The founder of Wadi.com predicts a major expansion of the region’s fledgling e-commerce sector.
"Anyone who executes the correct way in the next couple of years can get into the big league," said Pratik Gupta, co-founder of Wadi.com, an e-commerce market platform.
"This geography is not the same as anywhere else so you have to be diligent. I expect the next five years to be a roller coaster for e-commerce. It will be great for the customer, then I believe consolidation will happen."
The market platform was launched in the UAE in 2015 by a three-man team focused on opportunities in Saudi Arabia and the UAE.
Wadi.com is a retailer as well as a platform for other third party traders.
Mr Gupta, a former executive with Jabong, the online Indian fashion portal, with Ankit Wadhwa and Kanwal Sarfaraz, McKenzie & Co executives, saw a huge opportunity in the Middle East.
In February 2016, Wadi.com raised US$67 million, a record for Series A funding in the region, and by the end of the year achieved operational profitability two years after start-up.
"There was no one providing the service that was expected," said Mr Gupta.
He said there were tens, maybe hundreds, of e-commerce players when Wadi started but most were not specifically customer- focused and missing key opportunities.
"We found that the ecosystem in the whole region left a lot to be desired and we wanted to bring levels of service that Amazon in India and Flipkart were offering. There was a basic contradiction in the levels of smartphone penetration and internet usage which is among, if not the, highest in the world, and yet the levels of e-commerce was very low – the opportunity was massive."
Rocket International, the German tech incubator and company behind local favourite Namshi, the regional online fashion retailer, was Wadi’s main backer at start-up.
There was a high-profile exit last month from Namshi when it was 51 per cent acquired by Emaar Malls for $151m.
It was just one of a series of mergers and acquisitions that took place after Amazon, the world’s largest online retailer, bought Souq.com, the region’s biggest market platform for $580m in March.
The price, while significant for a locally built digital platform, was a far cry from the $1 billion valuation the company had touted when it received $275m investment in 2016 chiefly from two VCs – the South African Napsters and the US’s Tiger Global. It was also $220m less than Emaar Malls’ $800m bid at the 11th hour.
However Mr Gupta believes the price paid was probably subject to many pressures.
"I think investors have many reasons for exits," he said. "The investors were going to take a significant return so why fight Amazon?"
Since the Souq acquisition there has been a raft of M&A activity in the regional digital space.
Noon.com, the late-out-of-the-gate market platform announced by Mohamed Alabbar, bought Jadopado.com, a regional market platform, for an undisclosed fee at the beginning of May. Mr Alabbar also acquired a large stake in Middle East Venture Partners (MEVP) in May.
MEVP has more than $120m of assets under management and $60m in co-investments. Its portfolio includes in the music streaming service Anghami.
Majid Al Futtaim, the region’s biggest mall owner and operator, also joined the digital party, taking an equity stake in fetchr, a Dubai-based logistics delivery company, as part of a $41m funding round for the company that was started only four years ago. Mobile taxi app Careem, the region’s only unicorn with a $1bn valuation, also added another string to its digital bow starting Careem Box, following a similar business model to fetchr.
"We have become a natural choice to be bought," said Mr Gupta. "Many international companies have looked at us because the region is such a fertile ground for growth. We have a brilliant business team with 80 per cent of our inventory from third-party vendors. However the 20 per cent that is our stock makes more than 50 per cent of our revenue."
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