Startup exits escalate in UAE

Supplied

• Emirates has 25% of MENA startup exits so far this year
• 58% of acquirers were larger UAE companies
• UAE startups raised $700m and Saudi startups raised $584m

The UAE is seeing an increase in startup exits this year, as the market matures while bigger players look to acquisitions to scale up their operations.

The UAE Venture Investment Report, by research firm Magnitt, states that there were 10 startup exits in the Emirates in the first half of 2022, just one less than in the whole of 2021. 

Ryaan Sharif, UAE general manager at Flat6Labs, a Cairo-headquartered venture capital firm which manages seed funds on behalf of around 25 institutions across the Middle East and North Africa (MENA), predicted that the Emirates are on course for a record number of startup exits this year.

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“The healthy investment sentiment is still very apparent in 2022,” Sharif told AGBI.

“We enter an era in the GCC of reconciliation – increased interest from larger financial entities to acquire, grow their acquisitions business and eventually make healthy returns.

“Technology companies are also looking for new avenues for growth through acquisitions.”

The Magnitt report found that the UAE accounted for 25 percent of all startup exits in the MENA region in the first half of the year, while Saudi Arabia had a total of five and Egypt had nine.

“The UAE is the headquarters of Venture Capital in the GCC region,” Sharif said.

“While Saudi Arabia is undoubtedly catching up quickly, the UAE remains at the forefront, drawing in $700 million over 85 deals, compared to $584 million over 79 deals in the kingdom.”

In 58 percent of the exits the startups were acquired by larger UAE companies. Some of the overseas deals included Pakistan-based Wales acquiring Mirror, and Saudi-based Retail Technologies acquiring DXBUY.

One of the highest profile exits was Munch:On, which was acquired by super app Careem for an undisclosed amount.

Created in 2016 by founders Dana Baki, Mohammad Al Zaben and Awn Ali, Munch:On is a subscription-based food delivery service based in Dubai where users can order discounted regular meals which restaurants prepare and deliver during their downtime, usually in the mornings before lunchtime.

Eventually Munch:On will be incorporated into the Careem app and the founders will be moving on to their next venture.

“It’s bittersweet,” Baki said. “You worked so hard on something, you’ve woken up every morning to work on this thing and now you’ve achieved the goal, which is amazing. But I think there’s going to be a bit of sadness or uncertainty.”

Sharif at Flat6Labs added: “The likes of Careem acquiring Munch:On adds to their aspirations to disrupt the likes of Talabat, Deliveroo and Zomato with their already existing fleet of drivers fuelling their growth. 

“Huspy and Pureharvest are other great examples of companies making acquisitions in adjacent businesses to propel their growth rather than looking to grow organically. 

“The wider market will enter once they look to grow cross-border, but we must remember that the GCC as a market is a relatively small demographic compared to Europe, the USA, and East and Southeast Asia.”

Abdallah Abu Sheikh, a serial entrepreneur and founder of Dubai-headquartered Astra Tech, has been acquiring existing players in the market to incorporate into the ultra app platform he plans to launch later this year, and believes this is a better model than building technology from scratch.

“If you look at the region over the past 10 to 15 years, so much technology has been built, but more of it was thrown away,” he said.

“Why do we need to build everything, which can take two to three years? 

“We can achieve the same result by pulling together different platforms that people are already using, together under one structure.”

Exit Strategies: Top five tips for startup founders looking to get acquired

British serial entrepreneur Karl Feilder is the founder of Neutral Fuels, a Dubai-based firm which collects waste cooking oil and transforms it into biofuel. 

Having previously set up and exited five startups, he offers some insights based on his experiences.

1 Planning ahead is vital

It takes at least 18 months to get a company ready for an initial public offering (IPO). My advice to anybody thinking about a trade sale would be that it takes at least that long to get a company ready to be acquired. 

You also need to be self-aware about your future and whether you see yourself happily continuing with the business post exit or whether you’re going to take the money and run. 

You need to work out what your real motivations are for wanting to exit.

2 How will you be valued?

You need to identify how acquirers will value your business. Nowadays, you’ve got lots of businesses that will try and acquire you based on your subscribers. 

They may value you based on your revenue, or they’ll value you based on your EBITDA (earnings before interest, taxes, depreciation, and amortization) or they may value you based on net profit. 

3 Alignment is critical

When you’ve identified the likely acquirers, you should align your company vision with theirs. 

Most acquirers will buy you because there’s a strategic gap in their strategy or there’s a significant opportunity for synergistic growth. 

But try and work out what that is, and before you start speaking to them.

For example, if you’re an electric car company and you think you’re going to get acquired by a battery company, then you might want to do a lot more R&D and file a few patents in the battery space, rather than focus on how aerodynamic your car model is. 

It’s those type of strategic decisions that are really key to aligning your vision with the likely acquirer’s post exit vision.

4 Have all your data ready

Make sure in advance of any talks with a potential acquirer that you’ve got a data file that’s up and running and ready, whether that’s on Dropbox or some other application. 

This should have in there all the structured information that you’re likely to need for a potential acquirer.

5 Let the CFO take the lead

Make sure you have a great CFO, as you really need to let them handle the due diligence process of any trade sale. Don’t let the CEO get distracted from running the business itself. 

Every CEO that I talk to who’s been approached for an exit gets very excited about how much money they are going to make, and then gets drawn into long conversations and misses company targets. 

A trade sale is going to take up to six months, and during that time the CEO or founder still has two quarters of results they can’t afford to miss. So, keep your eyes on the ball.