Many start ups in the Middle East will disappear, while few will experience successful exits, according to Fahim Al Qasimi, partner at UAE-based corporate advisory and investment firm AQ&P.
He shared his views in an opinion piece responding to an article by Fadi Ghandour, executive chairman at Wamda Capital, which predicts 2019 to be the ‘year of exits.’
Ghandour said funds will “finally start returning money to investors, encouraging new ones to believe and invest more,” adding that the $120 million investment by New York-based General Atlantic in Property Finder and Amazon’s acquisition of Souq have proved to investors that the MENA region “is investable”.
But Al Qasimi called the prediction “overly positive” and argued that the next 12 months will see many start ups fail.
“I write this in a sense of perplexity as recent predictions of the venture capital market in 2019 are overly positive. We will supposedly witness a flurry of exits and investors will begin to see returns from their start up investments through venture capital funds…,” he said.
“The failure rate of start ups globally implies that a lot of entrepreneurs will be seeking work in the near future and retail investors will write off their supposed ‘nest-eggs.’ The claims of being the ‘next big thing’ will be dispelled and… we will have a lot of very intelligent people winding down their start ups to disappear and ‘find themselves and work out what to do next.’ I argue that this will be the norm and the handful of successful exits, the exception,” Al Qasimi said.
He claimed that the high failure rate of start ups is based on increasingly higher valuations for early stage start ups and a lack of potential exit options, urging the entrepreneurial community to focus on routes to profitability.
“I appreciate the argument that Venture Capital tolerates more risk, but investors should be wary of increasingly higher valuations for early stage companies… [But] as investors in 2019 begin looking for returns, companies will need to begin thinking about long term financial viability or suffer the fate of winding down when they cannot raise another round of investment,” he said.
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