Valuations will favour investors in 2020: Reflections from the MENA startup ecosystem

Over the last few months, MAGNiTT hosted 20 webinars with several insightful thought leaders across the MENA region, exploring topics from: advice for young entrepreneurs and how to exit successfully, to starting up in KSA and online payments. Coincidentally, this aligned with the start of a worldwide pandemic. As part of our drive for constant and consistent data transparency, MAGNiTT webinar attendees completed polls relating to the topic of each session, but it was clear that the current crisis was on everyone’s mind. Off the back of this, we collated the poll results and have shared them in a comprehensive, data-driven article below. This article takes the insights from the polls to act as a reflection from the ecosystem over the last three months and underlines the importance and impact of COVID-19.

We have split the poll results by category:

- Startup concerns and impressions in the current climate
- What is KSA doing?
- Funding expectations and plans
- Investors vs startups

*It is important to note that some of the poll results are time-sensitive. 

Startup concerns and impressions in the current climate

Almost 50% of respondents expressed concern about revenue generation the most in the current climate. This can be seen as a reasonable initial response from founders as ‘cash is king’ - it impacts all other branches of a business. A quarter are worried about fundraising, which is supported by the fact that investment deals for Q1 were down 22% compared to the same period last year. 

Interestingly, our webinar with HE Khalfan Belhoul, CEO of Dubai Future Foundation (DFF)  (which was conducted almost 2 months later) highlighted that the concern had shifted from revenue generation and towards cashflow preservation. It’s important to note that there could be several factors attributed to this, aside from the COVID-19 crisis. 

In line with this focus, there still remain challenges for UAE based startups. It’s clear that despite the current situation, the implementation of working from home and a lack of time in the office has not led to startups successfully renegotiating rent for a space that is currently unoccupied. 

In this webinar, HE Khalfan Belhoul spoke extensively on the topic of real estate and suggested that we need to adapt; not just startups, but also government entities. We need to revisit the amount of real estate we need and the purpose of it. Do we really need dedicated office spaces post-COVID-19? From an entrepreneurial perspective, the decision to reduce costs and increase their value will need to be discussed at the highest level. The most important asset a company has is its talent, and you want to foster an environment in which it can thrive. If the talent can produce as much, if not more from home, then repurposing the real estate for other valuable and beneficial reasons should be considered.

Continuing from this, over two thirds of respondents shared that they have been unable to benefit from any government initiatives to date. However, HE Khalfan Belhoul highlighted that he is looking for DFF to be the focal point in the current situation to ensure that everything related to the challenges is funneled to them so they can push those ideas to the relevant parties. He says that it is very important for DFF to ensure that there is a place where startups can actually connect, understand and look at all the complete offerings - whether it is what happens to talent, the funding perspective, and the current situation with deals and rent.

It is clear that the majority of respondents, in our survey of tech-focused companies, do not fear a complete shutdown of their company by year-end, but the full impact has yet to be seen. This is in contrast to a survey carried out by the Dubai Chamber of Commerce which found that 70% of Dubai businesses could close due to the impact of COVID-19 by year-end. This may highlight that tech-focused companies may be more resilient in such a climate to more traditional SME businesses that are offline and may find it harder to quickly shift and refocus their strategies.

Close to 30% have higher expectations or expect revenue to remain flat; these could be companies who have managed to pivot or have a solution that is needed during a pandemic. 

Dana Baki, COO and Co-Founder of LUNCH:ON, in our webinar on ‘push, pause or pivot’ for example, spoke about how to shift your offering to meet the current need and the importance of understanding what your business is built on. Market dynamics and user behaviour may change, but you need to revisit the basics and understand: what is it that I’m offering? What are the assets that I have? What tools can I work with to understand what role I now play in this new landscape? Dana said that a few months ago, investors may have been asking about growth, but now they will be more focused on if you have a solid contingency plan from a revenue standpoint.

What is KSA doing?

The Saudi COVID-19 Incentive Program aims to help multiple sectors get through a variety of issues in the current climate. For instance, The Ministry of Finance has allocated 177 billion Saudi Riyals for private sector support. The submission and payment of tax declarations and payment of selective taxes owed, the collection of import duties and more, for commercial businesses are postponed for a period of 3 months. The Kafalah initiative aims at helping SMEs obtain the necessary Islamic finance to grow their business, encourage financial institutions to deal with SMEs sectors, and more. 

Our webinar with Dr Mazin Al Zaidi of The Ministry of Investment of Saudi Arabia (MISA) discovered that the majority of respondents find the market in KSA the most interesting aspect of potentially starting up in the region. There seems to be a level of curiosity about what the Saudi market entails and the KSA government’s support may accelerate this. 

Similarly, over two thirds are looking to set up in KSA, suggesting that now may be the right time to scale and focus on the activity in the country. This is reiterated through our discussion with Dr Mazin who stated that Saudi Arabia has a different structure and way of doing business, with many initiatives and big projects; it’s a very unique market.

The lack of knowhow and license go hand-in-hand here. Dr Mazin highlighted that in order to seize KSA, most of all, you would need to have a team on the ground and to build your network. You need to explore and discover all of your opportunities, and MISA will provide the necessary support. Dr Mazin believes that MISA is the key to unlocking the Kingdom; for foreign entrepreneurs and investors, obtaining the license will allow you to operate as any other Saudi entrepreneur.

Funding expectations and plans

It has been made very clear that expectations for funding have been significantly lowered in comparison to 2019. This is indeed a reasonable assumption; venture funding deals took a hit in Q1 in the UAE, declining 33% year-on-year. This does not necessarily mean that noteworthy funding will no longer be carried out for the remainder of the year. We have still witnessed 91 funding announcements since February 2020. 

There has been a shift towards a focus in investing in innovative, purposeful, and resilient businesses. An importance has been placed on investing in solid entrepreneurs that have solid businesses. Dana Baki of Lunch:ON voiced how they define this and what will change, is that unit economics and profitability will become more significant.

Consequently, founders are looking to delay any potential fundraising plans, which can be viewed as a sensible response as they may be waiting to see the full picture and how the wider market dynamic is affected. Alternatively, almost 50% have either accelerated their plans or decreased/increased their size of raise, which can be pinpointed to pivoting their plans to meet the situation.  

Walid Faza, Partner and COO at MSA Capital, in our ‘reshaping of market dynamics’ webinar spoke about encouraging digitalisation of products that previously may not have been embraced. Walid discussed this being a “dream come true” for those already positioned in sectors such as technology as user adaptation and habits are changing (which could potentially be attributed to the above 50%). 

There has been an 117% increase in applications to the 75+ VCs on MAGNiTT in the last few months, therefore shining a light on the fact that people are using digital platforms to connect. Walid highlighted that pitching will evolve, how VCs look at metrics will change and even events. It makes sense to do things online to be time efficient and data driven.

Investors vs Startups

As suspected, over two thirds of respondents believe that investors will benefit from valuations over the startup. Investors may be able to reap the benefits from the crisis, whilst the founders could suffer. 

Patrick Rogers, Co-Founder and CEO of Clara, in our webinar on ‘avoiding harmful investment terms’, discussed that VCs are now essentially having to look to separate the weak, from who will be alive next year. Those who were keen on looking at new investments 2 months ago will instead be trying to figure out which elements of their existing portfolio will stay alive. Ultimately, this leaves the founders in a state of limbo with the investors having the proverbial upper hand. 

What does this all mean?

The results of our webinar polls make it clear that COVID-19 has and will continue to take startups and founders on several journeys, through many highs and lows. They have and will go through challenges, including staff cuts, lack of revenue generation, and funding losses, but it is ultimately up to them to cost-cut efficiently and focus on their own business model, offerings and potentially, pivot or look towards a different market. 

For founders, there seems to be an uneven balance, whereas investors are sitting on more of a stable ledge. 

However, there are exceptions to this rule - e-commerce and technology will have the opportunity to thrive and capitalise on revenue growth and potential investments. 

Despite all of this, investors are still investing and one thing is for sure, we will be seeing the repercussions of this pandemic long after it has gone. 


An encouraging 33 startup deals took place in May 2020, which was an increase of 93% compared to April. This was largely driven by the Misk500 MENA Accelerator, which graduated its third batch of startups. Discover more details in our May 2020 Dashboard Report.