The Middle East’s venture capital ecosystem is about to experience 20 times growth over the next two years as the region’s nascent entrepreneurs catch up to the global trend, according to a leading UAE venture capitalist.
Today the industry is worth about US$150 million to $200m in the Middle East, but Dany Farha, chief executive of Beco Capital, claims that it will be worth over $5 billion by 2019.
There have been some high- profile online companies such as e-commerce site Souq.com and Uber rival Careem, becoming regional behemoths. But there have still been no high-profile exits where early investors saw a return on their original investment which could be an impetus to further investment.
“We are right at the tipping point, we are so far behind the other parts of the world that we have to catch up and we are, even at $5bn, we will be underfunded,” said Mr Farha. He said that investors in the region still needed education as many still looked at traditional asset classes.
“Property was always the regional banker, but that is finished as the premium investment but it still has a part in any fund,” said Mr Farha. ”Technology start-ups can provide huge growth, revenue and employment for the region which will happen because there aren’t enough jobs for everybody.”
The disclosed number of venture capital deals more than trebled to 122 transactions last year to reach a value of $123m, thanks to the technology sector and a burgeoning entrepreneurial ecosystem, according to the Mena Private Equity Association.
“I recently invested $5m in Holidayme.com, based in Dubai,” said Prashanth Prakash, a partner with venture capital firm Accel India. It manages $3bn in funds for later stage growth investments, and has over $8bn under management worldwide.
“It is my first investment in Dubai,” said Mr Prakash. “I made the decision because its founder proved the business case to me, which I didn’t know existed. He was passionate and while $5m is significant for a start-up investment in the UAE, it is one of our smaller views.”
Deepinder Goyal, the Indian founder of Zomato, the food delivery service, believes the venture capital ecosystem in India while on a larger scale offers the same opportunities as in the GCC.
India’s multifaceted commercial opportunities have provided opportunities for venture capitalists and offered a training ground for investment.
“The opportunities for the GCC and India are fairly balanced,” said Mr Goyal. “Many people don’t see it that way, but where India offers volume the GCC offers ticket prices that are unheard of in India. India is in the second cycle of VC [venture capital] lending, so investors understand the ecosystem. I think the Middle East needs a major success to whet the appetite of investors.”