Q&A with Walid Mansour: Startup valuations, VC as an asset class, and demand shifts in MENA in times of COVID-19

We recently published an article where many of MENA’s investors shared that they were still investing, despite the impact and uncertainties of COVID-19. Two weeks ago seems as if it were almost a lifetime ago now -- with the world changing rapidly every day. For a fuller, slightly less rosy picture, we (remotely) sat down with one of the region’s most experienced investors: Walid Mansour, Managing Partner at MEVP, to get his take on the realities and the future of MENA’s tech startup space.   

MAGNiTT: Thanks for joining us, Walid! Let’s cut to the chase: Are investors still investing in times of COVID-19? Are they still in business? 

Walid Mansour: VCs with cash (especially large sums of dry powder) will always be on the lookout for new and good opportunities in Q2/Q3 - especially when valuations are reasonable (and I suspect that they will drop even more significantly). This global epidemic is now also a global recession and it will definitely affect VC investing all over the world and in the MENA region. Investment appetite is at its lowest and understandably so...

MAGNiTT: A big picture question -- how do you see demand shifting as a result of COVID-19?

WM: Offline to online migration is accelerating across the board but overall, in a recession environment, demand on discretionary spending will drop and therefore few recession-proof industries will thrive. Tech in general will do better than other industries, but I don’t suspect we will see the kind of nonsense valuations we did just a few weeks ago.

MAGNiTT: Will MEVP’s investment thesis, and the theses of other investors, have to change as demand shifts?

WM: This is not only about demand dislocation nor shifts, it’s also about the viability of the asset class given 100+ players in this industry in MENA. Everything’s  changed and, of course, our investment thesis will adapt to the new reality. I can’t speak on behalf of others, but I don’t think the picture is rosy across the board.

MAGNiTT: What does this mean for investors who still have cash?

WM: Having cash for investors (and companies) is, of course, a good thing. The question is where to deploy it given that IRR clocks are ticking. Don’t forget that most investors also have a portfolio to look after and support in these times.

MAGNiTT: How has COVID-19 affected investor LPs [DFIs, HNWIs, family offices, sovereign wealth funds]? 

WM: It has affected everybody… pretending it hasn’t is a form of denial. People are still trying to size its impact on their businesses, and few have a clear idea of what to do. It’s survival mode for many, I’m afraid.

MAGNiTT: What does this mean for investors who are fundraising right now? 

WM: I don’t see any support for fundraising given the current environment… we can talk about it at the end of the year.

MAGNiTT: How do you think that this affects risk appetites for VC as an asset class across the board? 

WM: The VC asset class is not disappearing; its thesis, focus, and expectations will adapt to a new reality. I believe that, eventually, VC will support the creation of new companies in the decade to come. VC will always have a place under the sun (albeit a new place) – there will be fantastic new opportunities to back. I am optimistic on this front. Tech is a clear winner.

MAGNiTT: How do you foresee that this will all ultimately affect startup valuations in MENA? 

WM: Some tech segments are destroyed due to severe demand drops/shifts. Any tech company with a heavy asset/operation model will be challenged due to supply chain disruptions, demand drops and a generally smaller appetite to invest. Companies with unrealistic valuation will downsize and value will be wiped out. We will see a change in consumer behavior, priorities, and spending. Companies banking on discretionary spending patterns will be seeing demand evaporation. 

MAGNiTT: Would you start a startup right now? 

WM: I would always start a company at any point in time, not just now – the world doesn’t stop from spinning.

MAGNiTT: When do you predict a ‘recovery’? 

WM: Predicting a recovery is impossible … unless you have a magical crystal ball. However I see new winning sectors emerging out of this crisis.

MAGNiTT: What’s your advice to investors right now? 

WM: Protect your good assets if you can.

MAGNiTT: What’s your advice to startups right now?

WM: Cash is king, live to see another day.

MAGNiTT: Finally… What do you think demand looks like in a post-coronavirus world?

WM: We are exposed to tens of companies across multiple sectors/sub sectors.. The data we are collecting is rich and very insightful. We’re already seeing elements of this “post-Corona” world every day… but we’ll keep this data for ourselves 😉, it is coming very handy in these difficult times.

E-commerce deals in MENA-based startups have tripled from 2016 to 2019. Find out more details behind this trend and many more in our 2019 MENA E-commerce Venture Investment Report HERE