2019 marked a record year for startups in the GCC with USD 704 million total funds raised across 564 deals, with an average investment size of USD 1.9 million. UAE ranked 1st in amount of funding, Egypt in the number of deals and KSA as the fastest growing in both areas. The market witnessed the largest exit for a Middle Eastern startup with Uber’s acquisition of Careem for USD 3.1 billion.
2020 therefore had high expectation and although the year began well for startups and investors, the outbreak of Covid-19 (coronavirus) slowed down the fund raise activities in the region significantly. Many sectors are adversely affected with startups facing severe liquidity crunches. Investors are extremely cautious on spending their money with global markets facing extreme volatility due to the pandemic. March alone recorded a drop of 67% in transactions compared to the same month last year, reflecting the impact of the pandemic on the regional startup ecosystem.
How can you navigate your startup’s cash needs through this difficult period?
Although fund raising activities are at a halt due to the pandemic, startups can tap into alternative sources to meet cash requirements, without giving up equity stake in the company.
Tap into Government pandemic support – Many GCC governments have announced packages to support SMEs and startups. For instance, the UAE government announced stimulus packages to boost the startup ecosystem including the Ghadan 21 Scheme which includes subsidies for electricity until 2020 and exemptions from performance guarantees for projects up to USD 13.6 mn. Bahrain has announced doubling liquidity support fund to USD 530 mn to support adversely affected businesses. Saudi’s Social Development Bank launched a USD 3.2 bn programme to extend support to 6,000 entrepreneurs in order to enable them to set up development projects. You can get more details of different financial support schemes on our research paper here.
Search for favorable SME/startup loan support schemes in your country – Bahrain’s Tamkeen fund has a support scheme called Tamweel to support startups raise funds at favorable interest rates and tenor periods (often up to 10 years with grace periods) to finance fixed assets such as equipment and machinery or working capital such as employee salaries, inventory purchase, etc.
Other options for raising funds include peer-to-peer lending and crowd-financing. You can also check out platforms such as Beehive.
Some sectors will continue to be attractive over 2020 and 2021 which will see investments such as healthcare, FMCG and education given the tremendous potential for growth. With regional economies expected to reopen in the second half of the year, startups can hope to start witnessing recovery, with 2021 expected to bring growth opportunities.
Like any other financial crisis, businesses with cash will survive this financial crisis and should patiently wait for opportunities to expand and invest their cash. 2021 to 2023 will be a period where a lot of distressed assets and businesses are sold, which will be a great investment opportunity for entities with cash reserves. Entities surviving will ride the economic up-turn wave and therefore it is key for them to build a short-term strategy to address immediate concerns and a long-term survival plan.
How Falak can help?
At Falak we believe that every crisis is an opportunity for a business to get ahead of its peers. We designed a Covid-19 services package with solutions targeted to specific business challenges that can prove to be game changers in the current situation. We also understand that cash flows can be one of your biggest challenge now and in order to help your business we have structured flexible payment policies.
Please reach out to us on email@example.com to learn more about our pandemic response, planning and support services.