Up next: A wave of startup 'exits'

The UAE startup industry - one of the vibrant innovative sector - is now preparing to welcome 'exits' as the big names have already set the precedent and paved way for the ones reaching maturity level.
Amazon's acquisition of Souq.com and Payfort, Mohamed Alabbar, chairman of Emaar Properties' acquisition of JadoPado and Namshi as well as Delivery Hero's acquisition of Carriage figure among 60 exits of startups in the Mena region, which is valued over $3 billion in the past five years. The Venture Capitalists (VCs) have reason to smile as the exits are the testimony of wise investments trusting the business skills combined with the innovation drive by millennials.
Walid Hanna, managing partner of MEVP, said: "If you look at the history of VC in the UAE, investments into emerging startup companies from independent venture capital firms really began around 5 to 6 years ago. The classic VC model assumes a 10-year fund with a 7-8 year divestment period - in other words, it takes an average of 7-8 years for startup companies to reach the stage of maturity where they are ready to exit. The best of the best of these companies are poised to see exits through acquisition by major international players within the next 1-3 years."
"We've already demonstrated that companies in the region can be valuable acquisition targets for international players, we have mapped around 40 exits in the past 5 years such as Dubizzle and Zawya, and more recently with Souq and Namshi. We expect this trend to multiply in the future as companies seeded 5-6 years ago reach an appropriate maturation for exit," he said.
In the fifth of their series on the Mena startup ecosystem and to celebrate over 3,500 startups listed on the platform, MAGNiTT released its research on the exits that have taken place over the last five years. It reviewed tech companies and tech enabled startups over the last five years to identify trends. 2015 saw a peak in recent activity with 16 startup exits but 2017 is shaping up with a strong start to the year with eight exits year in the first six months 2017.
"We have since the beginning of the founding of Beco in 2012 been watching the rise and growth of our regional ecosystem and Dubai's leadership in headquartering this activity and have been calling for mega exits of $500 million plus from the year 2019 onwards since then," Dany Farha, CEO, Beco Capital, said.
"Souq's acquisition came a few years earlier than we predicted but there is a very healthy pipeline of tech titans in the making, some in our portfolio, that will see mega exits from 2019-20 onwards setting the example for future mergers and acquisitions which in turn drives a virtuous circle of M&A," he said.
More exits in UAE
The UAE headquartered 38 per cent of the startups that were exited followed by 15 per cent in Egypt and the sectors that saw the major activity were e-commerce with 22 per cent, media 18 per cent and F&Bs 15 per cent make up 55 per cent of the industries covered in the M&A activity in the startup space.
The MAGNiTT research further points out that the average time to exit of the 60 startups was seven years from founding the company to exiting and the great news for the region is 47 per cent of startups have been acquired by Mena organisations.
Several VCs in the Mena region have noted exits of startups in their portfolio including MVI, Jabbar Internet Group, Middle East Venture Partners and Beco Capital.
"We are beginning to see VCs in the region make return's on their investments. Given many VCs in the region are still relatively young and with an average of 7 years to exit of successful startups, we anticipate to see more exits come to fruition in the coming years as their portfolio companies mature," Philip Bahoshy, founder of MAGNiTT, said.
Myths dispelled
'Mena has had no exits' is often a criticism heard around the corridors of many entrepreneurship establishments. This is a myth. There are quite a few, from the top 10 disclosed startups disclosed that 60 per cent of the top 10 disclosed exits in the region originated from startups set-up in the UAE.
In conclusion, in line with MAGNiTT's pursuit for transparency in the Mena startup ecosystem, the report looks to raise awareness around the M&A activity taking place in startups space in the region. The data provides positive news to Mena entrepreneurs and investors alike that there is light at the end of the tunnel. With 7 years on average to exit many investments are likely to come to fruition in the coming years while the Mena region continues grow and develop awaiting its first Unicorn exit or startup IPO.
Kushal Shah, partner at Roland Berger's Dubai office and a managing partner for the Middle East, said liquidity is coming and entrepreneurs and early investors will start to benefit from decent exit opportunities.
"The new money is not just Alabaar, deeper VC pools but also family offices, conglomerates, and even the Mudasirs and Ronaldo's. The market is becoming a richer pool of assets with more talent, experience and variety. We can see buyers have now increased the risk appetite," he said.
- sandhya@khaleejtimes.com