BECO Capital co-founder and CEO Dany Farha said: “We waited four years for the VC ecosystem to mature in quality and quantity to enable us to make a higher number of investments at the seed stage.”
He added: “We saw our deal flow grow exponentially year-on-year for the past four years, so we scaled our raising and deployment in parallel with the growth in start-up activity. The same needs to happen at the angel investment stage so the whole value chain is working together to be appropriately funded, otherwise it will reach a bottleneck.”
According to Farha: “We are at a stage where additional regional pre-VC money should enter into the space and a diverse pool of entrepreneurs has to come forward with quality innovation and problem-solving ideas for investments. At the moment, we see funding in the middle of the chain at the micro-VC, VC and private equity levels.”
More needs to be done at the angel, incubator and accelerator levels and entrepreneurs must lead this revolution. There has to be enough support for innovation in start-ups. “We are feeders in the ecosystem and entrepreneurs are the drivers,” said Farha.
Full investment cycle
Unless the full investment cycle matures in the MENA tech start-up sector, the business cycle for SMEs will suffer. However, when it does, the entire value chain will grow to a size where institutional investors and sovereign wealth funds can start deploying to the VC asset class.
Farha believes that all subsectors in the value chain need to be invested in at the same pace and move together. “They are interconnected and the growth of every part of the value chain should be going at the same pace as the rest and pass through to the next level,” he stated.
At the VC level, there is still enough dry powder waiting to be deployed and more funds are currently being raised for additional investments. Today, each of the big VC companies is looking at an average of 1,000 potential investments and will typically invest in less than one percent of those.
New angel and accelerator money is coming through, driven by governments, especially in the GCC countries, looking to trigger a major shift towards a knowledge economy. As a result, they are supporting the tech start-up ecosystem at the incubator stage through government and semi-government initiatives.
Recently, the UAE surpassed Norway, Korea, Turkey and Japan to be ranked 19th in the 2016 Global Entrepreneurship Index. It placed the country in the top of 15 MENA countries. Such economic diversification strategies are already paying dividends, with hundreds of quality tech start-ups coming online in Saudi Arabia, the UAE, Jordan, Egypt and Lebanon in particular.