Raising funds in the Middle East remains challenging despite the great start-up ideas and the myriad opportunities that the region has to offer investors, according to accountancy and finance body ICAEW. This was the consensus during ICAEW’s Corporate Finance Faculty roundtable on venture capital in the Middle East.
ICAEW members and guests gathered at the Dusit Thani hotel in Dubai on Wednesday 23rd November, to discuss whether venture capital is ready for take-off in the Middle East. The event was organised by ICAEW’s Corporate Finance Faculty in the UAE.
Panellists included Ankur Shah, Chief Finance and Development Officer, Careem; Tammer Qaddumi, Partner, VentureSouq; Khaled Talhouni, Managing Partner, Wamda Capital; Sarah Jones, Founder, Mini Exchange; and Peter Tavener, CFO, Behive. The discussion was moderated by Tamer Bazzari, Founder and CEO, Genero Capital.
Following an introduction by Matthew Benson, Partner Transaction Support Leader, Europe, Middle East, India and Africa (EMEIA), EY, panellists and invited guests discussed whether it is a good time to be an entrepreneur looking for start-up funding in the region. Panellists agreed that the process for fundraising is still tough in the region compared to other markts in the world.
Speakers explained that the Middle East is one of the largest sources of venture capital in the United States (US) but only small amounts of this capital returns to the region. This is due to a lack of awareness about the business opportunities in the region and also because investors do not feel comfortable investing in this part of the world.
Panellists highlighted that the mindset of angel investors in the region is not helping start-ups to grow and scale like in other markets, such as the UK or US. Regional angels tend to get as much ownership as possible in the business, which undermines the entrepreneur from growing the business. In the US, for example, investors only look to get back 20 percent of their capital in the short to medium term while the other 80 percent remains invested in the start-up to enable the business to grow. Naturally, this eventually benefits the investor too.
“The region’s venture capital ecosystem has developed over recent years but more work needs to be done at the angel, incubator and accelerator level. History has proven that during a slow economic growth period, entrepreneurship and innovation spurs. Now is the best time to fund SMEs and entrepreneurs,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).
In terms of the levels of due diligence that investors undertake in start-ups, speakers advised that investors always look to understand the upside of the business and the size of the opportunity.
Panellists agreed that start-ups should not be county-specific but rather have wider regional scalability. This is because the population in the region is 450 million, which is larger than the population in the US, making the region the sixth largest economy in the world.
Speakers also agreed that regulations should be improved in order to allow businesses to expand to other countries in the region.
When it comes to e-commerce, speakers agreed that this is a very interesting industry and has the potential despite the logistic and payment challenges, such as cash on delivery.
The event was attended by close to 100 ICAEW members and senior business representatives from the major global and regional financial organisations.