Dubai: For every breakout UAE or Gulf startup that’s picked up millions of dollars in investments, there is a growing base of those who have missed out.
Because funds are bringing on more detailed considerations into whether they should be investing or not. And primarily, whether there is even the remotest chance that the startup will be able to reach those financial parameters they have promised. Whether that’s in 3 years or more.
But one thing is clear – access to venture and private equity funds come with strings attached. Lots of strings.
Abdumalik Mirakhmedov is Director and co-founder of Dubai-based tech venture company Scalo Technologies. Here he gives his thoughts on what startups and funds will be doing next.
It’s said that investments are slowly drying up for Gulf’s tech startups or early stage entities. Do you concur?
I tend to agree with that. This sector is very sensitive to the overall market sentiment. In times like these, cash-generating companies become more attractive relatively, compared with growth/early stage startups.
The data tells a clear story. During the initial nine months of this year, startups in the MENA region secured a total of $1.8 billion in funding, with $687 million coming from debt financing.
This is in contrast to the $2.7 billion raised in the same period in 2022. The funding squeeze is impacting the entire region, leading to a reduction in the number of deals, and smaller investment amounts.
Some say that recent private equity stake divestments didn’t get the valuations that had been expected? Is this, according to you, a sign of the tech investment market here maturing?
This is a consequence of the current economy cycle. We are seeing less VC deals overall, and we see multiples decreased for public companies. These factors combine to lower the valuation of startups. It means that, for long-term investors, this is a good moment to deploy capital.
Are you sighting more pure play AI startups in the UAE and Middle East? Are they picking up investors?
Yes, this is certainly happening. As AI technologies stock is becoming more mature, we are seeing more startups in all regions, including MENA, attracting investors. Many of these startups are now developing promising products in the Generative AI sub-sector.
There is high interest in this tech from a growing number of startups, including our own portfolio companies. For example, Hexacore, a mobile game developer and publisher specialising in hybrid mobile Web3 games, is utilizing AI to reduce spend on the creation of 3D assets that will be used in upcoming titles.
As an investor in tech startups, do you think RoI on AI investments could take longer to realise?
This will depend on the exact product or AI application. AI products are already generating significant revenue streams. A lot of companies are exploring opportunities in using Generative AI products.
Just as an example, ChatGPT has projected revenue of $1.3 billion for 2023. Other AI sectors will probably take longer to reach a high level of adoption.
We are seeing some prominent acquisitions in the field of AI and, believe we’ll see even more in the coming months and years ahead. We believe that the market will provide good exit opportunities for early investors in AI product.
