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The State Of Play -And The Road Ahead- For Startups And Investment In The GCC A look at the trends that made 2023 a rare "off" year for the GCC startup community, and where startups can fund themselves in 2024.

By Ryaan Sharif

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The Gulf Cooperation Council (GCC) has earned a reputation for being friendly to startups. Last year, just two of the countries in the region -unsurprisingly, the UAE and Saudi Arabia- drew in nearly 60% of the US$3.2 billion that startups across the broader Middle East and North Africa managed to raise. From agritech to fintech, it would appear that the GCC is the place to be.

And yet, we cannot ignore the falloff in investor activity. We live in a connected world, and international markets are in the middle of a capital crunch. Investment in the region this year has been muted, and it is reasonable to assume that 2024 will prove to not have been as fund-furious as 2023.

So, where do we stand? Below, we explore the reasons for this to set the stage for what comes next. How will startups go about funding themselves in 2024? Advice to follow, but first, let us examine the trends that made 2023 a rare "off" year for the GCC startup community.

1. Risk-takers retreat

There has been a mood swing among the venture capitalists (VCs). In 2022, they were more willing to back hopefuls with a view to growing their investment significantly. But our globally connected economy got in the way. Unpredictable externalities slowed business growth and suppressed investor appetite.

Now risk-averse, investors no longer tend to factor in speculative and intuitive business attributes such as the founder's "vibe" and projections for revenue and profit. Instead, they have reverted to the fundamentals, asking to see hard data, and poring over it for longer periods. This has stretched out funding cycles. And even when they give the nod, they do so with the provision that they will be more intimately involved in the business.

This change in temperament has had a knock-on effect on entrepreneurs. More due diligence means having to start funding cycles earlier. It means more time spent preparing narratives and presentations, more calls with backers, more pressure to deliver results, and more stress when things are not ticking along as expected. The one bright aspect of all this extra scrutiny is that founders get to pick the brains of their experienced backers more often.

2. Late to the party

Wary investors are less likely to get in on the ground floor. We have seen a sharp steer away from early-stage engagements. The potential high-reward deals are simply not enough to tempt backers.

But while they certainly now favor the more solid ground of later-stage rounds and their long-term viability, that is not to say some investors cannot be won over by a founder with the right value proposition, narrative, and presentation. If they prepare themselves adequately, there is still room for such companies to secure seed-stage funding from angel investors, crowdfunding platforms, and accelerators.

Related: Pitching With Scars: Get Real To Get Funded

Dubai International Financial Centre in the Special Economic Zone, a hub for investment companies in the Middle East. Dubai, UAE.

3. Banking on alternative sources of capital

As VCs have become more discerning about the companies they invest in, some startups have looked to banks to fill the void. Of course, this leaves new businesses open to the immovable policies of traditional lenders. The startup needs to be sure it has a solid credit history and a robust business plan. Banks have always been more diligent in their lending practices than venture capitalists. They may require borrowers to put up collateral, or accept higher interest rates.

However, for startups that are unable to make headway with investors, this may be the only viable route. Fortunately, the government in the UAE has established credit-guarantee schemes to encourage banks to lend to smaller enterprises. And the UAE financial services industry's vigorous digital transformation makes the admin of loans cheaper and decision times shorter.

Well, what happens now? So, that is the state of play. And as we move through 2024, we should not expect to see much movement towards the good old "funds for all" days of 2022. While global macroeconomic conditions persist, we should expect to see VCs keep their hatches battened. But even as investors prepare to stick to their 2023 strategy, there is nothing to stop startups adopting new approaches to get noticed.

A strong message will get through. Remember what it is you do, and make sure others know it. That requires a concise story, but it also should be one that exposes the strengths of your offerings, and explains their value clearly. Put it all on paper, tweak it, optimize it, and memorize it, so that every time you get an opportunity to tell your story, you can do so quickly and succinctly, even in a high-pressure situation. That peak investor scrutiny will still be present, but if you can convince them that you have a deep understanding of your operating market and all its opportunities, threats, and regulations, then you will have their attention.

These encounters will be more productive if you understand your audience, so target investors carefully, and get to know how risk-averse they are, and why. Account for the type of investor. A high-net-worth individual (HNWI) or angel will likely have lower expectations when it comes to returns (in respect of both volume and time) when compared with a VC. Also, while they tend to be more cautious, the GCC's family offices may respond to the right value proposition. Just be sure to research what fields they have been known to target. Also, in the general case, ensure you do not target (for example) an investor with a history of Series B funding if you are looking for seed-stage backing.

It's all about the sparkle. At the end of the day, it is about the right individual with the right interests in the right setting at the right time. After that, if presented with the right bait, investors will still bite. It is up to you, the entrepreneur, to make your vision sparkle for them the way it sparkles for you.

Related: A Guide To The Top Angel Investor Groups in Saudi Arabia

Ryaan Sharif

General Manager, Flat6Labs UAE

Ryaan Sharif is General Manager at Flat6Labs UAE.

Ryaan is a BA (Econ) graduate, majoring in finance, from the University of Manchester. Upon graduating, Ryaan worked for Ernst & Young in the Transaction Advisory Department whereby he worked on numerous engagements with multinational firms in developing business plans, due diligence, feasibilities and valuations.

Ryaan then went on to become a Senior Manager at the Economic Development Board of Bahrain whereby he personally account managed and attracted US$300 million in foreign direct investment persuading the likes of BAE Systems, CIMC, Ariston Thermo, Mondelez (Expansion), Aleastur, SMS Meer to invest and establish facilities in the Kingdom of Bahrain.

In early 2018, Ryaan was appointed as the Managing Director of Flat6Labs Bahrain, the MENA Region's largest regional seed stage financier and accelerator program whereby they invested in 38 portfolio companies in Bahrain of which 65% of the portfolio managed to achieve follow-on-funding in just over one year of operating.

In 2019, Ryaan went on to join Batelco where he headed the B2C Investments in the Digital Development Department that was recently established within Bahrain’s leading telecom operator. Batelco was mandated to deploy US$500 million, as a strategic investor, into high growth digital companies in the form of potential majority equity investments, joint ventures and regional partnerships across the verticals that includes consumer, enterprise, government, and fintech.

Ryaan has recently rejoined Flat6Labs Abu Dhabi, which has launched a US$32 million fund in partnership with ADQ, the sovereign wealth fund of Abu Dhabi, that will aim at initially investing in 60 startups over the next three years. Flat6Labs UAE is currently into its third cycle, and it has now completed 28 investments in just over a year.

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