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Wed 1 Apr 2015 03:12 PM

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STEP 2015: MENA gears up for $1bn start-ups

The number of tech firms valued at over $1bn is - known as‘unicorns’ - will increase in the next 3-5 years

STEP 2015: MENA gears up for $1bn start-ups

A number of local technology start-ups which will be valued at $1 billion or more, referred to as ‘unicorns’, will increase in the next three to five years, according to the panelists at the STEP 2015 conference held on Tuesday.

During a panel about acquisitions and exit strategies in the MENA region, Amir Farha, co-founder and managing partner at BECO Capital said the region had witnessed over 40 exits in the last 15 years which demonstrated the rapid development of the regional venture capital industry.

The exit market for start-ups before 2005 took between seven to 11 years to materialise while it has recently dropped to between four and eight years, at similar or higher valuations. “We will see many exits coming at relatively high valuations of over $100 million or more,” Farha added. “But what will put the region on the world map of venture capital will be the first $1 billion exit, whether through a trade sale to strategic company or even through an IPO.”

Farha cautioned the regional industry of losing their next unicorns if they didn’t support their winners properly and if they didn’t time their exits correctly.

He said: “Some of the unicorns-in-the-making could complete their exits to international strategic firms or venture capital firms sooner. This might sound great if we do not take into account that these companies could be a bigger phenomenon than the region anticipated.

“They could become the unicorns we have been waiting for. So, let’s not miss out on our future unicorns.”

The latest exit in the region was the acquisition of Kuwait’s, a food takeaway platform, by the German e-commerce group Rocket Internet for $170 million in February 2015. It is considered as the second big regional exit since Yahoo! acquired Maktoob in 2009 for $165 million.

Disagreeing with Farha that some of the exits came too soon, another panelist, Habib Haddad, CEO of Wamda, added: “I would like much more to see 10 Talabats than one big Uber. It’s important for the ecosystem to build multiple companies, and access to markets is one particular challenge that we see in the Middle East.

“It’s in the hands of governments and big players. Only when large corporations open up, we will see unicorns in the Middle East.”

Briefly touching the same topic during a previously held on-stage talk “Inspiring a Generation of Entrepreneurs: A conversation with Fadi Ghandour”, Ghandour, the founder of Aramex and start-up investor, opined that was the first regional unicorn.

“My valuation is that is our first $1 billion company,” he said. “They [Ronaldo Mouchawar and other co-founders of] graduated from the Maktoob story and are now building the next generation of successful businesses.”

In addition to the US and European venture capital investors, Farha identified India as another exit channel for regional start-ups.

“20 percent of emerging market venture capital was invested in India last year. India has produced nine technology companies that are worth over $1 billion and 20 more in the pipeline.

“Natural expansion of these billion dollar worth companies will to the Middle East since we are just 2.5-hours-long flight away and we share similar culture,” Farha said.

When asked by the moderator about whether local large corporations were willing to support start-ups, Haddad said: ”You’d be surprised but a lot of family offices in the Gulf are now handing over their keys to their kids who grew up with Facebook and similar, and who understand that they need to focus on start-ups.

“In the next two to three years, we’ll see a big unlocking of that. And that will be a unique flavour of the Middle East.”

The region’s main event for design, gaming and technology, the STEP 2015 Conference, saw over 1000 technology entrepreneurs, start-ups, investors and other stakeholders meeting at the Dubai International Marine Club to discuss the industry’s latest trends.