BECO Capital, a regional venture capital firm focused on technology investments in the Gulf Cooperation Council (GCC) countries, today said that the Venture Capital (VC) market has gained momentum in the last 12 months, boosted by successful fundraising by the “Big Four”, a much deeper startup ecosystem across the region, government and private initiatives and increased attention from international VC and strategic investors.
BECO Capital’s proprietary research shows that of the 109 private players operating in the VC sector in the region, there are 19 regional and seven international VC firms. In addition, there are 10 players in growth/late stage investments. Also, 12 regional conglomerates have set-up VC businesses. Other operators include micro VCs (6), incubators/accelerators (14), Angel Groups (11), Angel investors (14) and Tech Acquirers (16).
Nevertheless, The CEO of BECO Capital asserts that the VC asset class is still vastly underfunded in our region, advocating more allocations from Sovereign Wealth Funds (SWFs), Family Offices (FOs) and institutional investors to the best VC firms. “This will accelerate the creation of our ecosystem, build local tech success stories, ensure that MENA participates in the tech revolution, contribute to a better region and therefore a more stable and prosperous region and, ultimately, provide investors with outsized returns in the process.” For this to happen, the size of the VC firms and funds under management has to grow to enable SWF’s and institutional investors to participate given their minimum investment sizes.
Fundraising and deal flow
At the moment, The “Big Four” VC players are scouting the market to deploy the US$ 150 million dry power remaining from their US$ 250 million coffers raised over the last three years. BECO Capital has raised about a quarter of funds committed so far this year, with a mandate to support tech startups in the UAE, Saudi Arabia, Egypt and Lebanon with growth capital, operational improvements and overall value creation.
“VCs offer growth capital. Startups are all about scale and hyper growth, anything else is not a startup. It’s just a new business that might be a great business but isn’t about scale but about dividends,” he says.
BECO Capital, which has acquired stakes in Careem, Propertyfinder and Bayzat, said that not all of the dry powder will go to new investments.
The sector will reap the benefits of these long-term investments in existing winners in five years’ time.
“The region will witness an impetus of exits greater than a few hundred million dollars each when the VC stars start to exit. I expect one ‘Big Bang’ deal every year starting from 2019, which could include ‘Unicorn’ exits,” Dany Farha says. For him, ‘Big Bang’ deals are those which surpass the US$ 200 million floor and the ‘Unicorns’ are those which will break the US$ 1 billion mark. “The VC ecosystem (Big Four) need to generate at least one US$150 million exit every year starting in 2019 onwards for our deployment to yield VC returns for investors. Such a momentum for exits will bring more money into the ecosystem, creating a healthy positive feedback loop and ensure its sustainability and overall wellbeing”.