Six in 10 Mena start-up founders expect an exit in five years

Careem’s $3.1 billion acquisition by Uber has provided the biggest exit in the region to date

Philip Bahoshy, founder of Magnitt, said the new report will help start-ups to decide future strategies. Courtesy Magnitt

Almost 60 per cent of technology start-up founders in the Middle East and North Africa are expected to exit their companies in five years, according to a joint report by technology platform Magnitt and venture capital firm 500 Startups.

Fifty-nine per cent of start-ups said they were "certain" that they will create a company with an exit value of $100 million, according to the State of MENA Startups 2019 report released on Wednesday.

“Tech-enabled companies in the region [are] maturing rapidly and attracting global and regional attention from would-be acquirers,” it added.

Companies from the UAE, the Arab world's second-largest economy, account for about 40 per cent of the top exits made by entrepreneurs in the region, according to a Google-commissioned report released in February.

Ride-hailing service Careem’s $3.1 billion acquisition by Uber was the first unicorn exit — a privately-owned company achieving a valuation of over $1bn — in the region. That deal followed Amazon’s acquisition of e-commerce firm Souq in 2017 for $580m.

In 2012, the finance and industry news portal Zawya was sold to Reuters for a reported $40m, while in 2009, Yahoo, then the second-most popular internet search engine, bought for about $165m.

The report is based on a survey of more than 100 company founders from 12 countries, who have raised about $114m between them. Most (86 per cent) of these were still in the early pre-seed or seed capital funding stages and took seven months on average to complete their last fund-raising.
Nearly seven in ten start-ups approached up to ten investors to raise their most recent funding, it added.

Hiring the right talent in Mena has also proved an uphill task, with nearly 62 per cent of the respondents admitting it was “one of the major challenges” in their entrepreneurial journey. Regional start-ups faced two major roadblocks to hiring quality people — “lack of specialised skills” in some sectors and the “inability to compete on salaries”, said the report.

Scaling business is the major focus of start-ups. More than 80 per cent of the founders focused on optimising for growth over profitability, according to the report’s findings. Eighty-four per cent of start-ups have in-house tech teams to diversify their products and services.

“This report really digs into the start-up founder’s journey and the challenges they are facing. We hope this acts as an eye-opener to any decision-maker and becomes a basis for future studies in this space,” said Philip Bahoshy, founder of Magnitt.

Silicon Valley’s 500 Startups, which has a Mena investment team, has been the most active venture capital firm in the region, according to the report. It has invested in more than 100 regional start-ups in the last two years.