Middle East investors delay exits amid Covid-19 pandemic, says report

A majority of investors in the Middle East and North Africa are looking to delay exits as a result a result of the impact of Covid-19, according to a new report from INSEAD business school and startup data platform Magnitt.

The report found that 58 percent of investors are looking to delay exits, with lower valuations affecting 42 percent of startups in investors’ portfolios.

However, startups working in education technology, healthcare and CIT saw monthly revenues go up by over 25 percent, while 27 percent of investors changed their mandate to focus more on industries that have seen high-growth as a result of the Covid-19 pandemic.

Additionally, the report found that a vast majority - 77 percent – have not benefitted from government support since the beginning of the pandemic.

As a result of significant drops in revenue, investors and start-ups alike have identified employee payroll support as their biggest need, followed by bridge funding and rent relief.

“Given the large investment of time, money and effort to build the ecosystem, acting now will have the necessary impact for many years to come,” said Philip Bahoshy, founder and CEO of Magnitt.

The report also found that 24 percent of startups expect a depression, compared to 75 percent of investors who forecast a recession.

Both founders and investors anticipate the crisis to continue for a considerable length of time, with almost 25 percent of founded expecting the crisis to continue at least through Fall 2021.

In the short-term, 60 percent of founders said they are facing revenue decreases, with 47 percent identifying a subsequent lack of cash.

Only 8 percent of start-ups indicated that their revenues have increased by more than 25 percent, while 4 percent have more than doubled their sales – mainly in the e-commerce, ICT and healthcare space.

Investors, for their part, indicated that managing the workforce with salary cuts (78 percent), hiring freezes (64 percent), lay-offs (39 percent) were their portfolio ventures’ most common responses to the lack of cash.

“Many MENA-based technology startups have shown resilience by adjusting their business model and product offerings, pivoting to scalable online solutions that have seen greater traction during Covid-19,” said Sietse van de Kerkhof, venture capital data and research executive at Magnitt.  

“This has resulted in many later-stage investments, which has fuelled the increase in total funding in the region in H1 2020,” she added.