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Necessity Is The Mother Of Innovation Lessons from history show why the COVID-19 crisis could lead to uncovering of the MENA region's next unicorn.

By Areije Al Shakar

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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.

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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.

Related: Silver Linings: What SMEs In Dubai (Potentially) Stand To Gain From The COVID-19 Crisis

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.

Related: A Progressive Perspective: Areije Al Shakar, Fund Manager, Al Waha Fund of Funds

Areije Al Shakar

Director and Fund Manager, Al Waha Venture Capital Fund of Funds

Areije Al Shakar has more than 16 years of experience in banking and entrepreneurship. In her current role at Bahrain Development Bank (BDB), she is a Senior Vice President heading the Development Services Division, and leads the fund management team of the Al Waha Venture Capital Fund of Funds as Director and Fund Manager. Her role and involvement at the bank includes coaching, mentorship, startup seed funding, and entrepreneur development. She has been involved in the development of several support services for entrepreneurs, namely in the establishment of BDB’s Rowad Program and the Seed Fuel-Rowad startup funding program, a part of the Global Accelerator Network.

She has worked in reputable organizations including Investcorp, Citibank, BNP Paribas, and Lehman Brothers on the treasury, investment management, and advisory side. She holds a Master’s of Science in Public Policy and Management from the School of Oriental and African Studies (SOAS), University of London, and a Bachelor of Commerce in Finance from the John Molson School of Business, Concordia University. She is also a Kauffman Fellow Class 24, and a certified business coach and mentor from the UK’s Chartered Management Institute. 

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