At the top of final 12 months, the Middle East’s startup scene was on the up and up. The area’s ride-hailing service, Careem, was acquired by Uber in a $3.1bn deal, and the broader business witnessed file ranges of engagement.
Research from MAGNiTT, a startup knowledge platform, revealed that $704m was invested throughout 564 completely different startups throughout the area in 2019. “To put it into perspective, 2009 saw $15m of funding in five venture deals,” the corporate famous.
“The story remains success breeding success,” Christopher Schroeder, co-founder Next Billion Ventures and creator of Startup Rising: The Entrepreneurial Revolution Remaking the Middle East, advised ZDNet. “The massive mobile penetration [is] attracting investment from within the region,” Schroeder ogaaday, and that funding is coupled “with more global tech companies exploring ways to enter”.
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However, that momentum was, in fact, pre-COVID. With the pandemic impacting economies, companies and lives around the globe, what does it imply for the Middle East?
Mixed fortunes for startups
Initial prospects for a lot of startups within the area did not look good.
A report from Wamda and Arabnet in May, that includes findings from 247 startup founders throughout the area, highlighted that just about half, 49.4%, of these surveyed had a money runway of six months or much less. That dropped to at least one to 2 months for logistics startups.
Moreover, 71% of startups commented on the unfavourable influence of the pandemic on their enterprise – with startups in e-grocery, edtech and fintech tending to buck the pattern – whereas half of respondents additionally commented on the influence this had on their funding. Postponement, elevated selectivity, and slowed-down funding from enterprise capitalists have been all cited as key issues.
In response, corporations put a variety of measures in place to cut back prices, together with working from house, delaying growth plans, wage cuts and creating new enterprise fashions.
“The survival factor for over half of the startups in the region is [dependent on] getting new investment or grants,” the report’s authors wrote. “Financial aid, whether in the form of investment, loans or bill waiver, is necessary to support the region’s startup ecosystem.”
However, this seemingly bleak outlook is not common.
Reinforcing Wamda and Arabnet’s conclusion that the influence of COVID has diverse from sector to sector, knowledge printed by MAGNiTT over the summer season confirmed that $693m had been invested within the area’s startups throughout 2020.
“That represents a staggering 95% of the total venture investments throughout all of 2019, already a record-breaking year for startup deals for the region,” says Areije Al Shakar, director and fund supervisor at Al Waha Fund of Funds, a Bahraini authorities program designed to create a VC neighborhood throughout the area.
“The pandemic may have had an adverse impact on the startup and investment scene globally, but we’re seeing something exciting and unexpected occurring in the Middle East,” she added.
There are a few causes for this maybe surprising state of affairs.
Philip Bahoshy, MAGNiTT’s founder and chief government, advised a UAE-based newspaper earlier within the 12 months that extra later-stage investments with bigger spherical sizes have been happening.
That means cash is usually being put into extra established companies. These are entities that “can provide [investors with] a longer runway to weather the challenging times ahead”.
Research appears to strengthen this suggestion, demonstrating that whereas general funding within the sector is going up, the variety of corporations being invested in is happening.
New numbers from MAGNiTT mirror this actuality, whereby “August 2020 saw a 48% drop in the number of deals, while total funding on the other hand increased by 93% when compared with the same month last year”. Its knowledge advised a related story in July and within the first half of 2020, the place funding for Middle East startups was up 35% 12 months on 12 months.
These tendencies are having a variety of unfavourable impacts on the area’s startups.
Most clearly, exit timelines are being prolonged and there are issues that funding in new ventures has been stymied. Dubai Future Councils has additionally addressed the problem of burnout, noting that “many tech startups have high burn-rates”, a trait more likely to be exacerbated by the stresses of the pandemic.
Future investments in startups
There is a “shift in investor appetite towards lower-risk, later-stage startups”, acknowledges Areije Al Shakar. “But this doesn’t have to mean that smaller, newer startups and higher-risk ideas will be left by the wayside. The region’s burgeoning VC community is deploying their capital more strategically and sparingly, but more accurately.”
Part of this accuracy may be seen in efforts designed to assist sectors which are assembly clear enterprise and client wants proper now. Those identical corporations, it could appear, are additionally those which are probably to be protecting their heads above water.
Flat6Labs, an accelerator primarily based within the Middle East and North Africa area, helay that – amongst its startups – edtech, SaaS, fintech, e-commerce, and IT industries, “are either operating normally or beyond normal capacity because of the pandemic”. In distinction, startups in transportation, journey, agritech and logistics, are discovering the going so much more durable.
Ambar Amleh, associate at Ibtikar Fund, a five-year-old seed fund primarily based within the West Bank metropolis of Ramallah, mentioned: “The pandemic has accelerated trends that needed to be accelerated in this region, like e-commerce, telehealth, online education, and digital payments.”
Speaking to the International Finance Corporation (IFC), a member of the World Bank Group, Amleh uga hadashay that her firm plans to launch a second fund “that capitalizes on the trends that were expedited and amplified” by COVID. Among these tendencies, social distancing has meant that streamlined e-commerce methods have turn out to be “quite necessary”, she mentioned.
“It is also a good opportunity for startups to start going online,” Flat6Labs advise, stressing that “those whose business models depended heavily on legwork – the physical presence of someone on the job” are likely to have been essentially the most badly affected.
“Find a way to make their business become mostly cloud-based,” they suggest to founders. “If you can do that, you can truly future-proof your startup.”