MENA — the next frontier for VC investments?

MENA — the next frontier for VC investments?

In my time at Accel, I had the opportunity to co-lead the fund’s Series A investment in a travel company headquartered in Dubai — HolidayME. This was the fund’s first investment in the MENA region. The company raised a couple of follow-on financing rounds and eventually merged with TripFez, a Malaysia based travel company. It was an immense pleasure to work with GeetDigvijay and the rest of the HolidayME team and play a small role in the startup’s journey.

The time spent in the region allowed me to forge relationships with many local investors and entrepreneurs, who helped shape my view of the MENA ecosystem. Many thanks to Alex PittDany FarhaFares GhandourIdriss Al-RifaiNoor SweidTariq Bin Hendi among others for sharing their valuable local insights with me during the time. I am very grateful for their help over the years.

While I haven’t been very active in the region over the past couple years, I have observed the developments closely from the sidelines. I am starting a series of articles on MENA to share some of my learnings and experiences from the region. This is the flagship post and gives an overview of the consumer startup and investment ecosystem. I hope this helps entrepreneurs and investors who are looking to enter / expand in the region.

While MENA includes 19 nations in total, this article is specifically about Saudi Arabia, UAE and Egypt. Most of these learnings can be extended to the broader ME region but definitely not the entire MENA region. Nations such as Israel and Turkey may warrant a separate set of skills and experiences.

A Large Fragmented Market

MENA boasts of a large consumer base of 450M+ with Saudi Arabia (~34M), UAE(~9.7M) and Egypt(~100M) being the largest markets.

Dubai, where most of the large companies have their front offices, is the metropolitan hub for the region, much like Singapore is for S.E.Asia. Of the ~10M population in UAE, ~70% are migrants from India & S.E.Asia, 20% from Europe & US and the remaining 10% Emiratis.

The 100M population of Egypt is comprised of ~40M large & growing middle class and a ~60M rural base. Bahrain, Qatar, Lebanon, Jordan & Kuwait together have a consumer base of 20M+.

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UAE & Saudi Arabia have a high per capita GDP, and a very high internet & smartphone penetration, making them the obvious destinations for technology VC investments in the region.

Egypt, with a large homogenous population base (but a lower per capita income & internet / smartphone penetration), offers a favourable 10–15 year investment outlook.

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While several startup friendly initiatives have been taken up in Dubai (Dubai Internet City, Free Economic Zones, Accelerators, Incubators, etc.) to help entrepreneurs grow, Saudi Arabia remains a difficult market to crack.

The entry barriers are high and foreign entrepreneurs typically need a local Saudi sponsor (as a co-founder / significant shareholder) to enter and navigate through the market, which in most cases, is also a strong defensibility in itself for a startup to scale in the region.

A rapidly growing VC Investment Ecosystem

Historically, the technology investment ecosystem in Middle East was largely dominated by Family offices and UHNIs / HNIs.

The early rounds of funding typically diluted the entrepreneurs significantly (I met a few founders who were diluted as high as 50% in Seed / Series A), making it less lucrative for institutional funds to participate in follow-on financing rounds.

Some large global institutional funds like Tiger Global, Naspers & NEA did make a few investments between 2010 & 2014, but most pulled out of the region fairly quickly. As I see it, the absence of institutional capital was one of the key reasons why we didn’t witness many large success stories from the region until recently (Careem, Souq among others).

However, this has started changing drastically over the last few years and the MENA ecosystem is now demonstrating early signs of maturity.

At present, there are 200+ investors and 150+ accelerators operational and actively deploying capital in the region, predominantly in the early stage — Seed, pre-Series A and Series A. The valuations have become more competitive and inching closer to the global institutional benchmarks.

There are not too many institutional investors operating in the growth stage (Series B & Series C), which can be a big challenge for fast growing consumer startups trying to scale beyond the launch markets. As such, growth stage offers a very lucrative opportunity for the global investors looking to enter the MENA ecosystem.

I had the good fortune of meeting some of the most active investors — Wamda Capital, BECO capital, 500 Falcons, Leap Ventures, Flat6Labs, Dubai Holdings — among others during my time in the region. While a bit dated (2018), the following figure from Forbes gives a good overview of the MENA investor landscape.

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Increased Deal Activity

As per a report published by Magnitt, 2019 witnessed a record of 564 startup investments take place in the region amounting to over $700M in total funding. The region experienced a 47% CAGR in total funding and 60% CAGR in the number of deals over the last decade (2009–2019).

As per the report, Egypt ranked 1st in deal volume while UAE ranked 1st in total funding raised. Saudi Arabia demonstrated the highest growth rate in both number of deals and the total funding raised.

The following slide gives a good overview of the investment activity in the region over the last three years :

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Exits from the region

Over the last five years, the region has had a little over 100 exits. Most of these have been small wins, whereby the early stage investors (Angels, Seed, SeriesA) generated liquidity by way of secondaries. There have also been a few sub-billion dollar exits where the startup was acquired by its global peer seeking an entry into the region. The year 2019 witnessed 27 exits (highest in any given year for MENA), 2 IPOs and the region’s first Unicorn exit (Careem).

Some of the prominent exits from the region over the years have been :

  1. Careem : UAE based ride hailing app founded in 2012; raised $770M+ of capital across; acquired for $3.1B by Uber in 2019
  2. Souq : Middle East’s largest e-commerce site founded in 2005; raised $460M across 5 financing rounds; acquired by Amazon for $600M in 2017
  3. Dubizzle : UAE based marketplace site founded in 2005; acquired by Naspers for $400M in 2018
  4. Talabat : Kuwait based food delivery app founded in 2004; acquired by Rocket Internet in 2015 for $170M
  5. Others : Hunger Station (acquired by Delivery Hero), Carriage (acquired by Delivery Hero), Zomato UAE (acquired by Talabat), Sukar (acquired by Souq)

While there have been some meaningful exits by way of acquisitions, the domestic IPO market is still nascent. This poses a challenge for growth stage startups, especially consumer startups focussed on local markets, to lure late stage investors. This offers a tremendous opportunity for some of the more established companies like Careem (Uber) and Souq (Amazon) to set up their domestic investment and M&A arms.

From an early stage fund’s perspective, exploring partnerships with the Investment and M&A arms of established global firms could be an interesting strategy to find portfolio exits as well as to differentiate itself from it’s peers in the ecosystem.

Emerging Sectors

As I see it, the MENA emerging sector landscape can be segmented into two broad categories :

  1. Large promising markets entering the next stage of evolution : these are sectors which have experienced the most activity and attracted a ton of venture capital over the last decade with some successful exits. Some of these sectors might reach saturation soon while others will continue to evolve on the back of entrepreneurial innovation, thereby attracting VC interest. In 2019, these were FinTech (70+ investments; 50%+ in payments & remittances startups), E-commerce (60+ investments; 75%+ B2C startups), Mobility & Logistics (50+ investments) and F&B (30+ investments).
  2. Large untapped markets offering a first mover advantage : these are sectors which have traditionally not had access to venture capital in the region but offer immense first mover advantage. As the ecosystem evolves, these sectors have started offering attractive investment opportunities. Some of these are Gaming (mobile games, console games, e-sports), HealthTech (tele-medicine, appointment booking, pharma delivery), Content (regional localised video content, vertical sector focussed play), AI / ML and Blockchain (applications across sectors) among others.

While I don’t think I will do justice deep diving in each sector in one article, I would like to touch upon two sectors (one from each segment) that I stay excited about :


The early seeds of e-commerce in the region were sown by horizontal marketplace Souq and vertical e-commerce platforms like Namshi (fashion focussed e-commerce platform acquired by Rocket Internet) and MarkaVIP (fashion focussed e-commerce platform).

Amazon’s entry into the region (by way of Souq acquisition in 2017) followed by the launch of Noon by the Alabbar group sparked a new competition in the space. At present, the horizontal e-commerce market share is divided primarily between these two large players, much like how it is divided between Amazon and Flipkart in India.

However, unlike India, the e-commerce market in MENA is largely driven by depth in SKUs offered and convenience and not so much by product discounting. The high spending power results in a higher average ticket size ($150-$200) but the return rates are higher too (30%-40%). Payments, logistics and talent continue to be the biggest challenges in the space, thereby offering plenty opportunity to e-commerce enablers to innovate (more on this in my next post in MENA series).

While horizontal e-commerce might be nearing saturation, there is still plenty room in niche e-commerce platforms like Dabhcy (women focussed e-commerce). There is also opportunity in cross border commerce (eg: Shiphaly), innovative distribution platforms (Brimore) and reseller / rental marketplaces.


MENA boasts of a strong community of 300M gamers- that constitutes roughly 14% of the world’s gamers. The MENA video gaming industry in 2019 was pegged at ~$4.8B (~3% of the global gaming market) and expected to touch ~6B by 2021. Of this ~$4.8B market, 47% of revenue came from mobile gaming. (Source : Wamda)

The average revenue per user (ARPU) in MENA is one of the highest in the world. The average gamer in the UAE spends $115 per year while the same metric in Saudi Arabia stands at $68 per year. (For comparison China ARPU is <$50).

At present, the market is largely dominated by games published by international developers. However, most of these games are not tailored to meet the language and cultural requirements of the region. This strong need for localisation throws open opportunities for the local entrepreneurs to innovate across the gaming spectrum — developers, publishers, distribution platforms and service providers.

Another large segment within gaming that is poised for disruption in MENA is E-sports. It’s a whole new ecosystem in itself comprising of league ownership, events and competition organisers, media and advertising, content production and UGC, distribution platforms among others. It probably warrants a separate post on it to dive deeper.

Some recommendations to founders entering / expanding in the region

Scaling your startup in MENA

Scaling a business in the region can be a bit challenging for a first time entrepreneur, especially if not of local descent. Some challenges that you can expect and possible solutions / key differentiators that can help build a formidable business in the region are :

  • Talent Acquisition : While founders in the region are mostly of Lebanon / Jordan origin, bulk of second level management is comprised of expats & immigrants. Major talent sourcing hubs for the same are US, London, Germany for senior hires and India, Pakistan & Vietnam for middle management. For a startup in any geography, motivating and incentivising quality talent to join early in the team can be a big challenge. This challenge is a bit more pronounced in MENA. A possible solution to overcome this could be outsourcing your engineering and tech teams to India or Vietnam. Another way could be to partner with recruitment firms focussed on expat hiring — there are quite a few in the region. For growth stage startups, acqui-hiring startups from India, SEA and Pakistan could prove to be a frugal strategy.
  • Building local partnerships : with traditional players & family offices can help navigate and scale faster in the region. These partnerships also bring a lot of credibility and defensibility to the business.
  • Language adaptation : your primary product has to be in Arabic language and customised for local lingo. English product alone will not scale beyond UAE, especially in Saudi and Egypt.
  • Go Mobile First : primary medium of video consumption and digital access in Saudi Arabia & UAE is the smartphone, hence build a strong mobile product — BOTH English & Arabic product — it’s not an either or situation.
  • Local leadership requirement in Saudi : as mentioned earlier, it’s almost impossible to enter Saudi market without the same; in fact many founders, set up a parallel org structure with a CEO of Saudi origin only to gain market access
  • Key customer acquisition channels : are YouTube and Facebook, followed by SEO & SEM; not much television marketing but offline billboards are very popular (however very expensive, especially if on high end roads like Sheikh Zayed road, etc.)

Possible Fundraising Strategy

Accelerators / Pre-Seed : at an Idea / Team / pre-PMF stage, you can apply to one of the many accelerators operating in the region (refer to figure above). Expect to dilute upto 10% in exchange for 3–6 month program that includes $10K-$40K capital infusion, co-working space, tailored mentorship, investor access, networking opportunities among other perks and benefits. Some of the most active accelerators in the region are :

  1. Flat6Labs — general focus; operating in Cairo, Beirut, Tunis and Bahrain;
  2. Falak — two tracks (General & FinTech); operating in Cairo;
  3. StartupBootcamp — four tracks in the region (FinTech Cairo, FinTech Dubai, SportsTech Qatar and Smart City Dubai)
  4. Other active accelerators — changelabs, Misk500, MiskSeedstars, Savour, Vision Ventures

Seed / Pre-Series A / Series A : Expect to dilute anywhere between 10% to 20% for Seed and between 20% to 35% for Series A. Some of the most active institutional investors investing pan MENA at this stage are Wamda Capital (Dubai), 500 Falcons (Dubai, Bahrain, Riyadh), Vision Ventures (Riyadh), BECO Capital (Dubai) and MEVP (Dubai, Riyadh, Beirut, Abu Dhabi, Bahrain)

Growth (Series B & Series C) : Expect to dilute between 20% to 30% at this stage. As mentioned earlier there are not too many institutional investors in this stage. Some of the most active growth stage institutional investors are MEVP (Dubai, Riyadh, Beirut, Abu Dhabi, Bahrain), Global Ventures (Dubai), STV (Riyadh), Leap Ventures (Beirut). You can also consider participation from some large family offices and strategic groups in this round.

Late Stage (Series D++) : My knowledge of late stage activity is limited but as I see it, there are a few large strategic groups, family offices and PE funds like Al Tayyar group, Al Futtaim group and Dhabi Holdings who actively participate in late stage rounds of investment in the region.

All in all, I believe MENA offers an emerging and exciting opportunity for both investors and entrepreneurs who come with a collaborative mindset, to create value and wealth, primarily driven by a high per-capita GDP, a large consumer base and high internet/smartphone penetration. There are a few inherent cultural and operational challenges unique to the region but these should subside as the ecosystem evolves further.

The MENA story is still unfolding and hence I look forward to hearing perspectives from other investors who’ve either invested in the region or are planning to as well as entrepreneurs operating fast growing businesses there.

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