With the growing Islamic economy industry, this Halal in Travel Global Summit 2022's session served as a platform for Muslim entrepreneurs to brainstorm the challenges and strategies of building a Muslim startup.
On this opportunity, CrescentRating invited Saad Malik (CEO and Co-founder of Zoya Finance), Arfah Farooq (CEO and Founder of Muslamic Makers), and Maruf Yusuf (CEO of Halal.Ad). The session was moderated by Mamadou Ndiaye, CEO and Co-founder of Wasabih.
An interesting development in the Islamic economy arises with new startups. Especially for Toronto, Canada, this city has the densest Muslim population in North America with startups coming into the Halal foods and Islamic finance—these sectors have the most entrances making them the two most popular categories among Muslim startups.
In 2016, Muslim entrepreneurs were struggling to rise. Arfah Farooq, CEO and Founder of Muslamic Makers, noticed that there weren't many startups entering the tech industry, for example, but 6 years down the line there are many Muslims working as developers, data analysts, etc. There is a noticeable generational shift that supported many sectors, like Halal foods and Islamic finance, to rise and help create a competitive landscape.
The Muslim sectors are starting to find their own way to develop, even to convince non-Muslims to invest in their products that are targeted to a niche market. Farooq argued that it's important for these startups to have the right talents with the right skills, so they would hire not only somebody from a Muslim background that understands the cultural context, but also someone that has the skills to build these businesses.
Saad Malik, CEO and Co-Founder of Zoya Finance, had quite a bit of a challenge getting the startup up off the ground, but last year Zoya Finance became a venture-backed startup—it may even be the second company in the US to be VC-backed while being an Islamic finance startup.
Over the years, Malik and the AMCC (American Muslim Consumer Conference) held several conferences and research reports that highlighted a transition, from 10 to 12 years ago, where companies have been able to adopt technology to create products that are wider spread and more accessible and affordable. This is why there is a lot of activity happening in the Muslim consumer space in the last 4 to 5 years more so than in the previous decade.
Malik originally never planned on raising VC because he and his team did not think that it was possible. The initial plan was to bootstrap the company and put the team's personal savings if need be.
Zoya Finance was started in 2016, but only in 2019 when the beta was launched and in 2020 the product was launched publically. As plenty of companies are entering the retail investing world, Zoya Finance took advantage of that opportunity and skyrocketed their growth in a short period.
Although Zoya Finance already received inquiries from potential investors, only until the numbers were checked when Malik thought that this could make a compelling case to raise VC—Zoya Finance then managed to get a few angel investors.
After half the money was raised through angel investors, Zola Finance had a few VCs lined up with one of them ending up committing. Being the first Muslim company invested by the VC, Malik and his team were excited about the potential market.
Maruf Yusuf, CEO of Halal.Ad, proclaimed that the main challenge for many startups is funding. As a startup in the Islamic economy, there are two hard things: startups shouldn't go to traditional leases, while they don't have an alternative as well.
Yusuf continued to explain that the second challenge is marketing. The majority of the clients at Halal.Ad use Facebook and Instagram because it's affordable and scalable, but those platforms are no longer available—to some extent. Many Muslim startups and companies went and used these channels that became irrelevant and no longer usable.
"Although there is hype in unicorn startups raising many rounds and series, hype doesn't pay the bills," said Farooq.
Many startups have raised so much money, but their business model isn't there. It's imperative for a Muslim startup to think about the ethics because Amanah has been entrusted with the money invested into the startups to make a return.
It's important to make businesses self-sustainable and profit-driven because of said trust. As startups, there is a responsibility to do right with the money as it was taken from someone else. It's not necessarily the way to go for Islamic startups to keep taking money, but not figuring out how to make money—looking at it from a Halal or ethical perspective.
Malik highlighted, "At the end of the day, good ideas will always get funded."
VCs and investors mainly pay attention to how the numbers of these businesses tell a good story. Regardless of the industry, if there is a good business, a good number, and a good growth rate, investors are intrigued to fund businesses. However, the bar is set higher for Muslim startups, so it's important to build something and show traction before going out to raise funds.
Although Muslim startups are faith-based institutions, the rules are the same as conventional startups.
"The VCs would not care about that (faith-based identity) and you can not ask for a charity," said Yusuf.
Muslim startups are expected to raise businesses professionally and break the numbers. Raising funds should be started when the numbers portray a good company.
Farooq urged businesses to be careful about where to receive money from.
"This kind of thing should be number one: turning away money that could take your business off course will bring the right kind of money your way," she added.
In terms of hiring talents, it's essential that they don't have to be Muslims as long as they share the same values. It's vital to know the right values and ethos and stick by them so that they will run through the company.
Regarding funds, VCs are not the only option. Malik encouraged businesses to explore a few different options that are available. Equity crowdfunding platforms that exist allow businesses to receive funding directly from future customers. Other non-diluted funding sources are also available where a profit-based model can be made for a percentage of profit in exchange for capital. Creativity in raising money is what drives a good business.
Malik informed that a pre-seed round exists in the world of VCs for businesses that are experimenting with the market. Tractions were shown, but the direction of new businesses was still uncertain. The intention of this fundraising is to lay the foundation of the business and build the team because significant revenue may not be able to be shown over the next few months. Focusing on growth and revenue generation should be the priority for businesses at this stage.
"It goes back to telling a good story and having a big vision. Businesses don't want to sell a big unachievable dream, but they should have a big vision where they can demonstrate that there is an achievable path to get there," Malik added.
If Muslim startups are raised solely for revenue, it is advised to try other easier venues. Before businesses can go raise funding, at least 1-year needs to be put down for entrepreneurs to grow their idea.
Malik exclaims, "Build the team and show tractions! Launch the call at MVP! Get some users onboard! See if someone is willing to pay for that!"
Building a startup is building something which was not built before and serving a large enough audience that other people might put money into it and accelerate to something bigger and larger than the entrepreneurs themselves. Entrepreneurs need to be familiar with failure because not every idea will work and then learn and maybe launch another startup.
Farooq stressed that it is also important to know the right values and know what the correct boundaries are as well. Different entrepreneurs have slightly different ideas to understand the boundary in terms of money that aren't acceptable. It's important to understand them in the beginning before the opportunity arrives because entrepreneurs may get tempted.