Middle East startup financing moves up a gear

Startup financing is starting to hit a new gear in Dubai as private investors take note of thriving, local businesses, according to experts

Multimillion-dollar investments into homegrown firms, such as UAE-based e-commerce sites Mumzworld and Souq.com, demonstrate the fundraising ecosystem is starting to mature, said Ronaldo Mouchawar, CEO of Souq.com, the first unicorn in the Middle East and North Africa (MENA).

“After 2009, when Yahoo acquired [Internet firm] Maktoob, people started looking at our space differently,” said Mouchawar, whose firm raised US$275m in February. “We’ve seen there is now a better foundation of [entrepreneurs] who are willing to try and fail and that encourages investment… Investors are starting to see the possibility for mergers and acquisitions, which was lacking before.”

Mouchawar was speaking on the sidelines of a one-day event Tuesday run by Endeavor UAE, a non-profit that mentors entrepreneurs. Scale-Up UAE aimed to help fledgling businesses navigate the tricky stages from startup to full business.

“North of a quarter of a billion dollars has been raised in the last 18 months by regional entrepreneurs,” Dany Farha, CEO of venture capital firm Beco Capital, told delegates. “We’re seeing the start of a shift.”

Still, the growing entrepreneurial landscape faces several hurdles. Access to talent, markets and finance are the biggest sticking points for Middle East entrepreneurs, according to an Endeavor study.

While MENA’s start-ups are keen to draw in global investors, venture capitalists also need to see the ecosystem is developed enough for them to enter the market, said Beco’s Farha. That includes encouraging regional investors to finance the tough middle phase of scaling up a new business. Everyone in the ecosystem needs to “pull their weight”, he said, to give larger investors the confidence to come forward.

Another pinch-point is Middle East entrepreneurs’ mindset. “Entrepreneurs need to understand the value investors can provide. A lot of entrepreneurs here, because they are used to family businesses, focus on controlling the company,” said Souq’s Mouchawar. “In reality, as the company grows, you need to understand how to manage investors. The board is there not only to manage, but also to advise and connect you with a larger network of investors.” Universities in the region also need to align education better with 21st century needs, to help talented students acquire skills useful for business, noted Mouchawar.

The future, however, seems bright for Middle East startups. The Endeavor panel included venture capitalists and entrepreneurs, including the founders of Mumzworld, which closed a multimillion-dollar series B fundraising round in January, and Dubai-based online portal Propertyfinder which is valued at US$200m.

The entrepreneurial ecosystem is all about connectivity and networks, something Dubai does very well, according to Ihsan Jawad, managing partner of Middle East Venture Partners (MEVP). MENA is a young funding environment, but it is “an exciting time to be a Middle East entrepreneur,” concluded Allen Taylor, Endeavor vice president.