Global economic volatility and recession risk test the business resilience of startups.
But for firms in emerging markets across Africa and the Middle East, the macroeconomic impact on business growth and investment so far seems less severe.
In fact, while startups in those regions have not completely evaded the current macroeconomic volatility, Said Murad, partner at UAE-based venture capital (VC) firm Global Ventures, says, “It’s not been at the same magnitude as what we’ve seen in other markets, such as the U.S., for example.”
Read more: Investment in MENA Startups More Than Doubled in Q1 to $864M
He attributed this advantage to the resilience that firms in emerging markets, where capital is more scarce and more difficult to come by, deliberately seek to develop when launching a business.
“From a founder perspective, the focus on building sustainable-first businesses is not something new for emerging markets. And that sustainability-first mentality continues to play an active role in how founders [in Africa and the Middle East] build their businesses from an early stage,” Murad told PYMNTS in an interview.
For businesses in the six-country Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — where oil and gas are the mainstay of those economies, the revenue inflows from rising oil prices have provided a silver lining and helped to keep market and investor confidence more buoyant during challenging times.
Murad also pointed to initiatives from several governments across the region aimed at helping to propel early-stage businesses, or to create environments conducive to startup growth, as reasons why businesses in emerging markets have been better able to develop macroeconomic resilience over time.
Growth-Stage Startups Draw VC Attention
In terms of sectors where he sees the most potential in 2023, Murad put AgriTech and food security as well as supply chain at the top of his list. “This is particularly relevant as we see a sentiment towards [decoupling, which is] the ability to produce locally without a reliance on very complex supply chains,” he explained.
He also said the digital health sector will continue to be front and center of growth trends in the new year, while energy tech will gain traction as advancement improves on both the software and hardware sides.
When it comes to the MENA-Africa VC ecosystem, Murad noted that it’s still in the early stages of growth, with funding in those regions still representing a tiny portion of what is received on the global scale — about $0.9 billion compared to around $81 billion in the third quarter (Q3) of 2022 alone.
That said, the landscape continues to grow and evolve as institutions and investors inject more funding into businesses at the pre-seed and seed level, where they are needed the most, he said. And although there remains a funding gap at the later stage, investor attention towards companies at that advanced stage is growing.
“[We’re seeing some involvement from private equity firms coming downstream [and] investing in growth-stage VC-backed businesses, [as] VCs push themselves a bit further and do some more growth investing,” he said.
Overall, Murad cautioned startups to build sustainably and grow cautiously, demonstrate positive unit economics, manage cash flow efficiently and ensure that they’re capital efficient to stay ahead of macroeconomic challenges.
That means, “Every dollar that you’re deploying needs to have an ROI [return on investment] against it [and] make sure that you’re [growing your business] in a sustainable and tactical way that ensures that you have the right runway in place for you to continue the growth journey,” he said.
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