Sourcing funding is a crucial objective for any startup. It was also a consistent discussion topic throughout Seamless Middle East 2021. Several of the more advanced-stage startups said that while early-stage funding is available, it is more difficult to source funds at the later stages of the lifecycle of a startup company.
Johnny Kollin asked Swethal Kumar, CEO & Managing Partner of StartupScale360 FZCO and Co-Founder of The Crossroads, about his thoughts on the opportunities and challenges regarding startup funding in the Middle East and North Africa (MENA) region. Kumar is an angel investor, startup mentor, and strategic advisor with two decades of experience in the finance and strategy domains, including more than twelve years at Mubadala Group – one of the largest sovereign wealth funds in the world.
“There are two challenges in terms of access to funding in the Middle East,” said Kumar. “The ecosystem is very young, and there are many pre-seed and seed-stage startups here. There is a lot of awareness required in terms of angel funding.” “There are many high-net-worth individuals and family offices in the region that have been investing in real estate, listed shares, and other investment products. But their level of alternative investments in startups is still at a low level compared to the rest of the world.”
One global trend within the venture capital sector is increasingly larger ticket sizes. Kumar said that some of the sovereign wealth funds invest in Series A rounds. However, most are only prepared to invest in Series B or later. So, how can a startup bridge that funding gap between the early and later stages of its maturity lifecycle?
“I think there is a gap – what you call the valley of death”. But while mid-to-late-stage funding alternatives are scarce, Kumar said there are efforts to change this. “Many regulators, like ADGM, are now attracting international funds to enter the market to support it and fill this gap.” In addition, certain sovereign wealth funds now invest at an earlier stage. “Mubadala, being a global company, now also wants to invest in startups through the funds they launched in 2019,” said Kumar.
The funds to which Kumar refers were announced at the opening of the Abu Dhabi FinTech festival in October 2019. Mubadala Capital — the financial investment arm of Mubadala Investment Company – launched two new funds to strengthen the startup ecosystem in Abu Dhabi. The first is a USD150 million fund of funds that invests in other funds supporting the Abu Dhabi Hub71 ecosystem. The second USD100 million fund makes direct investments in startups.
Mubadala participating in startup funding in this way “gives confidence to international investors,” said Kumar, and enables international investors to join as co-investors alongside the sovereign wealth fund.
Considering the state of the access to funding, what advice would Kumar give to more mature startups in the region seeking growth funding?
Find your way to navigate in the region.
- Swethal Kumar
“That is a good question because now we have seen many startups are inching towards Series C funding,” said Kumar. “I think there is a need for more global funds to participate and look at this market. It has already attracted some international funds, like Sequoia Capital. So, I think the region is prepared.”
“Find your way to navigate in the region,” said Kumar. “Becoming a global tech player out of the Middle East is possible!”