Part 1: The State of VC in the MENA

Rita Makhoul, Jan 31 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. During the next couple of weeks, in a series of posts, we will be sharing their insights with you.
 

IN YOUR OPINION, WHAT IS THE STATE OF VENTURE CAPITAL IN THE REGION TODAY?



 
Walid Hanna
Walid Hanna
CEO @ MEVP

The status of the VC ecosystem in the region today to be nascent relative to its global counterparts, but with vast potential given upward trending macro factors. Much of the growth in the ecosystem today is driven by improving macro factors within the region: Increasing smartphone adoption, increasing internet connectivity, increasing adoption of cashless financial transactions, growing population of “under 30”/”tech-savvy” cohort. As a result of these improving macro trends, we’re already witnessing growth of the regional ecosystem as investors, both local and international, recognize the potential of startups to capitalize on them. With that said, we do believe the regional technology sector lacks Series B and late stage growth capital. We see international investors reaping the rewards of the opportunity in later stage funding in the MENA region. Such “capital void” highlights a compelling opportunity for MEVP, with the region’s largest VC fund (newly launched MEVF III) to play a significant role moving forward.

Fares Ghandour
Fares Ghandour
Partner @ Wamda Capital
 
Venture capital is becoming an asset class in MENA that every institutional investor and family office in the region is allocating capital to. When Wamda Capital closed its first fund in 2015, it was virtually impossible to fund-raise for a VC fund in the region outside a few pockets of capital here and there, primarily anchored by DFI's like the IFC who have been bullish on the tech space in the region since the start. The ecosystem historically has depended heavily on individual advocates like Samih Toukan and Hussam Khoury from Jabbar, and of course our General Partner Fadi Ghandour along with figures like Ahmed Alfi in Egypt, Hala Fadel in Lebanon, and others in the region to advocate and seed the ecosystem. This will now change as appeal to the asset class will come from companies that have achieved enough scale to warrant attention in and of themselves. We've gone from a region with ~$200M-$300M in VC in 2015 to ~$1.5B by YE 2018. That is a great opportunity but also puts tremendous pressure on the asset class to perform. We need to effectively create over $15B-$20B in value over the next 10-15 years in order for returns to make sense. 

Omar Sati  
Omar Sati
Managing Diretor @ Dash Ventures
 
From where we stand today, the regional VC scene appears to be self-steered towards growth due to the increase in the number of entrepreneurial initiatives on one hand, and the reshaping taking place in investment mindset on the other. Governments, now taking a more active role in empowering the regional startup sector, is another game changer for VC industry: we believe the indirect effect of increasing the level of comfort, by taking a stake in the game, is also crucial. Earlier in 2016 the Saudi Government pledged over $1.2Bn to support SMEs and startups through its Riaydh Taqnia fund and PIF (Public Investment Fund) while the Central Bank of Jordan, in collaboration with the World Bank, has pledged $100M to support over 200 innovative start-ups from across the country. All the above being said, it is very important to take the region’s geo-political situation into consideration, which has curbed potential growth on several occasions by limiting the supply of international funds into the regional VC and startup scene.

Abdulaziz Al-Loughani  
Abdulaziz Al Loughani
Managing Partner @ Faith Capital 
 
Venture Capital as an asset class is still in its infancy; the asset class hasn’t yet attracted a lot of fiduciary money, as the base is quite low (growing positively though), relative to other developed markets (~$1bn AUM compared to ~$70bn of AUM in the MENA region).

Namek_headshot+2017  
Namek Zu'bi
Managing Partner @ Silicon Badia 
 
VC, and the entire startup ecosystem as a matter of fact, is getting closer and closer to its goal of finding what I call "sustained relevance" in the region. Sustained relevance is only achieved for this asset class when investors (whether the funds themselves, their own investors, other angels/co-investors) start realizing returns on their capital and entrepreneurs and their employees start realizing returns on their blood, sweat and tears. Only then will we go from a "nice to have" to a "must have." We are getting closer.

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