Mena startup exit shortage looming – VC fund CEO

Wam

• Only 57 Mena startups in M&A last year
• Ecosystem and culture ‘not as developed’
• 1,134 US startups had exits in 2022

The Middle East faces a looming shortage of startup exits, despite a substantial pool of capital available in the region, according to a leading venture capital fund CEO.

In mature markets such as the US, private corporations routinely make multibillion-dollar bids to acquire potential future rivals or emerging startups poised for substantial growth. But this is not happening to the same extent in the Mena region.

Sharif El-Badawi, CEO of the Dubai Future District Fund, told AGBI: “If we don’t get enough private sector [companies] involved, we won’t have the exits we need so [that] investors are inclined to invest.

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“The flywheel only completes when you have liquidity and exits.”

The “flywheel effect” describes business outcomes that compound to produce growth and higher returns.

The Dubai Future District Fund is a $1 billion seed-to-growth venture fund established by Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai, to support technology startups with additional funding and to foster a venture ecosystem.

The fund invests 50 percent into venture capital funds, as a fund of funds, and 50 percent directly into the next wave of innovative companies across all sectors in the Mena region.

It is expected to see its investments reach $1.7 billion by 2025.

According to the venture data compiler Magnitt, 57 startups based in the Middle East and North Africa region exited through mergers and acquisitions (M&As) in 2022.

But dealmaking activity has subsequently slowed. Those numbers are a far cry from the 1,134 US-based venture capital (VC)-backed startups that were scooped up in M&A deals last year, with more than 1,700 the year before, according to data from the business information provider Crunchbase.

El-Badawi, previously a partner at the Silicon Valley venture fund 500 Global (formerly 500 Startups), pointed to the evolution of the US startup ecosystem, which initially saw big private corporations buying tech companies, and later tech giants predominantly making acquisitions to obtain talent, technology, and market share.

“Here, they don’t have that culture at all,” he said.

To facilitate this transition, El-Badawi said, the private sector should explore solutions offered by startups.

“You need a new payment system? Use a startup,” he said. “Use the underdogs. And if you like them, why don’t you put an investment cheque in? Then, if you really love the relationship and it is strategic to you, buy the startup.”