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Lebanon ecosystem agonizes in the absence of any capability for being a catalyst for new jobs

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Lebanon ecosystem is between a rock and a hard place. That the least one can say about the current state of the Lebanese ecosystem. Challenging economic times can serve as a catalyst for the entrepreneurial spirit and lead to the creation of much-needed new jobs but it doesnot seem that the current Lebanese stakeholders are able to jump on any new opportunity. The economic crisis triggered massive anti-government protests, resulting in the cabinet’s resignation in October.  Deteriorating economic conditions and scarce dollars led to a restrictions on the permitted value of withdrawals of both U.S. dollars and Lebanese pounds.

Despite the Central Bank’s intervention, the Lebanese pound lost over 30 percent of its value, reaching 2000 Lebanese pounds to the USD. Lebanese citizens are taking severe measures as they face difficult economic conditions, lose their jobs or fail to provide for their families. Following years of economic mismanagement, Lebanon is facing dark days, and still more ahead.

BLOMINVEST reports that despite rising from a record low of 37.0 in November, the latest PMI reading of 45.1 pointed to another sharp deterioration in business conditions across the Lebanese private sector in December. The result was partially driven by a decline in output that was faster than the long-run average. However, similar to the trend for the headline index, the rate of contraction in output eased from November’s. Many panellists stated that lower activity was driven by political uncertainty.

According to the latest MAGNITT report Lebanese startups didnot report any significant funding deal during 2019. It is true to say that the agony of the ecosystem didnot start last year.

Throughout the last six-year period, as they had been before the launch of 331, the existing legal and judicial frameworks remained ill-suited for facilitating an economic activity that needed permission to fail fast and reboot. Before and after 331, some good projects never even got such  permission as they were killed by over-cautious investment committees. In times of 331, however, failures of ambitious startup projects happened, but they were often not revealed in ways that would allow the system’s players to learn all they could from them. Transparency, from the ecosystem’s financial top at BDL to its operational bottom layer of VC funds, remained as alien as an interstellar visitor.

Another record year for total funding when excluding the investments of Souq & Careem

Main highlight of 2019

2019 saw an increase of 12% in total underlying funding; This reflects a 33% 5-year CAGR as the ecosystem grows and matures. Egypt ranks first by number of deals for the first time

  • Egypt accounted for 25% of all deals in MENA in 2019
  • Saudi Arabia’s share of total deals increased by 4%

Of course No single measure captures entrepreneurial activity perfectly. However, by looking at several different measures, we can piece together the big picture and use it to see how entrepreneurship fare during the present Recession.

A view of entrepreneurial activity can be obtained by comparing numbers on incorporated and unincorporated self-employment. That comparison lets us tease out how the recession affected two different kinds of people who work for themselves—those who run corporations and are likely to employ others and those who don’t, mostly sole proprietors less likely to have employees. Both types of self-employment fell during the lasy=t two years, but the decline was much more severe for those running corporations. 

Self-employment is one variable that economists use to measure entrepreneurship, as the self-employed are in business for themselves. The wage-employed, in contrast, work for others. As a statistic, self-employment has the advantage of measuring what happens to the widest range of entrepreneurs because it includes people starting corporations with employees as well as those starting sole proprietorships without employees.

Some economists believe that entrepreneurship is best measured not by self-employment, but by the number of people who own and operate businesses. Therefore, understanding what happened to the stock of employer firms during the Great Recession is important for assessing the impact of the recession on entrepreneurial activity.
Another view comes from financing the ecosystem ; Executive magazine noted that internal and external stakeholders—such as the promotional units attached to the system and international partners with interests in its success—had embarked on several mapping exercises from the third and fourth year after the launch of 331. These exercises, however, tended to be afflicted by the difficulty to obtain data (which was limited due to the system’s very brief existence) and even more so by methodological imperfections or, all too often, special interests.      

The outlooks and assessments of the ecosystem stakeholders participating in the Executive roundtable on November 18 were decidedly uncheerful in the short term, to the point of diagnosing the death of financing paradigms that had been in force until now. According to participants, absent visibility on the future of 331, uncertainty on the ability to still tap into any of its hitherto unused funds, and a strong expectation that the funding environment would not be sustained in the coming months were juxtaposed with the understanding that entrepreneurship will be vital for economic development and job creation after the tremors in the political economy recede.

Where do we go from here?

We can expect that the economic downturn will first affect the overall stock market and the VCs appetite to invest here. Tech equities are generally high beta, meaning they swing more than the market, and they generally trade at high price/earnings ratios, meaning that investors expect great earnings in the future. However, when the market dips, these great future earnings suddenly seem much less certain, and investors flee those stocks. This happened in 2008: even though its earnings weren’t greatly affected, Apple, Microsoft, and Google’s stock prices all lost over 50%.

If public tech valuations suffer, then private ones will, too, because public valuations act as benchmarks for what private ones might reach. If public valuations are down 25 percent across the board, then a tech company attempting to go public would see its target price similarly slashed. Or a public company may use its stock to acquire a private company; therefore, when stock prices are down, a public company has less liquid assets to conduct acquisitions, meaning the private company might have to reduce its valuation to be acquired at all. And when late-stage valuations come down in private markets, then early-stage valuations necessarily do, too, since expected exit values decrease.

Early-stage valuations would also suffer because the cost of capital increases. Most venture capital funds raise frequently—roughly every two to four years. In a (prolonged) downturn, it seems likely that high-risk, high-reward venture capital funds become less attractive to investors. When VCs have a harder time accessing capital, there’s less for them to invest in startups, and the capital they do have on hand would likely be invested more conservatively. This means that raising capital would generally be more expensive for startups: VCs would demand more equity, startups would raise less money per round, and valuations will be lighter.

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Ecosystem

MENA startup ecosystem highlights in February 2020

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Every month, MAGNiTT releases a Dashboard report, providing a condensed and data-driven overview of all the key activities that took place in the month from a venture capital and startup funding perspective.

With 25 deals taking place last month, as highlighted by this month’s Dashboard, February 2020 saw a decrease in the number of deals compared to the same period last year. However, due to a flurry of high-profile later-stage deals, February 2020 saw a significant increase in total funding, with $193M raised by MENA-based startups.

Looking at the countries, we see similar trends as previous years emerge. The United Arab Emirates (UAE) took the lead by total funding, with the country accounting for many of the high-profile funding rounds. Moreover, the UAE accounts for more deals than any other country in the region, with which it reclaims the top spot from Egypt in 2020 YTD, which saw the highest number of deals in 2019.

The development comes as multiple UAE-based government initiatives are being launched, with Dubai announcing the Dubai Future District at the beginning of the year, which includes a fund to support venture capital firms and startups. Simultaneosuly, Abu Dhabi is also increasingly focusing on entrepreneurship and venture capital, with Abu Dhabi Investment Office (ADIO) expanding its scope to include later-stage investments as well.

Moreover, Saudi Arabia saw an increase in the number of deals as well, with the country recently launching its new Ministry for Investment in a major government overhaul. As part of the move, the Saudi Arabian General Investment Authority (SAGIA) will become the Ministry of Investment, led by former Energy Minister Khalid Al-Falih, the new Minister of Investment. SAGIA has increasingly focused on the startup ecosystem, including the signing of several international venture capital firms, to spur innovation and investment in the Kingdom.

This, along with many more data-driven trends on funding and venture capital in the MENA region, are included in this month’s Dashboard.

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Ecosystem

Saudi Arabia offers ‘instant’ visas to set up new businesses

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SOURCE: The National


The new scheme aims to support Saudisation and accelerate growth of non-oil private sector in the kingdom

Saudi Arabia will grant “instant” work visas to entrepreneurs setting up businesses in the kingdom as part of government efforts to boost non-oil private sector growth and create jobs for nationals.

The new scheme will be processed electronically based on specific criteria, the Ministry of Human Resources and Social Development said in a statement on its website on Monday.

The initiative “will have an important role in supporting male and female entrepreneurs, incentivising and accelerating business growth, which will open investment opportunities that will contribute to creating sustainable jobs for Saudi men and women”, Ahmed Al-Rajhi, Minister of Human Resources and Social Development, wrote on Twitter.

The instant visas will be granted to businesses established in the past six months and according to the type of commercial activity, the ministry said.

Saudi Arabia, Opec’s top oil producer, is transforming its economy to reduce dependence on oil revenues under its overarching Vision 2030. The programme aims to curb subsidies and government spending to generate alternative revenue lines. Development of the private sector and an expansion of the non-oil industrial base are at the heart of Riyadh’s diversification efforts.

The International Monetary Fund in January said it expects the kingdom’s economy to expand by 1.9 per cent in 2020, up from an estimated 0.4 per cent last year. The fund, however, lowered its earlier 2.2 per cent GDP growth forecast due to oil production cuts agreed by the Opec+ group of oil producing countries led by Saudi Arabia and Russia.

The new visa service was developed after the ministry conducted extensive studies to determine the requirements of small businesses for expatriate workers, said Nasser Al Hazzani, the ministry spokesman.

“This initiative will have a positive impact on Saudisation rates during the coming years,” he said.

Under the initiative, start-ups will be given a one-year grace period to implement the Saudisation programme, known as “Nitaqat”, in order to facilitate their operations, Mr Al Hazzani said.

Business conditions in Saudi Arabia’s non-oil private sector economy expanded in February, albeit at its slowest pace in nearly two years, as output and new orders fell, according to the IHS Markit Saudi Arabia Purchasing Managers’ Index.

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Apps

Lebanon’s Basma, the digital dental startup secures US$1.2M Seed funding

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Author: Basma

Basma, the Beirut-based digital dental startup, secures a Seed round of US$1.2M and opens up access to simple and affordable orthodontics in the MENA region.

This financing round was led by prominent Beirut-based VC firms, B&Y Venture Partners and Cedar Mundi Ventures, with the joint participation from iSME and various business angels.

Basma is a direct-to-consumer healthcare brand that wants to give customers straighter and brighter teeth. It’s a digital health company founded on the belief that affordable dental care should be accessible to everyone. 

According to their Founder and CEO, Dr. Cherif Massoud: “7 out of 10 people in the Arab world can benefit from straighter teeth. But we think that everyone deserves to smile confidently. Aligners are the best alternative to braces, by changing the distribution channel and putting everything online, Basma cuts the treatment cost by up to 65%. Patients are constantly connected to doctors on our advanced telemedicine platform and are able to receive the treatment kit that will have a series of clear custom fitted aligners, straight to their homes.”

“Basma understands the consumer desire to improve their smile discreetly and they have the tools to make it happen.” Their CEO adds: “Adults should not feel pressured to wear wired braces. They are looking for invisible braces that don’t affect their confidence and this is exactly what we can give them.”

Bassel Attieh, Chairman and Managing Partner of Cedar Mundi Ventures, says: “We see much appetite for HealthTech and cosmetics services in the Middle East, both from consumers and professionals. And the teeth aligner industry is only getting started here. We believe in Basma’s bright future, building on local entrepreneurial and tech talents, and leveraging internationally-acclaimed remote professional initiatives for and from the region.”

The funds will further push Basma’s tech base and fuel expansion in the MENA region.

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Business

2019 is Record Year Investment for MENA countries; MAGNITT

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Another record year for total funding when excluding the investments of Souq & Careem

Main highlight of 2019

2019 saw an increase of 12% in total underlying funding; This reflects a 33% 5-year CAGR as the ecosystem grows and matures. Egypt ranks first by number of deals for the first time

  • Egypt accounted for 25% of all deals in MENA in 2019
  • Saudi Arabia’s share of total deals increased by 4%

MENA deal flow hit a record of 163 investments in Q3 2019

  • 2019 saw a higher number of deals in each quarter compared to 2018
  • Q1 2019 was a record quarter for MENA investments when exc. Careem’s $200M funding in Q4 2018

FinTech ranks first by number of deals for the second year in a row

  • FinTech accounted for 13% of all deals in 2019
  • Accelerators and governments play a key role in supporting FinTech startups

What would MAGNITT expects for 2020??

MORE THAN $1B TO BE INVESTED IN MENA-BASED STARTUPS
While this was predicted for 2019, the funding gap left by the Careem acquisition was too big to cover by other, earlier-stage startups.
Moving into 2020, we expect this gap to be filled, as more startups look to raise growth capital, and government initiatives such as
Funds of Funds and matching programs come into effect.

ANOTHER RECORD YEAR FOR EXITS IN 2020
Several industries in the region, including e-commerce and transport, are heavily fragmented, and investors and startups will look to
consolidate to gain a competitive edge. We will also see international interest in more established startups, as we have seen with the
likes of Careem, Souq, Harmonica, and others.

MORE VENTURE-BACKED INTERNATIONAL STARTUPS WILL SET UP SHOP IN MENA
International startups will capitalise on the increased government initiatives to support startups in the region. With the emergence
of flexible co-working spaces across MENA and initiatives to help reduce the cost of setting up and moving, the barriers to entry are
reducing, making the MENA region more accessible than ever.

MORE FAILURES OF VENTURE-BACKED STARTUPS
Bassel Idriss, founder of Generics, shared his 5 learning lessons from the failure of his startup with MAGNiTT. As the ecosystem
matures, it is statistically inevitable that a higher number of startups will fail. This is not a bad thing, as long as we collectively learn
from these experiences and encourage founders to become serial entrepreneurs.

MORE INTERNATIONAL INVESTORS AND ACQUIRERS OF MENA-BASED STARTUPS
The success story of Careem and the increased media attention for venture-backed companies is a positive. Consequently, many will
start looking to scale out of the region for continued growth – international startups and investors alike will look for opportunities as
they become more familiar with the MENA landscape and as they seek arbitrage opportunities. Look out for more Asian venture capital
and corporate investors with experience in South-East Asia and China to start developing an interest in the region.

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economy

Lebanon ecosystem suffer more failed deadline since oct17 protests

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It is true to say that Lebanon’s entrepreneurship landscape has “leapfrogged” since August 2013, when Banque du Liban (BDL), Lebanon’s central bank, released Circular 331 that authorized Lebanese banks to invest in new startups in the knowledge economy. However the ecosystem is suffering more deadline failures since October 17 protests. True to say that most startups and innovators are on the streets since that date; however a number of legislations that should have seen the light and help boost the system have been postponed to a new era.

Digitizing government services is a key pillar of Lebanon’s economic reform plan and measures to combat bureaucratic restraints and old traditional techniques in state institutions as well as corruption. OGERO Telecom, the backbone infrastructure for all telecom networks in Lebanon, have started implementing several initiatives to digitize the Lebanese telecom such as enhancing the transport network, implementing fiber access to the users, upgrading existing submarine cables, enabling IoT services, establishing a startup incubator and data center.

Following the protests the use of digitization is seen as a major component for anto corruotion measures, for example blockchaing.

Another example could be Digital ID. Five years ago we couldn’t have used now we can and have a more reliable, safer and efficient product. There are a lot of areas to utilize for governmental products and services even though we have not fully discussed technical specifications and other technologies can allow to develop efficient, transparent offerings in an era of digitization.

The sheer complexity of the digital transformation project within the government heralded the need for the creation of an Inter-Ministerial Committee chaired by the Prime Minister with members that include OMSAR (Office of the Minister of State for Administrative reform), Minister of telecom H.E. Mohamed Choucair, Minister of state for IT, Minister of Finance, as well as Deputy Prime Minister H.E. Ghassan Hasbani. H.E. explains, “In an effort to develop our digitization strategy we needed to create a clear governance model and the committee is here to make sure the execution among all stakeholders is carried out cohesively with full understanding of the roles, mandates, responsibilities, and accountabilities of each party. This will ensure there are no fragmented efforts. In addition being chaired by the Prime Minister ensures that decision making will be effective.”

The second layer of governance is the steering committee, which will develop the technical specifications, guidelines and KPIs required for the governmental digital transformation strategy. H.E. explains, “The steering committee is headed by OMSAR alongside the Ministry of state for IT. It will develop the plan and then every governmental administration moves ahead with the projects supported by OMSAR. OMSAR’s role is to support and provide capacity building for implementation.” He adds, “This role has historically been mandated to OMSAR and will remain as such.”

Dgitizing Lebanon’s Economy and developing tech sector

As for the Ministry of State for IT, H.E. is focusing 75% of his efforts on the digitization of private sector and the development of a digital economy as well as growing a tech sector that can contribute to job creation and GDP ( Gross Domestic Production). Afiouni comments, “I have set four key priorities to develop the digital economy and tech sector in Lebanon. The first is ease of doing business, through agile government and legislation as well as incentives for corporations regardless of size to grow and encourage them to set up based in Lebanon. One of the main drivers for this in addition to infrastructure will be legislations and simplification of procedures when dealing with government. The second priority is ensuring startups at all stages have access to investment from diversified sources not just the banking sector, as banks don’t traditionally lend to non-asset businesses such as tech. We have a pool of capital whether through our Lebanese expat base or others that can play a strong role and we already have some good stories we can share.”

The state of MENA digital investments shows that the gap in the total number of deals among Egypt, Lebanon, Saudi Arabia, and Jordan is diminishing. In terms of number of deals for 2018, Egypt and Tunisia have jumped in rank compared to 2017, holding second and third place respectively. Meanwhile, the UAE, Lebanon, and Saudi Arabia have maintained their 2017 ranking. While Egypt and Lebanon hold the same ranking, they also share the same number of deals (40) for 2018, and are only five deals away from the UAE. Oman has moved up two places since 2017, currently ranking fifth; this is a clear reflection of the investment prowess of the Oman Technology Fund. The largest shift in ranking is Yemen’s jump of four positions, followed by Tunisia, Bahrain, and Syria all displaying an increase of three positions. This is mostly attributed to the activity of funds such as the Yemeni Angel Group, Flat6Labs Tunisia, and Flat6Labs Bahrain.

Looking at the Lebanese startup ecosystem, the Lebanese government believes that a digitized economy needs a lively startup community. Ever since the implementation of Circular 331 of the Central Bank of Lebanon, the entrepreneurial ecosystem thrived making Lebanon one of the capitals of digital innovation in the MENA.

The country has seen more refined solutions, advanced technologies, and successful entrepreneurs. As a result, more accelerators, venture capitals, and ecosystem support programs followed suit. Given the space to grow, entrepreneurs are thinking digitally, are oriented to move forward, and are driving digitization in Lebanon.

 This policy has spurred the development of new growth capital funds and the entry of commercial banks into the equity market, unleashing (theoretically) more than half a billion dollars into the Lebanese economy. This sudden abundant supply obviously generated demand and buzz around startup creation, from entrepreneurs lining up with business ideas, to support platforms such as accelerators and business support organizations, and facilitators such as entrepreneurs

Though some of these organizations and resources are at a nascent stage of development, the primary elements of a complete entrepreneurial ecosystem are present, as can be seen in the diagram below.

Many of the above building blocks also come from non-Circular 331 initiatives, contributing even more funds to the ecosystem. (Disclaimer: The diagram is a recent snapshot representing major funding and active support actors—some may have disappeared, and others may have appeared since this diagram was created in 2018).

According tot he Execuitive ; A few striking observations can be made by reflecting on the state of the ecosystem.

First, all are private sector-driven initiatives, with a complete absence of government involvement so far—despite the latter being one of the main pillars in the MIT Regional Entrepreneurship Acceleration Program (REAP) framework. This framework describes the five main interconnected elements for an innovation ecosystem stakeholder model: entrepreneur, risk capital, corporates, universities, and government. Obviously, the role of the government in this context is, at a minimum, to provide basic infrastructure. This includes physical infrastructure like the internet, communications, and electricity, and other support such as an adequate legal framework and a conducive business environment.

Second, there is almost a 10-fold difference in the availability of startup funding in the later downstream stage versus the early upstream stage, where funding is needed more. For a startup to receive substantial funding in Lebanon, it is required to initially thrive on a shoestring budget, in order to reach the later-stage, “jackpot.” An entrepreneur once said: “I feel like I am on a lifeboat in the middle of the sea with no water to drink.”

Third, there is currently more of a landscape than an ecosystem, but the building blocks are being put together slowly but surely. However, an overarching strategy needs to be put in place so that new initiatives complement each other, rather than compete in the same space. One example of overcrowding might be the numerous similar seed accelerator programs that have emerged over the last couple of years—the likes of Speed@BDD, TheNucleus, Flat6Labs, BootCamp by AltCity, SmartEsa, and HultPrize. All of these entities accelerate the creation of startups typically over a three-month period before graduating them at a Demo Day ceremony. However, most of these graduating startups are not yet investor-ready after the three-month period and require further guidance and assistance to develop their project or business model. Thus, the majority of these startups unfortunately disappear, indicating that perhaps more investment is needed in developing post-accelerator programs to fill this funding and equity gap to maximize the chances of increasing “graduated” startups. Such a program would offer them the opportunity to receive subsequent seed funding, keeping them on some kind of “life-support” system.

Ecosystems take years to build. We Lebanese are known for our resilience, but our impatience as well. Some fear that Circular 331 money might dry up— fine, we will find other solutions. I am optimistic. We are all here because we decided to apply the famous quote by the late American President John F. Kennedy, perhaps inspired by our own Gibran Khalil Gibran: “Ask not what your country can do for you, ask what you can do for your country.”Sharing

Nicolas

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Ecosystem

Investment Boom in Saudi startups scene +82pct

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MAGNiTT in partnership with Saudi Venture Capital Company (SVC) in their latest report highlight the funding trends and key highlights of the startup ecosystem in Saudi Arabia, which is quickly developing into a leading ecosystem across the MENA Region.

The startup ecosystem in Saudi Arabia is growing quickly, with an increase in deals, funding, number of investors and government initiatives, among other things. The first half of the year saw a flurry of activity, which is highlighted in this report.

The first half report for 2019 from MAGNiTT showed great progress for Saudi venture capital investments, with notable growth across deals, and investor participation. Yet, the Kingdom is still only number 3 in top countries by total funding, and 4 in terms of number of deals. So, what would it take for Saudi Arabia to become the regional hub for startups? Time, as it’s already underway.

The Kingdom has a unique combination of factors that make it fertile grounds for entrepreneurship and innovation. Some of these factors are government-led, while others are at an economic level. All these drivers working together produce a formula that is almost impossible to replicate. It is this formula that will make Saudi Arabia the regional hub for startups.

Economic Powerhouse

The Kingdom has the largest economy in the region, and by far. Its GDP for 2018 reached $782 billion. The population has surpassed 34 million, of which 60% are below 35 years of age. This means two things: Market Size and Scale, a combination that is difficult to find in one place in the MENA region.

Moreover, Saudis are extremely digital. Mobile subscribers are more than 130% (meaning some people have two phones), online penetration at 89% (which is above world average of 57%), smartphones are at 96% (which most are NFC enabled to process noncash transactions), and 74% have bank accounts. And again, these factors, with the aforementioned, are regionally non-existent elsewhere.

Other macro factors derive from existing capital markets, as Tadawul, which is the largest stock exchange in the region. After the inclusion of the Saudi Stock Exchange into both the MSCI and the FTSE indexes, while also considering its market capitalization ($500 billion), the Kingdom has solidified its position as the main capital market for the region. This shows the investment depth and breadth of the Kingdom’s economy on a global level.

Saudi Arabia is the most attractive market for most businesses in the Middle East. It is no wonder that almost all regional startups are either generating most of their revenues from the Kingdom, or striving to reach that goal. But it does not stop there, the Saudi government have launched several initiatives and programs, to empower the ecosystem and unlock its full potential.


“THE VENTURE CAPITAL SCENE IN THE KINGDOM OF SAUDI ARABIA IS RAPIDLY EVOLVING, DUE TO THE MANY GOVERNMENTAL INITIATIVES LAUNCHED TOWARDS ACHIEVING THE SAUDI VISION 2030. WE ARE SEEING MORE SUCH INITIATIVES TO FOSTER ENTREPRENEURSHIP THAN EVER BEFORE. THEY HAVE STIMULATED VENTURE INVESTMENTS IN STARTUPS, ESPECIALLY SAUDI ARABIA-BASED STARTUPS.”


$40M invested in Saudi-based startups in H1 2019

The first half of 2019 saw $40M invested in Saudi-based startups, which is a record amount of total funding in any first half of the year. Notable investments include the ones in Noon Academy, the EdTech startup that raised its $8.6M Series A round, as well as Nana, the grocery delivery company that raised $6.6M in its Series A round.


Total funding increased by 82% in H1 2019

Not only was H1 2019 a record first half of the year, total funding increased by 82% from H1 2018 to H1 2019, indicating increased appetite from local and international investors in Saudi-based startups, as well as startups beginning to graduate to later stages of development.


“SAUDI ARABIA IS CURRENTLY WITNESSING AN INCREASE OF THE QUALITY AND QUANTITY IN THE DEAL FLOW OF STARTUPS, AS WELL AS MORE PROFESSIONAL ANGEL INVESTORS AND VENTURE CAPITAL FUNDS ARE ARISING. WE ARE THRILLED BY THE DISTINGUISHED ENTREPRENEURS THAT ARE CREATING FAST-GROWTH AND SCALABLE STARTUPS.”


H.E. Dr. Nabeel KoshakCEO at Saudi Venture Capital Company


26 deals took place in Saudi Arabia in H1 2019

In total, there were 26 investment deals in Saudi-based startups in H1 2019. Similar to total funding, this was a record number compared to any first half of the year previously, with notable new investors such as Saudi Venture Capital Company (SVC) and MiSK 500 MENA Accelerator emerging onto the scene.

RELATED: 5 Top Myths vs Reality of Entrepreneurship


Number of deals increased by 44% in H1 2019

With 26 investment deals, H1 2019 saw an increase of 44% compared to H1 2018, as more startups are set up, going through accelerator programs, and receiving invest- ment from venture capital (VC) firms and other institutional investors. This number is expected to increase in H2 2019, as more institutions come in and are set up.

Programs and Initiatives

There are three main areas the Kingdom focused on to stir up investments and enable startups: funding, regulation, and education.

Under Monsha’at (Small and Medium Enterprises General Authority), the Saudi Venture Capital Company (SVC) was launched, with a budget of $750 million. SVC is already investing directly in startups (by a co-investment program), as well as participating in VC funds as limited partners. Monshaat and SVC launched several programs for angel investors, which are strengthening the support bedrock for early stage startups. Additionally, the Public Investment Fund (PIF) created a Fund-of-Funds (PIF FoF) to inject more than $1 billion into Saudi-focused PE and VC funds. All these programs, among others, are already underway and active in the ecosystem.

From a regulatory perspective, a complete overhaul has been established in Saudi Arabia. The Capital Market Authority (CMA) has already decreased the requirements for investment licenses in the Kingdom, as well as launch a Fintech Sandbox  and Center along with the Saudi Arabian Monetary Authority (SAMA) to enable innovative financial products and services. On the other hand, the Saudi Arabian General Investment Authority (SAGIA) has launched “VENTURE by Invest Saudi”, a new initiative to attract global venture capital firms and startups. The program will provide a licensing process in under three hours. Other programs from the Ministry of Commerce and Investment (MOCI), addressing incorporation and shareholder matters, are also underway.

In the educational front, many players have been active to enable talent, investors, and early stage startups. The Ministry of Communications and Information Technology (MCIT) and the Saudi Federation for Cyber Security and Programming (SAFCSP) have been touring the Kingdom for months, operating several conferences, bootcamps and competitions to enhance the local talent and increase their exposure to talent-seeking startups. Moreover, MiSK Foundation have launched accelerators to empower regional startups, at different stages, which attracted both local and regional entrepreneurs.

Time and Persistence

Whenever someone asks me (and I get asked this a lot): “What do we need for Saudi to be the regional center of entrepreneurship?” In the past, I didn’t have an answer. Nobody did. Nowadays, it’s simply: “More of the same.”

As of today, Saudi Arabia is still not the regional hub for startups. For such a goal to be achieved, these drivers need to continue and persevere. Most great investments, whether governmental or private, take time to produce meaningful and lasting value. Therefore, it is imperative the momentum continues, and with time, the goal will be reached.


“WE ARE CURRENTLY UNDERGOING WHAT WILL LIKELY BE CONSIDERED THE TIPPING POINT OF VENTURE CAPITAL ACTIVITY IN SAUDI ARABIA. VC INVESTMENTS IN THE KINGDOM ARE GROWING RAPIDLY, AND OUR OPTIMISM FOR THE FUTURE OF SAUDI ARABIA’S OVERALL ECONOMIC AND ENTREPRENEURSHIP ECOSYSTEMS IS GROWING WITH IT. MANY FACTORS PROPELLED THIS GROWTH: SIZABLE REGIONAL EXITS FOR COMPANIES PRIMARILY DRIVEN BY SAUDI ARABIAN DEMAND VALIDATED THE VENTURE CAPITAL MODEL AS A VIABLE INVESTMENT VEHICLE. INCREASING DEMAND FOR DIGITAL SOLUTIONS ACROSS INDUSTRIES IS MATCHED WITH AN IMPRESSIVE RATE OF ADOPTION BY BOTH THE PUBLIC AND PRIVATE SECTORS. SAUDI ARABIA’S INTERNET USERS, TYPICALLY SEEN AS MOSTLY CONSUMERS, ARE NOW BECOMING ACTIVE CONTRIBUTORS TO THE DIGITAL ECONOMY AND CREATING ECONOMIC VALUE USING TECHNOLOGY. ”


Abulrahman Tarabzouni Founding Chairman at Saudi Arabia Venture Capital and Private Equity Association


30 institutions invested in Saudi-based startups in H1 2019

A total of 30 institutions invested in Saudi-based startups in H1 2019, with both local Saudi venture capital firms, accelerators and other institutions, as well as international investors participating in funding rounds. Active local investors include Ra’ed Ventures, Wa’ed Ventures, Riyad Taqnia Fund (RTF), Saudi Venture Capital Company (SVC), and STV, among others.

RELATED: Dubai’s Thriving Tech Scene

Funding Evolution

The startup funding landscape in Saudi Arabia has accelerated over the past years, with H1 2019 being a record first half of the year in both total funding ($40M) and number of deals (26) in the Kingdom.

Key Highlights:

Total funding in Saudi Arabia increased by 82% from H1 2018 to H1 2019

The number of deals in Saudi Arabia increased by 44% from H1 2018 to H1 2019

With new investment institutions, accelerator programs and other initiatives being set up in the Kingdom, 2019 is expected to surpass 2018 in terms of number of deals and total funding

Country Comparison

The Saudi Arabia ranks among the top Middle Eastern and North African (MENA) countries in terms of total funding and number of deals, taking the third spot in total funding and fourth spot in number of deals in H1 2019.

Key Highlights:

Saudi Arabia accounted for 11% of number of deals in MENA in H1 2019, up 1% from H1 2018

The Kingdom also accounted for 9% of total MENA funding in H1 2019, up 1% from H1 2018

Through strategic initiatives on multiple fronts, Saudi Arabia aims to become the entrepreneurship hub in the region

Industry Comparison

Similar to other countries in the MENA region, e-commerce and delivery & transport are among the largest industries in Saudi Arabia by total funding and number of deals. Other industries, such as Agriculture, Data Analytics, Education, and Food & Beverage also make the top 5 by total funding and/or number of deals.

Key highlights:

E-commerce has historically been among the highest funded industries in the MENA region
Food and grocery delivery startups saw an influx of capital in H1 2019
Education ranked 3rd in total funding, mainly due to Noon Academy’s $8.6M funding round

H1 2019 Deals

Noon Academy, the Riyadh-based EdTech startup, raised the highest disclosed funding round in Saudi Arabia in H1 2019, raising $8.6M from Saudi-based investors STV, Ra’ed Ventures, and Alisamiah Investment.

The top 5 funding rounds is completed by Nana Direct, a grocery delivery startup; Foodics, a POS system start- up that offers food order management solutions; Red Sea Farms, the AgriTech startup that spun out of KAUST and develops saltwater-tolerant crops and greenhouses; and GetMuv, a fitness education and facilitation app.

“The venture capital scene in the Kingdom of Saudi Arabia is rapidly evolving, due to the many governmental initiatives launched towards achieving the Saudi Vision 2030. We are seeing more such initiatives to foster entrepreneurship than ever before. They have stimulated venture investments in startups, especially Saudi Arabia-based startups.” – Engr. Saleh bin Ibrahim Al-Rasheed – Chairman at Saudi Venture Capital Company (SVC)

“Saudi Arabia is currently witnessing an increase of the quality and quantity in the deal flow of startups, as well as more professional angel investors and venture capital funds are arising. We are thrilled by the distinguished entrepreneurs that are creating fast-growth and scalable startups.” – H.E. Dr. Nabeel KoshakCEO at Saudi Venture Capital Company (SVC)

“We are currently undergoing what will likely be considered the tipping point of venture capital activity in Saudi Arabia. VC investments in the Kingdom are growing rapidly, and our optimism for the future of Saudi Arabia’s overall economic and entrepreneurship ecosystems is growing with it. Many factors propelled this growth: sizable regional exits for companies primarily driven by Saudi Arabian demand validated the venture capital model as a viable investment vehicle. Increasing demand for digital solutions across industries is matched with an impressive rate of adoption by both the public and private sectors. Saudi Arabia’s internet users, typically seen as mostly consumers, are now becoming active contributors to the digital economy and creating economic value using technology. ” – Abulrahman TarabzouniFounding Chairman at Saudi Arabia Venture Capital and Private Equity AssociationFacebook Comments

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eCommerce

Middle East StartUps and Silicon Valley Guru look for common synergies

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compiled from dispatches

Middle East investors have long had an interest in Silicon Valley, but now some of that attention is being reciprocated. 

The Middle East’s first unicorn, Souq.com, was acquired by Amazon in 2017 for $580m. More recently, at the end of March 2019, ride-hailing service Careem was acquired by Uber, in a $3.1bn transaction that is expected to close in Q1 2020.

Amazon paid $580 million in cash for Souq, according to filingsBloomberg previously reported that Amazon was in discussions over an investment at a valuation in excess of $1 billion but, amid rivalry from Emaar’s ambitious Noon.com project and others, an acquisition agreement was reached.

The two companies said today that they have completed an initial integration that allows customers to log into Souq.com  using their Amazon account credentials.

Next up, they plan to integrate products and services between the two sites to leverage their respective scale. In an announcement, Souq.com in particular spoke of the potential to integrate with Amazon’s global seller and customer base to boost its business.

Careem will become a wholly-owned subsidiary of Uber, operating as an independent company under the Careem brand and led by Careem founders. Careem became the region’s second unicorn in late 2016, just four years after it was formed. Since then, the company reckons it has “created over one million employment opportunities” and generated over $2bn in earnings across 15 markets. 

However, not every journey to acquisition, or a $1bn evaluation, is that quick. As Ronaldo Mouchawar, CEO of Souq.com, noted in Harvard Business Review, his company was originally founded way back in 2005. His site migrated from being an eBay-like auction marketplace to a mobile-focused e-commerce platform before being bought by Amazon over a decade later.

Uber’s financial foray into the region, coupled with Amazon’s earlier purchase, has inevitably sparked interest in which company might be acquired next. 

Predictions are notoriously difficult to make. Instead, we’ve opted to showcase four other major Middle East startups of varying sizes and focus on the ones that we think are worth watching.

1. FETCHR

ZDNet interviewed Fetchr’s founders Joy Ajlouny and Idriss Alrifai in 2015, just after the company had announced $11m in Series A funding. At the time, this was the largest such US investment in a Middle East originated app.

Since then, the shipping and logistics service has added a further $41m in Series B funding and quickly expanded. 

“We started Fetchr with three developers and six years later we now we have close to 3,500 employees,” Alrifai told Supply Chain Digital in April 2018. “We’ve grown rapidly. Last year alone, we grew by 600%. Right now, we’re recruiting about 100 people a week and we’re still growing.” 

Fetchr is expected to seek Series C funding later this year. The service – which ships to UAE, Saudi Arabia, Bahrain, Jordan, Oman, and Egypt – seeks to “solve the unpredictability of package delivery in the UAE and Middle East because of the absence of a formal street address system”.

This address issue matters in a region where non-delivery rates are high, yet where demand for e-commerce is growing.

“We’re like Uber,” Ajlouny explained to ZDNet. “But instead of picking up a person, we use the same GPS coordinates to deliver packages.”

2. PROPERTY FINDER

Real-estate classifieds might not be the most exciting area for technology, but UAE-based Property Finder secured a $120m investment late last year from General Atlantic, a New York-based private-equity firm. 

Chief executive Michael Lahyani told Reuters that the business, which operates in Saudi Arabia, Egypt, Turkey, the United Arab Emirates, Qatar, Bahrain, Lebanon, and Morocco, is now valued at close to $500m.

This is up from a valuation of $200m in 2016, when the Sweden-listed investment company Vostok New Ventures bought a 10% stake for $20m. 

SEE: 10 books every small business entrepreneur should read (free PDF)

The origins of the business can be traced back to 2005 when founder and CEO Michael Lahyani moved from Geneva to Dubai to launch UAE’s first printed real-estate magazine, Al Bab World.

The publication featured classified ads for properties, with some 70,000 copies delivered every two weeks. In October 2007, the outlet was rebranded and moved online.

3. JAMALON

Jamalon markets itself as the largest online bookstore in the Middle East. Based in Jordan, the site offers customers access to more than 10 million titles – from more than 30,000 publishers – in both Arabic and English. 

Founded in 2010, Jamalon offers “customized payment methods that suit the Arab region”, such as Cash on Delivery, CashU – a prepaid online and mobile payment method available in the region – and Orange Money, a mobile money service used by the telecom operator. To date, Jamalon has raised a total of $14.2m, Crunchbase reports, in funding over six rounds, including $10m raised in March from a Series B round. Wamda reports that the company is now valued at $1.7bn.

According to a press release announcing the investment, this latest cash injection will “will be used to increase the reach of Arabic books across the globe”, the company said in a statement. Jamalon’s Print-on-Demand service can “print over two million titles in under five minutes per book”.

According to Vox: “The company has been referred to as the Amazon of the Middle East, but that label doesn’t quite do it justice. The platform’s success … is based on meeting a demand that Amazon has overlooked.”  Jamalon offers more 150,000 books in Arabic, Vox pointed out, whereas “Amazon, by contrast, offers only a few hundred books in Arabic, and is often difficult and costly to use in the Arab world.” 

4. ANGHAMI

Spotify launched in 13 Middle East and North Africa countries in November last year, offering free and premium services designed for listeners in the region. The service will cost about half the $9.99 subscription Spotify charges in the US, according to Billboard.  In 2018, Deezer, the French streaming service, also launched in the region, following new investment and a partnership with the Arabic music service Rotana.

More than 100 prominent regional artists are signed to Rotana Records, which has historically produced its own content and shows for distribution via its TV, FM, and digital channels.  These moves have put pressure on Anghami, the Lebanon-based music streaming service, which has had much of this market to itself since it launched in 2012. 

Speaking at a BECO Capital conference last November, co-founder Elie Habib revealed that the service, enjoys over 1.5 billion streams per month, and that it has more than 13.5 million monthly active users. The platform supports over two million artists, and includes “a self upload service for independent artists”.

“Competition is great,” he posted on LinkedIn in late March 2019, highlighting a series of job openings. “We’re growing month on month and pushing hard to make sure that a local Arab business maintains domination in the region.” One plank of its strategy to stay ahead of the competition is to stress its local origins, as well as its local content. Rami Zeidan, vice-president of partnerships at Anghami, recently outlined how podcasts that originate in the Middle East are one element of this approach. 

“We believe in our region; we are from the region, for the region,” he told Communicate Online, explaining how Anghami is investing in podcast discoverability, production, and marketing.  Anghami is also innovating in other ways to tap into the region’s love of social media and offer a product that differentiates itself from its new rivals. Apart from its audio-streaming interface, the service has recently rolled out social features like Anghami Story, modeled after Snapchat and Instagram Stories, and Video Expressions, similar to now-defunct Musical.ly,” according to Billboard.

Along with “unconventional ad formats such as ‘shakeable’ ads and an original-content and artist-development program”, as a local company Anghami is also “currently ahead of Spotify and Deezer when it comes to high-quality localized content”.

Whether that last advantage can easily continue is a moot point. As Fares Ghandour, a partner at Wamda Capital, has spelled out, Anghami has “had a monopoly over local streaming for the past six years, but customer acquisition costs have been cheap because there was no one else to compete with them”. “Now that Deezer and Spotify are there, those costs will skyrocket. An acquisition by Tencent is by and large the most likely exit strategy that Anghami will pursue,” he predicted. 

LOOKING AHEAD

In 2018, a record number of investments – 366 of them – were made in the Middle East and North Africa region, Magnitt 2018 MENA Venture Investment Report found. More widely, it detailed that more than 155 institutions invested in the region’s startups in 2018, 30% of which were from outside the region.

These developments, coupled with efforts seen in the past year – such as the establishment of Egypt’s first venture-capital fund focused on investing in fintech, the $100m for startups in the Bahrain-based Al Waha Fund of Funds, and Tunisia’s startup act – are giving the region’s startup scene unprecedented momentum. With record levels of investment, interest from tech watchers and interesting new ventures launching all the time, the region’s startup scene looks like it’s going to get even hotter.

magnitt2018menaventureinvestmentreport.jpg
In 2018, a record number of investments were made in the Middle East and North Africa region. Image: Magnitt

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Ecosystem

5 Things to Know About Egypt’s Startup Ecosystem

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Egypt, the land of pyramids, pharaohs, and the Nile, is fast becoming one of the hottest startup hubs in the Middle East and Africa region

Egypt is the fastest growing startup ecosystem in the Middle East and North Africa region, according to a report published in 2018 by Magnitt, bagging 22 percent of all deals last year, second only to the United Arab Emirates. The country has also seen a significant spike in the number of venture capital companies, international funds, incubators, and accelerators over the last couple of years, which, along with government initiatives, have made Egypt an attractive hub for startups in the region.

“Egypt is seeing a second wave of entrepreneurs and investors that are more mature and experienced. The population is also starting to embrace technology for everyday activities and we see that large but young tech firms are a great source of talent and inspiration,” Ziad Mokhtar, managing partner at Algebra Ventures was quoted by the Magnitt report as saying.

Following are 5 things to know about this up-and-coming young entrant in the global startup space:

Almost Unicorns

Egypt is still a relatively new startup hub, and while it does not have any unicorns to its name yet, several promising companies are on their way to the $1 billion club.

Swvl, an app that allows customers to book rides on buses and vans in their network, tops the list with a total of $80.5 million raised over four funding rounds so far, according to data aggregator Crunchbase.

Vezeeta, a healthtech platform which allows patients to book doctors on the app, with $23.5 million raised over five funding rounds so far, according to Crunchbase, is next in line. The company closed it latest funding from a series C round in December 2018.

Instabug, Yaoota, Basharsoft, and Halan are some others on the list.

Incubators on the Rise

Flat6Labs is the most prominent accelerator in Egypt, and was the only one in the country up until a few years ago. EdVentures, the corporate VC arm of Nahdet Misr, one of the leading publishing groups of Egypt, is one of the main players in the education startup sector. Sawari, Algebra and Endure Capital are other private VCs.

Falak is a government run accelerator that invests in early-stage startups, and was established to give the startup industry in the country a much-needed shot in the arm.

Government Efforts to Scale the Industry

The Egyptian Ministry of Investment and International Cooperation has a number of different startup programs and networks that helps founders develop their entrepreneurial skills, and companies navigate regulations. The initiative by the ministry, called ‘Fekratek Sherkate’ administers these programs, including Falak.

Bedaya, founded by Egypt’s General Authority for Investment and Free Zones, is an incubator that offers funding as well as office space, networking opportunities and manufacturing zones to startups. The incubator’s ‘Bedaya Fund’ provides financing opportunities for startups in the food, agricultural, manufacturing, services, and information technology sectors.

TIEC, or Technology Innovation and Entrepreneurship Center is another government incubator that funds startups in the information and communication technology sector, as part of the government plan to develop the country’s communication infrastructure.

Tech Leads the Way

Technology is the hottest startup sector in Egypt, with the country poised to lead the way for tech innovation in the Middle East and Africa, a Business Insider report earlier this year said. However, issues with the country’s economy, which has been struggling in the wake of the Arab Spring crises, and the ouster of leader Hosni Mubarak, a generally weaker currency versus the U.S. dollar, and complex bureaucracy make it hard for startups to operate efficiently. Several companies have been forced to relocate to Germany, Dubai, China or the Cayman Islands inorder to take some of the pressure off.

Bootcamps and Events Make Connecting Easier

Events give startups an important opportunity to network, connect and learn from experts and investors around the world.

Egypt has several annual events that help put regional startups on the global map – RiseUp Summit – biggest in the country, Vested, and the Techne Summit, held in Alexandria, are some of the must-attend gatherings.

Techne Summit, in fact, returns for its fifth edition in Alexandria, Egypt, at the end of the week, with topics of discussion ranging from healthtech, e-commerce, and fintech, to retail, marketing and media technology, among others.

The event, slated for September 28 to September 30, will feature the launch of a network comprising angel investors from across the Mediterranean region, called ‘Mediterranean Business Angel Investment Network’, or Med Angels. Investors from France, Greece, Tunisia, Morocco, Egypt, Lebanon, Slovenia, Croatia, among others, are already a part of the network, which aims to “facilitate cross border investing among participating member networks,” as per its press release.

The Med Angels platform claims it will help connect more than 100 networks with nearly 10,000 angel investors, across 24 countries.

Featuring also for the first time will be a global startup competition, called ‘Startup World Cup’ – a competition for seed-stage startups, the winner of which will get a chance to win $1 million, and an entry into the final round in Silicon Valley.

Speakers at the event include Egypt’s Minister of Communications and Information Technology Amr Talaat, AUC Venture Lab’s director Ayman Ismail, Hadeer Shalaby, regional director of Careem Bus, and representatives from Citibank, Mastercard, AXA, Unilever, IBM, Praxis, Microsoft, and Central Bank of Egypt, among others.

On the Agenda

The 2019 event features several satellite events, or side events, such as air yoga, educational sessions on social media management, Cloud services management etc, at various locations in Alexandria

The main event is replete with workshops on product design, company incorporation procedures, legal issues relating to startup investing, fireside chats on technology and building hospitals of the future, pitching competitions for startups, and 1-to-1 meetings.

Event-goers will also be able to take part in several competitions based on specific themes, or sectors, such as healthcare, women in tech, and fintech companies tackling financial inclusion, payments and SME lending, to name a few.

Techne Summit kickstarted in Egypt in 2015, and, as of 2018, had hosted over 6,000 participants, 130 speakers, 230 startups, and 80 investors from more than 25 countries.

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Ecosystem of the MENA

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