Startups in the UAE – and also in the wider MENA region – will be the biggest beneficiary of the new trend of ‘sustainable profits’ for funding sought by VCs (venture capitals) around the world, as they build businesses resilient by design with sustainability as a prerequisite in their business models, in view of the relative scarcity of capital, talent and resources, a leading investment expert said.
Conception of ideas, products and services with global applicability also makes the region especially attractive for global and regional investors.
“We expect the trend of investors rejecting the ‘growth at all costs’ modus in favour of founders who offer ‘sustainable profits’ to gain more traction in 2024,” Dr. Tariq Bin Hendi – Senior Partner at Global Ventures, the Dubai-based leading VC firm, told Arabian Business.
“This shift towards profitability, sustainable growth, maintaining healthy unit economics and a positive ROI actually suits emerging markets because startup founders in the UAE and MENA typically put emphasis on ensuring they have intrinsically sustainable business models from the start,” he said.
The Global Ventures Senior Partner cited the example of Zension Technologies Inc., the GCC’s largest device services platform, reaching profitability within just two years of launching its product.
“From the beginning, Khaled Saiduddin, Zension’s founder, prioritised strong unit economics in the belief that growth-at-all-cost would neither help him penetrate the market, nor gain customer and partner trust,” he said.
Bin Hendi said startups in the region have always worked within conditions of relative scarcity where access to capital, talent and resources are limited.
“Such a combination of circumstances is compelling for startups to enter the market and also for VC firms, be they deploying or trying to raise capital,” he said.
The VC top honcho said as a result, the region’s startup and venture capital ecosystem is maturing every year, with several exits and prominent global investors such as Sequoia and QED, participating in regional deals.
UAE offers plethora of opportunities for startups, investors
Bin Hendi said the UAE and MENA have several opportunities, including the benefit of a young population, for startups to originate and thrive.
“The median age is only 33.5 years. There are internet penetration rates of 100 percent in the UAE and Saudi Arabia, and 80 percent in Egypt – all feeding into a rapidly growing entrepreneurial ecosystem founded on a coherent, transparent regulatory framework,” he said.
Significantly, in a recent Pitchbook analysis, Dubai secured the top position in a global ranking of the fastest-growing VC ecosystems.
The UAE also had the most funding deals in the region last year, with 33 percent of deals closed between Q1 and Q3 2023.
It was also the most transacted country in MENA in 2023 across industries, with fintech remaining the highest-funded sector.
“While we should be realistic about its market size compared to developed venture capital markets, the answer comes from the possibilities of scale,” Bin Hendi said in response to the outlook for investment deals in 2024.
“Additionally, the UAE government has implemented several initiatives to promote entrepreneurship and innovation, developing frameworks that protect consumers and businesses,” he said.
Startups in emerging markets solving major ‘people issues’ for global markets
Bin Hendi said his optimism for rising VC preferences for funding startups in the region this year is based on the fact that venture founders in emerging markets are solving major pain points for millions of people in local, regional and global markets.
“They are looking at big challenges such as financial, healthcare and education inclusion, food security or access to energy and water,” he said.
The VC top honcho, however, said for many of these entrepreneurs, a global mindset must be added to product development from the outset because the immediate addressable market is not significant enough for meaningful scale.
“This should push them to think about localization and adaptation early in the process.”
He pointed out that the result will be a multi-faceted and variable-proof product that can be more easily tailored to different geographic realities, consumer needs, regulatory frameworks, available infrastructure and crucially, market volatility.
“Thus, spending time thinking about a new product’s journey across borders makes it easier to scale geographically; reduces the time to market; accelerates product-market fit and creates better user experiences,” Bin Hendi said.
Citing again the example of Zension Technologies, the investment expert said such an example demonstrates operating in challenging ecosystems with fewer resources, higher risk and bigger downside forces need not be an insurmountable challenge as long as founders create business models that reflect and adjust for these realities.
“That is what has been happening in the region and we can therefore be optimistic about the future for startups,” Bin Hendi said.
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