By Lubna Hamdan
The collapse of private equity firm Abraaj Group as well as struggling Saudi-backed start-up WeWork have instilled fear in investors in terms of funding regional businesses
The $3.1 billion Uber acquisition of Dubai ride hailing app Careem has not led to increased funding towards regional start-ups, according to the CEO of Souqalmal.
Speaking at the Arabian Business Startup Forum, Ambareen Musa said investors are still fearful of funding regional start-ups due to the collapse of mighty private equity firm Abraaj Group as well as struggling Saudi-backed start-up WeWork.
"I don’t think there was an increase in capital but there was a massive increase in FOMO (fear of missing out) so there were a lot of people who didn’t invest in Careem a lot earlier on who said, ‘oops, we should have done that’. Having said that, there is only one Careem and they are aware of that.
"So as much as they have FOMO, there has been an increase in wanting to [invest] but there is still a lot of fear especially after WeWork, after Abraaj, after all these stories which have caused a little bit of fear. I think people are kind of in between at the moment, especially family offices where they are desperate to get into something as big as Careem but at the same time their education and awareness and comfort level, there’s still work to do on that,” she said.
Careem’s Series A angel investors, which include Saudi’s STC Ventures and Oqal Angel Investment Network, have made 100x return on their investment in the Dubai-based ride-hailing app, according to the tech company, which is expected to be acquired by Uber in Q1, 2020.
Lucy Chow, director of the Women’s Angel Investor Network (WAIN), said the Careem deal is a "one-off story” and that a key concern for Middle East start-ups is the lack of investment in regional businesses compared to start-ups overseas.
"We don’t have a lot of exits in this region as you probably know, so that’s the problem… There are still a lot of funds here that invest overseas or balance their portfolio, where half of it is overseas and half of it is in the region. We need to have more investment in the region and I think [Careem] was a great story but it was a one-off story,” she said.
In April, Abdulrahman Tarabzouni, the CEO of venture capital fund STV, said Uber’s acquisition of Careem will encourage Middle East entrepreneurs to “think locally” to solve hyper-local needs that can then be replicated in other markets.
STV, which is backed by Saudi Telecom Co, was an investor in Careem in its $200 million Series F investment round in 2018.
In an interview with Arabian Business, Tarabzouni said he believes the Uber-Careem deal “reflects the kind of potential that the region has.”
He said: “Founders and companies tend to forget that a lot of these global giants just started being super focused on tightly defined pain points that are local in nature and narrow in scope. That’s what we love to see in companies here, someone who has global aspirations and wants to go big…but starts with a very well defined user need that they are solving.”