Part 4: The State of VC in the MENA

Rita Makhoul, Feb 12 2018

More than $900 million has been invested in regional digital startups in the last 4 years. With over 100 active institutional investors across the region, MENA has witnessed a significant proliferation of new funding institutions in the past 5 years, with Venture Capital (VC) funds, in particular, capturing the largest percentage of the investor community and doubling in number from 2013 to 2015. We spoke to key investors across the region to get their perspective on the state of venture capital in the region, the major trends, what they consider a good venture return, their predictions, and more. We have been sharing their insights in a series of posts. You can find part 1 here, part 2 here, and part 3 here

What enabling components are still lagging in the MENA ecosystem? How do you see the current funded startups exiting?


Fares Ghandour

Fares Ghandour
Partner @ Wamda Capital

Cross border scalability, red tape when entering new markets, and access to talent remain to be the overarching challenges for startups in the region. Liquidity will come with scale, and it will come from by way of exits to PE firms or large corporates, be they Asian or Western companies, or even local conglomerates and family businesses. Companies with great enough scale, say above $3bn-$5bn in valuation, will also look to be publicly listed on a global exchange, but the majority of liquidity to early stage investors will come from selling assets to later stage investors or corporates.

 


Abdulaziz Al-Loughani

 

Abdulaziz Al Loughani
Managing Partner @ Faith Capital 
 
The integration of MENA economies is one of the biggest challenges we face in this part of the world. Every country has it’s own laws, rules, regulations, market dynamics, and consumer behavior. The region is not homogenous; every city has its differences from the other. We think that integrating these economies/laws is the long-term goal we should target going forward. Exits to strategics only happened when regional scale was achieved in most startups/exits, higher chances of exits will happen if we’re able to view the region as a ~$3T economy with +250M Arabs.


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Hani Enaya
Head of Investments @ Riyad Taqnia
As it’s early in the lifecycle of the industry, we’d really love to see further development into the later stages of startup financing. This includes more funds that can invest in the series-B/C/D bridging the gap between VC and private equity. This also includes more M&A activity in established industries as they realize that investing in technology (e.g. through acquisitions of startups in their space) can give them a much needed edge against their competition.

Omar Sati
Omar Sati
Managing Diretor @ Dash Ventures
 
Legal and regulatory infrastructure is as equally crucial for the development of the industry as bridging the financing gap. Relevant aspects that are still challenging involve taxation, licensing, intellectual property and commercial legislation. That said, it’s worth mentioning the legal and regulatory easing undertaken in the UAE through DSFA and ADGM in addition to the building blocks the Central Bank in Jordan has been establishing to modernize bankruptcy and insolvency benchmarks for Fintech companies. Though the number of accelerators and VC’s have increased over the past few years in the MENA ecosystem, there still lacks a focus on entrepreneurial education at a grass roots stage. In the U.S specifically, students are taught in high school and university to try, fail, and try again as a means of learning. However, in our part of the world, there is still a large stigma around failure. 

Christos Mastoras
Christos Mastoras
Managing Partner @ Iliad Partners

The MENA startup ecosystem is nascent but has come a long way in the last few years. It is only natural for this to take time. The support system around startups is now developing at a faster pace - funding, incubators and accelerators, mentorship, and all the pieces of the puzzle are coming together gradually. The range of exit options are expanding: global players seeking to expand their footprint to MENA and local groups seeking to digitize and access innovation, both via acquisition as well as via a now more active secondary market. We have seen some significant activity in recent years such as the acquisition of Souq.com by Amazon, and Fetchr raising the largest Series B round in MENA thus far led by Silicon Valley-based VC New Enterprise Associates (NEA).
 
 
 

 

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