Necessity Is The Mother Of Innovation
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As the global COVID-19 pandemic enters its sixth month, the outlook for startups may, at first glance at least, seem bleak. After a record-breaking year for the MENA region’s startups in 2019 (with exits and investments at an all-time high), the first half of 2020 has been markedly different.
Indeed, according to recent research by Wamda, the crisis has negatively impacted 71% of startups in the region, with half of the respondents having a cash runway of less than six months. Yet, amid the doom and gloom, the crisis has borne incredible stories of resilience and innovation from startup founders across the MENA and beyond– and if history reveals anything, it is that diamonds are often created under the greatest of pressures.
When the 1973 oil crisis struck, the US experienced its worst drop in gross domestic product (GDP) in two decades, and saw unemployment nearly double. But two tiny IT companies emerged from the rubble of that 16-month recession– Microsoft and Apple. Today, they are trillion-dollar household names, two of the most valuable companies in the world. But these two tech giants were far from the only companies to be created in such dire economic conditions. Auto giant General Motors, today worth some US$32 billion, was founded during the Panic of 1907 that lasted three years. Computing leader Hewlett Packard was founded in the immediate aftermath of the 1930s Great Depression. And while the 2008 financial crisis led to a global reces- sion that endured for most of the late 2000s, it also saw the emergence of a number of unicorn startups like Uber and Airbnb.
In many of these cases, coveted unicorn status was rapidly attained as agile, innovative businesses reacted to new opportunities driven by necessity, such as a sudden shift in consumer behavior. In this way, the COVID-19 pandemic could serve as a global market leveller that will see even cutting-edge business models refined, as VCs are forced to choose more carefully, strategically, and sparingly where they deploy their capital. To put a modern spin on an old saying, necessity is the mother of innovation.
Here in the Middle East, we could see significant growth in the performance of VC-backed firms that focus on tech and innovation. For one thing, the region isn’t saddled with the kind of legacy systems that can hamper growth, and through agility, can leapfrog other more established markets as governments race to build thriving tech and startup ecosystems. Simply put, the Middle East offers genuine unsaturated white space for the enterprising VCs that are flowing in in ever greater numbers.
To date, the region has only birthed two unicorns, but the conditions are ripe for the next one. An unprecedented boom in the consumer uptake of fintech and other technologies is happening, catalyzed by the pandemic. The Kingdom of Bahrain’s national e-wallet, BenefitPay, for example, saw a 1,257% surge in transactions in March alone, as Bahrainis wary of infection turned away from physical offerings. There are 67 global VC-backed fintech unicorns in the world today, but none in the Middle East.
Meanwhile, the region’s governments are investing considerable sums in building increasingly dynamic and sophisticated fintech ecosystems. Bahrain is home to the region’s first fintech regulatory sandbox, with graduates including the region’s first Sharia-compliant cryptocurrency platform, and the region’s first open banking infrastructure provider. From the UAE to Saudi Arabia, other countries in the region are following suit.
In every major recession, new companies emerge and others reinvent themselves. Apple, born in the wake of the oil crisis, did so twice to get where it is today– first during the dot-com crash of the early 2000s, and then again in the wake of 9/11.
Across the region, agile innovative startups are turning to where they’re most in demand, using their technology to support their communities while seeking out new opportunity. In Bahrain, wearable healthtech venture HayaTech is helping its community boost immunity and exercise safely, while queue management system Skiplino is providing its services for free to government agencies, medical centres, and hospitals. Meanwhile in the UAE, ride-hailing app Careem, the region's first unicorn, has introduced a delivery service enabling customers to order meals and groceries while adhering to the city’s lockdown protocols. With examples like these and more, cautious VCs are paying close attention.
There is a wealth of talent in the Middle East. And while VCs are investing less frequently, they are investing more accurately. The third MENA unicorn is just waiting to be found.