Over 2019, the region has seen its burgeoning venture capital (VC) community beginning to take flight.
The first half of the year alone saw a 66 percent increase in total funding for start-ups across MENA, with 238 deals amounting to some $471m in total investment, according to research by Magnitt.
The VC community is still very much in development, but with one of the most diverse developing start-up ecosystems in the world, we can expect to see exponential growth across the entire region in 2020.
Record deals
Indeed, last year also marked a number of milestone deals, with global tech giants acquiring innovative, home-grown start-ups – such as Uber’s $3.1bn acquisition of Middle Eastern rival Careem and Amazon officially launching in the region via its recent purchase of souq.com.
As early-stage investors continue to expand their reach, providing MENA start-ups with greater access to funding and increased visibility to international investors, we can expect further mega deals in the year ahead – even larger than those we have already seen.
“With one in three start-ups founded by women, the region is a surprising leader in start-up diversity”
However, perhaps most significantly, 2019 was the year when governance, culture and team dynamics were thrust into the spotlight. Specifically, the year show-cased both regionally and globally how weaknesses in these areas can result in innovative start-ups failing, despite rapid growth in all other areas.
The shock downfall of Wework and the sudden rescue of Fetchr by Gate Capital – to list but a few examples – were down to failings in governance and building a proper team culture founded on trust and transparency. Cultures of personality were allowed to flourish around founders – brilliant thinkers able to kick-start a business but not necessarily able to run one.
This is where 2020 will see most change. It is an irony of the digital era that the start-ups that will be sustainable are those that will take a more old-school approach to business – those that focus on more traditional areas such as building a positive, dynamic and incentivising team culture where key decisions are made by partners across the board, not dictated by one “brilliant jerk”. In short, the most forward-looking businesses in 2020 will be those that are looking back.
This cultural shift is already underway around the world. Just look to the UK where fintech challenger banks are trawling the more traditional financial services world to build C-suites of alumni from the more established big banks. At these established corporations, people management and corporate culture is a whole division of its own, with systems of checks and balances in place to prevent one individual from derailing the whole operation.
VC firms have been paying close attention to the headlines, and have been working a lot more on their own dynamics. They increasingly understand that this – as much as the dynamics of the companies they invest in – will impact their ability to do the deals that matter.
Promising returns
Throughout 2020, we will see VCs in the region taking more care in their investments, incentivised to meet metrics based not on how much money they deploy, but on the returns that that money makes.
Subsequently, issues like gender diversity will be taken into account as never before, as VCs around the world begin to take an increasingly careful and grown-up approach to their investments.
The year 2019 saw the release of a number of major reports, such as the ‘Gender 3000’ report, published by the Credit Suisse Research Institute that found a link between firms with more female leaders and stronger share price performance over time; and a research by the Kauffman Fellows Research Centre that found that start-ups with female founders raised 21 percent more in venture capital funding than companies with all-male teams. This has strong implications for the Middle East’s VC community going into 2020.
Diversity in business
With one in three start-ups founded by women, the region is a surprising leader in start-up diversity. International investors will be paying close attention to the growing body of research indicating the importance of diversity for business, and crucially, profitability. They are already turning their attention to the Middle East.
In conclusion, we can expect growth in the region’s VC community to continue its upwards trajectory into 2020 and beyond. This year will bring an ever stronger and increasingly modern investment climate, driven by VC firms and innovative start-ups taking a more traditional approach to business, and focusing closely on the issues that matter.
Areije Al Shakar, director and fund manager of Al Waha Fund of Funds
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