Making An Impact On The MENA Startup Ecosystem: What We Learned, And What We Predict
Almost five years ago, when we first embarked on our journey of building BECO, we looked for inspiration around the rest of the world, as we wrote our business plan. Where in the world were things working in the tech sector?
We focused on emerging (EM) and frontier markets (FM), as we felt that they most closely resembled our region. What models worked, what failed, and why?
We looked around the entire globe for lessons. LinkedIn became our best friend, as we reached out to other successful tech entrepreneurs and investors all over the world. We couldn't find many VCs in EM/FM, so we honed in on entrepreneurs.
We learned a lot.
We learned that traditional funds in EM/FM often had to sell their jewels at the worst time. When their jewels had created tremendous nominal shareholder value, the funds duration had arrived (7-10 years) by then, and they were liquidating these jewels when they had so much more upside, in order to return capital to investors. They had to make shorter-term decisions, as a trade-off to the longer-term benefits to all stakeholders.
We also saw that holding periods would be much longer than in the US and Europe. In the US, the average time for a liquidity event from startup to exit, via M&A or a listing, is seven years. In Europe, it is a few years longer, and in EM/FM, it would be even longer. This is why we created a company structure- a permanent vehicle structure with a listing as the final goal for our investors to achieve a path to liquidity.
We also drew inspiration from Spanish speaking Latin American market (LATAM) which, much like our MENA region, was made up of 15-20 predominantly Spanish speaking countries (minus Brazil). Similarly, we all speak Arabic, but from country to country, we have slightly different cultures. A Venezuelan is not an Argentinian, as much as an Egyptian is not a Kuwaiti who is not a Saudi. Our economic blocks both had restrictions of people flows as well as custom duties and other such hurdles making ecommerce across our common economic blocks a tough proposition.
South East Asia (SEA) also gave us inspiration in that our demographics were similar: Singapore to Dubai, Malaysia to Saudi Arabia, Indonesia and Philippines to Egypt- these markets share similar economic and population drivers in our respective economic blocks.
In 2012, Latin America had a few mega-successful entrepreneurs who IPO'd or sold their companies for mega bucks- in one case, it was in the few billions of dollars! SEA was more like MENA, in that there were a handful of successful tech companies, but no exits. Both Latam and SE Asia were much more developed technology ecosystems.
Fast forward 4.5 years, I'm very proud of what we in the MENA VC ecosystem have achieved. We have leapfrogged our EM/FM counterparts. The largest 5-6 VC firms in MENA have raised approximately US$250 million from mid-2014 to 2015, and began investing aggressively. That's a quarter of a billion dollars invested in two years! Angels, angel networks, incubators and accelerators have been investing, all creating a viable and thriving technology ecosystem, and in the process, deal flow for us in the VC community.
In 2012, we saw 80 deals happen, and this year, we will see around 1,000! Plot that graph: it’s not linear, it’s exponential.
Ladies and gentlemen, we have collectively created a vibrant ecosystem.
Entrepreneurship, while a lonely and hard road, has become a job for many across the region. A friend of mine in the late 90's once said to me: "Why would I go and look for a job, when I can go out and create my own, and hundreds more in the process?"
Today, the LATAM and SEA markets are changing very rapidly. I keep close contact with the tech community in both geographies, and it's typically made up of a handful of mega-successful wealthy entrepreneurs who have remained entrepreneurs and are on their next venture(s), or have, for the most part, become super-angels; in one case, having written 130 angel checks in the last four years. But that doesn't create an ecosystem.
With respect to the MENA ecosystem though, here are my predictions for its future:
- The MENA will be taught as a case study in how to create a vibrant tech ecosystem in a very rapid order. Books will be written about it, particularly applicable to developing markets that share our problems, demographics and digital consumption habits.
- With a quarter of a billion dollars (or in the vicinity of) raised and deployed in the last two years, we will be seeing exits almost every year, in the hundreds of millions of dollars from circa 2019 onwards.
- Most exits will be driven by M&A from local and regional traditional businesses that have either missed the digital revolution, or due to a lack of digital DNA, have not been able to crack their digital vertical.
To our local and regional institutional investors, I hope it's not too late by then. I never want my children (and grandchildren!) to say to me: "But Dad, you lived in Dubai during the golden era of digital, and you weren’t a part of it?"
No one ever made outsized returns investing too late or by following the herd. Come on, MENA- open up your checkbooks! We will make you and many generations to come, very, very proud.