Last month, we shared with our portfolio companies a synopsis of the volatile market conditions and how the global market dynamics of today may play out for the region in the near future.  

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In summary, inflation compounded by supply chain constraints and geopolitical disruptions are driving some investors towards more traditional, “low risk, low reward” investments, ultimately putting tech investments on the back burner awaiting more favorable market conditions. This sentiment has been exacerbated by the performance of VC-backed companies that have recently gone public suggesting there has been a huge dislocation in valuations between private and public markets. A surge in investments over the past few years have increased the number of unicorns this year to over 1100. This number stood at less than 250 in 2017. Many of those valuations were based on future earnings proving improbable given market conditions. 

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Although this storm had been brewing for some time, it caught some off guard, and a sense of concern has proliferated across markets, leading some entrepreneurs and businesses to shift into a short-sighted, short-term panic mode. This has been mostly the case in global markets but has started to cause concern across our region. To help think through this, we concluded our deck with our recommendations on how founders can navigate the yellow brick road ahead. 

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Although we recognize that the market slowdown will undoubtedly reach MENA and will have a knock on effect on the availability of capital, we can not deny that what was considered normal fundraising practice over the past few years is in fact abnormal. However, an upcoming regression towards the mean presents itself as a golden opportunity for great companies to continue to grow, rationalize cost, increase efficiency, hire talent more cost effectively and better disrupt larger incumbents that are inherently slower to react. 

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Our advice is centered on encouraging entrepreneurs not to panic and use this moment to revisit business fundamentals and strengthen the foundations of their businesses. The region's entrepreneurs are notorious for their optimism, resilience, and frugality, particularly at times of adversity. They have built great companies at a time where capital was scarce and when revenue multiples were not the metric followed.  

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The region historically mirrors international economic deviations albeit delayed, which in this particular case, may be considered a favorable circumstance. Despite the challenges and woes of the last few years, regional entrepreneurs have an opportunity to use this lag to better plan, reserve cash, retain talent, raise at reasonable multiples, and ultimately pave their own future. 

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