#VCViewpoint: Global Ventures' Basil Moftah And Noor Sweid On What Entrepreneurs Need To Know About Startup Exits In The MENA Region
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How far along should entrepreneurs think about exit strategies? Should MENA startups aim for an exit or an IPO? What do buyers look for when acquiring a startup? What does the exit process for a startup actually look like?
These are the kind of questions that gets answered in #VCViewpoint, an editorial initiative by Entrepreneur Middle East featuring Noor Sweid and Basil Moftah, General Partners, Global Ventures. Having overseen the exits of MENA startups like Eventtus, Mumzworld, Kitopi and more, as well as having years of entrepreneurial and investing experience under their belt, the two investors shared their insights on how entrepreneurs can follow similar trajectories for their businesses in the region.
On the discussion of exactly how far along entrepreneurs should think about exit strategies, Sweid encourages founders to first focus on solving a problem, followed by generating traction. "Whenever you start a business, we believe that entrepreneurs should focus on solving a problem," she says. "A problem that they believe exists, that they can validate, where the market is large, and really create a product and a solution that the market needs. Once that tackled and there's traction, maybe you pivot once or twice or three times, and then you capture the market, generate revenue, build a team, continue to build the company, maybe then you raise a round of funding. And then you get to a point where it's substantial and you have investors. Once you have outside investors and outside money, it's probably time to start thinking that these investors are not here for the long term, just a little bit of the of long term, and then ultimately, they will want to see a return on their capital. That's the right time to really start thinking about your exit, and your exit strategy."
Moftah agreed with this sentiment, adding that it's also worth considering your competitor's outlook when making such decisisons. "If you know a potential competitor would buy you and they're not in Saudi Arabia, for example, then moving into Saudi first might give you an advantage that makes you attractive down the line," he notes. "I don't think people should dream about exits and sit there- I think it can be distracting, and I agree with Noor that focusing on solving a problem is the most important, but thinking about exit scenarios can help you make some options or decisions that will set you up better of how that exit will be."
When it comes to the issue of whether MENA startups should for an exit versus an IPO, Sweid advises entrepreneurs to consider an M&A instead. “A very small percentage of companies IPO, it's just that they make a lot of noise when they do, so it seems like there's a lot," she points out. “70-80% of VC investments, the exits end up in industry M&A, and that's very telling. As a founder, the IPO might be the dream, but the reality is that an M&A is a lot more likely.”
Moftah also notes that while it’s exciting how MENA entities are considering IPOs as it creates additional options, it’s more advantageous to consider strategic mergers. “Realistically speaking, the probability of getting IPO is incredibly not just small, but slim. My view is that you're always looking to build a sustainable business at some point, it has to be able to hold off on its own, it needs to generate cash, and be sustainable from a financial perspective, and then M&A or strategic buyers or mergers with other companies in the space are probably the more ideal option for company exits.”
In this edition of #VCViewpoint, Sweid and Moftah also shared their thoughts on factors determining the success of a startup's exit, key characteristics that buyers look for when acquiring a startup, the exit process for a startup, and the state of startup exits in the MENA region. Check out the full video for all of their insights!