Funding flows for Middle East tech start-ups

The region’s venture capitalists and private equity funds are increasing their funds, up from a few million just a couple of years ago, to tens of millions of dollars now.

If you have ever daydreamed about quitting your job and starting out as a digital entrepreneur, now might be the time to do so – venture capitalists and private equity funds are investing greater amounts in the region than ever before.

Though they are only a handful, the region’s venture capital (VC) players are increasing their funds, up from a few million dollars just a couple of years ago, to tens of millions now.

“The landscape of VC is transforming. The last five years we had funds and deals worth $10m to 15m, versus today where there are a lot of funds that have been in the market for a while and are looking to invest $50m to $100m,” said Omar Christidis, the founder of Arabnet, a digital media platform. “As we see the VC industry mature, we will see riskier investments.”

The Aramex founder Fadi Ghandour began the year with the launch of a $75m fund as part of Wamda Capital, part of the private equity firm Abraaj Capital.

Middle East Venture Partners announced a $50m fund in March, while the Lebanon-based Berytech has a $30m to invest in technology start ups. Another big fund is Dubai-based i360, which signed up to a $100m global fund of which 25 per cent is allocated to the Mena region.

Other companies investing large amounts include the Jordan-based Oasis500; Sawari Ventures and Abu Dhabi’s twofour54 Ibtikar.

“As the tech start-up ecosystem has gained momentum, a lot of investors who were looking at tangible assets are now investing in ideas. So the market is opening up a lot,” said Sameer Sortur, the director of revenue growth and operations at i360. “Investors are looking to diversify their investments [and] the region has recently been learning to take risks.”

Success stories such as the e-commerce site, which recently raised $75m in its latest round of funding, have also encouraged investment in start-ups, which in turn has made it slightly easier for those seeking investment.

Rtopia, a start-up that creates augmented reality applications for drones, received $30,000 in seed money from i360 late last year.

“In our case it was easy because we already knew the process. We started two months ago; we didn’t spend a lot of time trying to find investors. We applied and were successful,” said Ahmed Gamal, the founder of Rtopia.

Not every applicant is as lucky.

“There’s a lot of money in private equity and later-stage funding, the real gap is in angel funding. Creating functioning funds is much needed for the region,” said Serene Shalan, the networks manager at Oasis500, which to date has invested in 73 companies. But it has discarded its plan to invest in 500 companies within six years and is focusing on quality rather than quantity.

“A lot of them [start-ups] require a lot of money before they generate revenues. Investors don’t have the kind of appetite and money in the region,” said Mr Christidis.

Speaking to The National in Dubai, Morten Lund, the co-founder of Skype, criticised regional investors for focusing too much on investments that have a local angle, rather than a global vision.

Ms Shalan said: “The region is huge, there are so many gaps that need to be filled in the region. Whether you want to be global or regional, there is no right or wrong, it depends on where the opportunity lies.”

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Published: May 1, 2014 04:00 AM


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