Dubai: Here’s a quiz – name the hottest investment category in the UAE last year. If you chose ‘cloud kitchens’, you win – and not just a point. If you had put in money into a cloud kitchen operator, chances are you wouldn’t be sweating about the future returns.
Because some of the biggest names in the regional and global venture capital and private equity space are doing just that – picking out cloud kitchens expecting super-sized returns in the not-so-distant future.
“Before 2020, it was as if the cloud kitchen business did not exist,” said Walid Hanna, CEO at MEVP (Middle East Venture Partners), the specialist investment firm. “And seemingly overnight, all these operators were renting big spaces and turning them into kitchens in every corner of the city. Then, cook food for the brand that’s their client and have it delivered.
That too, not just within the region. Some brands like Kitopi – recently empowered by a funding round led by Japanese investment powerhouse Softbank - are now truly global in their ambitions and scale.
If consumers started ordering in because of COVID-19 related mobility restrictions last year, now, the need to have that food delivered to their doorstep or office has become a habit.
Varying degrees of ‘hotness’
MEVP has invested $6.5 million in an Abu Dhabi-based kitchen operator, The Cloud. “What we liked about it is that the company used excess kitchen capacity – and staff - at existing restaurants for their operations,” said Hanna. “That meant it could cook all the meals it was contracted for without spending a dollar as capital expenditure. “It was a remarkable operating model and The Cloud has become a true disruptor.
“That it was asset-lite was the best part we liked about The Cloud.”
Music to the years
If cloud kitchen is trending as an investment, MEVP has locked up a sizeable return from its early exposure in the Arabic music streaming platform Anghami which had its origins in Beirut and is now based in the UAE. Early this year, Anghami went through a high-profile SPAC (Special Purpose Acquisition Company) and is now going the final listing phase on Nasdaq New York.
“We went into Anghami all those years ago when it was still in the seed funding phase,” said Hanna. “There was no other VC in there. It’s great to see the Nasdaq listing – we are in a six-month lock-in phase on our investments in the company. We expect to cash out some time in June next.”
There were five exits, partial and full, that MEVP was involved in this year, including Fresha, a platform that connects users to salons and spas. Launched by expats in Dubai, Fresha has grown into a $600 million valuation company registered in London. “Our partial exit delivered us 60 times our initial investments,” said Hanna. “There was another with HyperPay, a Saudi payments processing company that was sold to a Saudi investor.
Hanna says that anything to do with fintech has become hot property these days. The UAE and Gulf markets have seen a steady flow of sizeable investments flowing into fintech, with the ‘Buy Now Pay Later’ (BNPL) platforms and those that smoothen out remittance flows being particularly attractive.
At BNPL platforms, consumers can buy products and services they need immediately but pay the whole of the price in zero interest rate instalments. This way the deal gets done and more retailers – physical and online – are offering these options to shoppers.
“There are eight to nine startups offering BNPY that are doing well,” said Hanna. “We have a stake in Egypt’s MNT-Halan and that’s going well. No, we don’t have any exposure in tabby and I do wish we had invested.
“The BNPY space is still on a streak and there will be other opportunities.”
With venture capital, patience too is a virtue.