By: Ben Freeberg
A Quiet $1 Billion has Been Invested in the MENA Region, and That’s Just the Beginning
We are at the beginning of a 15-20 year cycle in Venture Capital investment in MENA (Middle East and North Africa), a cycle that is a solid five to seven years behind that of other nascent VC regions, like India, and a little further behind China. As d efined by VC dollars per capita, MENA, at $1, is at least 5x below is peers, with India at $5 / capita, China at over $10 and the U.S. at $150.
The growth BECO has seen, both in VC dollars put to work and number of deals, has quickly accelerated over the past 2-3 years. 2016 has seen the largest amount of investment in MENA startups at $870m+, an overwhelming increase of 424% from last year. Deal flow is also exploding, in 2014 BECO received 280 deals, and did 4 investments. In 2016, BECO saw 950 deals and made 6 investments. A detailed overview of the current state of funding in the MENA region was produced by Magnitt, which can be found here.
What Does a MENA Startup Look Like?
A majority of the companies BECO evaluates are predominantly classifieds, marketplaces and e-commerce companies, still seeing a lot of C2C and B2C. Still, there are not many enterprise companies being created, mainly because, in general, the small to medium business sector still has to jump online. But, BECO has already started to see some B2B offerings, which the team expects to continue to grow over the next few years.
Today, successful startups are creating tools and platforms that are working to bridge that gap, bringing those small and medium businesses online. This includes everything from scheduling for restaurants and spas to providing reporting and back office tools for accounting enterprises in Saudi Arabia, traditionally a difficult region to efficiently report in.
How Does BECO’s Portfolio Fit In?
Investing in MENA doesn’t provide BECO with the ability to be sector focused or niche oriented, so they are continuing to invest mainstream in the mid-term. Most of their deal flow today is B2C, including marketplaces, content, SaaS and infrastructure, with a small portion of B2B companies, especially in the payments space.
Property Finder, a typical real estate classifieds company, is solving the problem of consumers needing a more efficient way to search and compare property online. This is very relevant for the UAE, primarily Dubai and Abu Dhabi, as they have already begun to see the trend to moving online. Saudi Arabia and Egypt are big revenue drivers in the near future.
BECO brought in Vostok New Ventures to lead the most recent round put together by the Company, and have since assisted in key acqui-hires, new market entry and overall talent acquisition.
SellAnyCar.com buys cars from users and runs auctions to dealers. Users log into the site, get a valuation on the car after answering 7 brief questions, and immediately afterwards, if they like the valuation, a real time auction is happening in the background with 400 dealers. The Company is now the largest buyer of used cars in the UAE, with zero inventory. The platform sells 97% of cars it buys within 12 minutes. BECO has been a key strategic partner throughout the Company’s rapid growth, and has brought on a number of other partners and investors.
Careem, the Uber of the Middle East, is one of BECO’s most exciting portfolio companies, and is Alpha Venture Partner’s 9th investment.
BECO originally got onto the cap table through the acquisition of secondaries after Al Tayyar led the Series B round. The founders wanted BECO in, and the two parties have known each other since Careem was started. BECO has been instrumental to Careem’s 250%+ year over year growth, getting Careem their first fleet partner in Kuwait, helping to expand their fleet in Cairo, taking the lead on new and current market assessment, and bringing in additional investors, including yours truly.
The specific problem Careem is solving is bridging the large gap of public transportation infrastructure in the MENA region. In most countries that infrastructure is non-existent or very much lacking. To date, they have barely hit the tip of the iceberg, as Uber and Careem combined, from Pakistan to Morocco, are attacking less than 1% of the total opportunity.
The capital efficient structure of Careem allows them to attract a large, steady stream of new drivers, helping to solve social and economic issues in MENA. For example, in places like Saudi Arabia and Pakistan, getting women to work is a challenge, women can’t just hop in a taxi off the street. But, if the driver is someone who is registered and tracked, that changes, because now the driver is someone known. Careem is working with the ministry of labor in Saudi Arabia, trying to get 1.3 million women commuters to work, which would lead to an additional 2.6 million trips per day just in that region. BECO and Alpha VP are excited about Careem’s strong potential for future growth.
Who is BECO?
BECO Capital gets its name from the rocket launch event BECO, Booster Engine Cut Off, which occurs when the vessel has achieved sufficient altitude to exit the earth’s atmosphere. Founded in 2012, BECO supports the technology revolution in the Middle East through investing in smart, early stage internet and mobile companies in the MENA region. They are structured as a company, so they don’t have a fund life.
Naturally, BECO wants to maximize the value they reap from their investments, and with the early stage of their ecosystem in the MENA region, they typically have to hold onto companies for longer than 10 years. This holding company structure gives BECO more flexibility in the near term, with the ability to entertain fund structures, such as opportunity funds, down the line.
BECO is a hands-on partner that assists its portfolio companies through growth finance and operational support, as well as helping expand to new markets across the GCC, acquire key talent, implement operational improvements, adopt corporate governance practices and raise growth funds. Its team brings a rich and diverse experience in venture capital, technology, entrepreneurship and finance, triggering value creation across all the business and operational functions of portfolio companies.
BECO also offers follow-on funding to its portfolio companies and helps line-up large regional investors and global Venture Capital firms for the future much larger follow-on fundraising rounds. BECO Capital’s current portfolio includes PropertyFinder, Careem, SellAnyCar, JadoPado, Bayzat, Myki, Laimoon, RoundMenu, Duplays, Wrappup and Vezeeta.
Thanks to Alvaro Abella and the BECO Capital team for assisting us with this blog post.