decide that the revamp would go in the direction of startups and Venture Capital?
While I was still working in the U.S I would get calls from newly-launched tech companies in the Middle East. This was back in the ecosystem’s early days. No one really knew what they were doing yet. I started working on one startup for a friend. Then, that turned into two, then three.
About ten years ago, things really accelerated, and we started working with Venture Capital funds. A big part of what we did, and I think why we’ve been successful, is that we didn’t just copy exactly the way things were done in the U.S. Rather, I would take best practice, then localize it for the region.
For example, in the U.S. they don’t usually issue share certificates that are signed and stamped, However, if you tell people in the Middle East that they won’t get a share certificate, their heads might explode. So I made one that’s compliant with U.S. law, but looks like what people in the region expect.
You’re involved with many institutions and organizations through the startup community in the Middle East. Can you tell me a bit more about your affiliations, and what you do with them?
One of the good things about moving back was that I could do a lot more pro bono work. So we hold monthly clinics with Gaza Sky Geeks, for example. We actually increased the cadence to weekly recently, due to the attacks on Gaza. We also do workshops and clinics hours.
In the Middle East, you have something like 50% of the population under the age of 25. Entrepreneurship is something that gives young people hope here, and we do our best to foster its growth. Legal forms are always available online, and we have a bunch of guides that we never charge for. We see ourselves as part of a larger community.
Today, Kassim Legal has team members around the world. Could you tell me a bit more about the team structure and operations?
COVID really made all this possible, in that now, we can do so much more remotely. Our firm covers Jordan and Washington D.C. We have a relationship with a partner firm that covers Cairo, London, and Dubai. We’re complimentary that way. If there’s anything in the jurisdiction that we don’t cover, we work in tandem with our partner firm.
For most corporate work though, you don’t really need a physical office. It’s not like litigation where you need a licensed lawyer going into courts. Most startups are registered in one of three countries anyway, and it doesn’t really matter where they, or their counsel is based. I have a team here in Jordan, my paralegal is in Belgium, of all places. She’s Algerian-Belgian and she speaks 4 languages, which comes in handy. I have another associate in Michigan and one in the UAE. Everything is on Whatsapp and Google Drive. It’s kind of amazing what you can do nowadays.
Does it help to have people with expertise with laws in certain countries?
Delaware law is the leading jurisdiction in the U.S. and one of the leading ones in the Middle East. Most of the corporate law that we work with is based on English Common Law, which is the basis of the U.S. legal system. ADGM in Abu Dhabi, British Virgin Islands (BVI), and Cayman are some others.
What are some of the main differences between American VC funds and funds in the MENA region?
I think the main differences come down to size and scale. Funds in the region are micro-funds by U.S. standards. We’re talking $5, $10, or $15 million. You have to work with less here in MENA. In the U.S.,with a $200m fund, the standard 2% management gives you more to work with than 2% of $15m.
The legal structures themselves are very similar. We typically register funds either in Delaware, BV/Cayman, or the Netherlands. We just have to do the legal structure for a much smaller fund, on a tighter budget. We sometimes get into issues on “politically sensitive” areas like Palestine or Iraqi but this just means we have to provide additional documentation.
The availability of knowledge and talent is another difference. In the U.S., you have so many accelerators, incubators, universities, and other programs that provide a really high baseline of information. Here, the baseline is much lower. It’s no one’s fault. We just haven’t been doing it for as long. That’s in the process of changing, though.
How many other firms or lawyers are there like you in the region?
There’s only a handful. The ones that do exist in the region tend to be big U.S. firms that have a strong startup practice. In terms of a boutique, I think we may be one of only a handful.
For the legal structure on the startup side, are there any differences that stand out between American startups, and startups in MENA?
On paper, it’s the same structure. It’s just that startups in the region start off with $100,000 in seed funding, not $1.5 million, like in the U.S. That $100,000 needs to carry them for a year. If they were in Silicon Valley, they’d need $1 million to carry them for a year.
We’re very careful about how we do their legal structure here. We try to pair everything down. I would rather they spend the money on product development, and marketing, not legal fees. They should push spending on legal fees until they get to be much much larger, later on.
The market in the U.S. is based on the assumption that you have more resources, a more familiar environment, a more supportive ecosystem, and more money. We have to tailor the way we do things to the MENA environment.
In general, how well-suited is the Venture Capital model to the MENA region?
The Global Entrepreneurship Monitor tracks a “Fear of Failure Rate” around the world, and the Middle East tends to score very high. The “dream” for parents at least is for their children to get steady jobs. There is a high degree of risk aversion. The Venture Capital model expects the founder to quit everything, and work full-time on an idea that’s more likely to fail than succeed.
We’re sort of experimenting now with a “venture builder” model. This almost assumes the founder’s going to fail, but we pay a salary to cover his or her cost of living. The best founders tend to be older founders. They have a bit of life experience, some business acumen, etc. However, the conundrum is that older founders tend to have families so they are less likely to take the risk of starting a new company. The thinking behind a venture studio or venture builder is to give seasoned founders a livable salary to try out their idea. They still take a bit of a risk, because we can’t pay you as much as a higher up corporate job, but we pay enough to cover their obligations. We take the risk together. This is kind of a new concept, especially for the region. There’s only a handful of venture builders in the region. I believe that over time we may come to realize that the venture builder model may be better suited for the region.
What is the best practice for early stage founders in the region when thinking about legal counsel?
They should really wait until they have a little bit of money. The most important thing in the beginning is to have a product, have something that’s going to work. The last thing you want to do is spend a bunch of money on a lawyer, without knowing if the company itself will stick around. Usually, we come in at the post-seed stage. The startup has an MVP, they’ve been in the market for a bit, and there’s an accelerator, or something like that, that’s given them some money and a stamp of approval. That’s when you should start spending a little bit, just a tiny amount, on your legal structure.
Until then, the most successful startups think very little about legal nitty-gritty. They go out, raise money, make a product, and then they call me. I end up backfilling, which is our preferred way of working. The entrepreneur knows their business is working, and they don’t mind spending.
How can a founder make sure that they don’t make a big mistake early on?
We do usually end up fixing things, but I’d rather be fixing. It’s easy to fix most problems. There are online services, like Stripe and Clerky, with forms that give you the basics. They’ll cost you a tenth of what it would cost to go through us or another lawyer. You’ll have a bank account, and some legal agreements, which is good enough. The legal protections from those kinds of services will serve them well until they get into an accelerator.
Even at that point, they’ve only raised $100,000-$200,000, which isn’t even money worth fighting over. With salaries and product development, it’s blown in over a year. Still, a founder will usually portion a little bit off for us to go in, and fix what they’ve done up to that point.
The only time when we’ll set up a company before they have an actual business, or MVP, is when I know it’s a 2nd- or 3rd-time founder. The older, more mature people, I will just go ahead and register the company. I know the chance of success is higher.
What is the most common legal document for raising the pre-seed or seed round in the region?
Right now, people like the SAFE. It’s six pages long, shorter than both the traditional note (15 pages), and the KISS, which is about 10 pages. SAFEs are very founder-friendly. My general advice to founders is to strike a balance between the startup/founder and the investor. If it’s too favorable to one party, it ends up hurting the company. If the investor has too much power, it suffocates the entrepreneur and he can’t work, but if the investor doesn’t have enough control, then there’s no discipline imposed on the founder. The idea is to find a middle ground. We’ve made our own note that combines all three. It’s being used in the region, and I personally think it’s right in the sweet spot.
How is the investor approach towards startups different from that in the U.S.?
Part of it is the investor wants more control, but part of it is that the founders here tend to be less experienced. Combine that with a less mature ecosystem, and the investor is more worried about their investment. They wants to be more involved. We did a deal in the U.S. where the founder was a 60-year-old seasoned entrepreneur, who’s done twenty startups. You don’t find that equivalent here in MENA. A “seasoned” entrepreneur here, is on their 3rd or 4th startup, not their 20th.
The investors may be a bit overreaching, but that’s not the whole story. Maybe part of it is justified because the counter party isn’t as sophisticated as they would want. We find ways to bridge this gap. For example, convertible notes usually contain something called a valuation cap. In the U.S. this is less of a discussion, but here, investors and startups really bicker over it. Startups want it to be as high as possible, and investors want it as low as possible. What we’ve been doing is a “floating valuation cap” based on the performance of the startup. If the startup says, “I’m going to have one million users in a year and a half,” the investor can say, “great, if you get to that point, I’ll give you the valuation that you want. If you don’t, then we’re going to go with my valuation.” This allows us to delay, even avoid the argument, and I find that really useful to do here.
Are there any industries in the region that you’re particularly excited about?
I would say MedTech is very interesting right now. Logistics is still doing well in the Middle East. The Ghost Kitchen craze is not over. I think EdTech is probably a bit overblown. Fintech is still very hot too. MedTech and Telemedicine though, I think that’s the next wave.
We have a very crowded space for funds in the post-Seed to Series A space. That’s why I think the venture builder studio may do very well in the region. The Seed to Series A is very easy in comparison – usually convertible notes and some due diligence. There are some players in the Series A market, but I think funds like to be in an easier segment of investing. They’re smaller, they have fewer resources so it makes sense.
I think the region also needs some type of exit or distressed fund, where we combine companies and put them up for sale. Not all these startups work out, but some funds will buy and combine these failing businesses into something that works. We’ve been at this for about 10 years in the region, and there’s probably enough out there to “salvage” for a fund like that.
Any work with entrepreneurs requires long hours. What keeps you ticking?
It’s the people we work with. We’re a small firm and all our clients consider us good friends. I like to work with people I like. When we take on clients, we eventually become friends. I feel like I’m helping not just my clients, but also the general ecosystem. If one of my startups does really well and has an exit, then it gives hope to other people. After a certain point in time, the forms etc. become boring, but what keeps you going are the people.
People in this space are just more optimistic. It’s nice to be around. Everyone I’m working with is ambitious, smart, they want to change the world. I like working around people like that.
Looking to the future, what are you excited about?
I’d love to produce more content, and generally contribute to the ecosystem as much as we can. We just have to do our part. So much of what we’re doing is standard setting. We need to have the whole region using that same one form, not five or six different versions, like we do now. I’m hoping over time that we’ll all come to agree on a certain standard. It just makes life easier for everyone.
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