Spray and Pray No More!
During 2020, global venture capital (VC) funding reached USD 326 billion, with the MENA piece of the pie standing at only USD 1 billion*1 – a starkly low figure. Our region can definitely do better!
Using the 0.06%*2 VC to GDP ratio of the USA, there is an up to USD 18 billion*3 growth opportunity in MENA VC funding. To illustrate the spending power of MENA, Arabs annually spend between USD 200 billion and USD 1 trillion*4 on charity, but only USD 1 billion are allocated to the VC asset class – meaning that we are merely scratching the surface of untapped possibilities.
The focus on the VC asset class in MENA is relatively new. Over 80% of current fund managers did not exist 10 years ago. Even most MENA funds of funds (FOF) – the driving force behind VC today – only emerged during the past five years.
Governments across MENA have recognized entrepreneurship as a catalyst for economic growth and job creation. Accordingly, they are diverting their attention towards FOFs, which are responsible for investing and lining up more fund managers across different stages of the entrepreneurial value chain. More importantly, family offices – the main investment force in MENA – are stepping into the game as the region witnesses a significant rise in exits, i.e. sale of shares. With more than 61*5 exits since the beginning of 2018, the VC asset class is even more attractive now.
How do we capture this opportunity and unlock larger funding?
- Empower and allocate sustainable funding for FOFs, and create a pull factor in the form of inspiring success stories. Since FOFs enjoy a bird’s eye view, they can better identify and bridge gaps across the VC value chain.
- Attract more angel investors and family offices into the VC space by offering blended financing structures, which attract commercial capital towards a VC asset class by presenting higher returns and reducing the risks of private investors.
- Build and train the next wave of fund managers and angel investors, and instill a disciplined approach to investing – no spray and pray! Introducing micro pilot funds with simple legal structures allows fund managers to build track records while fundraising.
- Articulate a sustainable strategy for entrepreneurship and deal flow as part of a national economic outlook, while entrusting the private sector to manage and lead investments. Creating deal flow must be a national priority.
Source 1: Maginntt
Source 2: USD136b/ USD21.4T= 0.06%
In 2019, the United States deployed USD136.5 billion in US-based companies, surpassing the USD130 billion-mark for the second consecutive year, according to the PitchBook-NVCA Venture Monitor: https://pitchbook.com/media/press-releases/us-venture-capital-investment-surpasses-130-billion-in-2019-for-second-consecutive-year#:~:text=14%2C%202020%20%2D%2D%20By%20the,in%20the%20entrepreneurial%20ecosystem%20jointly
GDP United States 2019: https://tradingeconomics.com/united-states/gdp
Source: 3: USD3T@.06% = USD18b https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=ZQ
Source 5: https://www.arzanvc.com/61-exits/