At last, 2020 is at its close (sigh). There are many ways to describe the last 12 months but let’s stay diplomatic—they were very eventful.
 
On the bright side, all that happens to us—good or bad—is an opportunity to learn and grow. We just have to grasp it. And that’s no cliché.
 
We @ArzanVC got together to detect the weak points of the startup & VC ecosystem in the Middle East. We present them to you as bubbles

Bubbles of overvalued rounds and entrepreneurial hearts can be dangerous

2020 served us many startup surprises with new winners as well as losers. Some companies found out they had been operating in a bubble that was meant to burst either way—be it for a failing product-market-fit or bad unit economics.

Well, it’s no secret that the startup ecosystem in the Middle East faces its own bubbles. And these bubbles are very much related to the local economic (and so political as well as social) realities of the region. So this is no critique—our bubbles have been created causally; by the law of cause and effect.

First: easy funding money. There is too much of the cake available for startups to grab. While those of you who just said “Hold on, that’s a good thing, isn’t it!” – no, it’s not. There are way too many funding options in the Middle East and sourcing money is the least problem for the local startups. National funds, business funding, family funding… —you name it. However, the kind of funding from developmental investors often comes with restrictions (i.e. invest in a specific country), which may inevitably damage the startups as well as investors. There is also an imbalance between the amounts of funding and the (limited) availability of startups. And this is where our major bubbles mark the beginning of their life.

…. bubbles of unrealistically large valuations.

The region’s startup pool is still not that big so there’s high competition among the startups and hence the valuations they seek are higher. Yet the traction doesn’t always meet the next round valuations as promised. And that’s a problem. Overvalued rounds are becoming a forte of many startups in the Gulf area.

Our principal Eyad believes that the region’s structural changes are long overdue. For example, while KSA has been steadily focused on enabling private enterprise (and startups) over the past 3 years, Kuwait lags behind and this is a structural disadvantage that Kuwait needs to better address at the policy level. The overvalued rounds don’t necessarily mirror some of these structural challenges.

Meanwhile, our analyst Mohanad says that investors are to be blamed for this situation and they should start caring more about the numbers.

It is our job as investors to do our proper and reasonable due diligence, right?

Well, take an example of Kuwait, where the investors’ actions turn troublesome sometimes. The common investors here are family offices who see and value startups as a private equity opportunity rather than venture capital. And that’s not doing any good to the ecosystem. But beware, there are also other kinds of bubbles around us.

…. bubbles of giving all your heart into your startup.

In theory, the order of things is: idea, …….. funding. In our region, it’s sometimes the other way around. Our analyst Asia reminds that certain business ideas get defended no matter if they’re worth it or not (note: being stubborn is not always a bad trait.) That’s when a proper personal market research is preferred over outsourcing feasibility studies to third parties (which is usually very pricey, too). Also, some founders have great networks (while some still don’t network at all), but we shouldn’t forget that our networks not necessarily translate to actual users. Friends and family are not the only users you’d like to have on board in the long-run.

There are also those among us that prefer to remain part-time entrepreneurs with another full-time job. Perhaps they are not incentivized to shift to full-time jobs in their own startups because they think it’s simply not worth it for them. Perhaps they don’t want to lose the high package they’re receiving in the full-time job. However, this prevents them from fully dedicating to their own business, which could suggest they’re not willing to take much risk… Well, if you want to be an entrepreneur, you must give your heart in. All of it. And take good care of your numbers before they turn into bubbles.

SaaS is everywhere around us. This newsletter was sent to you by one – Mailchimp. You’ll maybe share it with your colleagues through another – Slack, Zoom or Gmail. Or you’ll WhatsApp it.

While many SaaSers in the west managed to hack their growth, our local SaaSers’ growth has always been sluggish for a number of reasons. Scroll down to read what the team @ArzanVC got to say about post-Covid19 SaaS in the Middle East.

Are our local SaaSers becoming fast-growers?

SaaS — in other words, subscription-based software as a service over the internet — is not just about our personal use. Some say 86% of companies will be entirely SaaS-run by 2023.

During the rapid move towards everything remote in 2020, SaaS solutions have proved to be one of the easiest to adopt and roll out. Our colleague Asia agrees that the Middle East, too, has witnessed a higher-than-usual growth of SaaS as a result of the pandemic.

The topic we are tackling this month is whether our local SaaSers may be finally becoming fast-growers like their counterparts in the US and Europe.

A stereotype SaaS business would pursue rapid growth. This can’t be said of the SaaS startups in the Middle East. Not that they don’t have the potential; they do. But they can’t achieve scale very easily because the local SME market (for which most of them are built) is not yet big enough to embrace them all.

According to our colleague Mohanad, the number of SaaS startups in the region is increasing dramatically. Actually, SaaS startups appear as number 1 across all the industries in our pipeline. He says that SaaS startups tend to grow 6-7% MoM on average, but he adds that this is expected to change upwards given the pandemic. More SMEs have started to realize that the use of SaaS products is very important to running their business.

Kenneth Research asserts that the banking, financial services and insurance (BFSI) segment continues to hold the largest market share in the vertical segment, and the manufacturing segment will be growing at a significant rate in 2020-2023. However, Mohanad believes it is the retail SaaS that is really picking up, fueled by the new demand coming from stores and restaurants who are trying to go from offline to online. That’s why startups like Zid, Taker and Expand Cart are gaining a lot of traction recently. These startups allow retailers and/or restaurateurs to create their own e-commerce websites and apps with their own branding and customization, which reduces their reliance on Delivery Hero, Talabat and other online delivery platforms and saves them the commission they usually pay on every order.

On the other hand, banking and financial services continue to be restricted by the region’s tough regulations and so their potential remains quite suppressed.

Similarly to the retail SaaS, the education segment (e.g. Noon Academy, Ynmo, Praxilabs, Quizzito, etc.) is also experiencing a surge in demand and the same applies to the healthcare SaaS startups (e.g. Vezeeta, Altibbi, etc.). For example, Noon Academy recently launched in India and Pakistan. Earlier this year Vezeeta expanded to Kenya with Nigeria being the next move. The startup also partnered with Saudi STC to provide telehealth services to its employees.

Mohanad notes that one thing that can help SaaS products further expand in the coming period is that their cash burn rate is relatively lower than in the most of the other industries. In other words, SaaS startups can run on much lower costs. Another advantage is that if you have a good SaaS product, you can really sell it anywhere—most of the times you are not constrained by the area you are in. This brings us to the point that making sure your product-market-fit really fits is very crucial. You can have rapid growth but if your product doesn’t fit, you’ll lose your customers just as fast as you gained them.

Mastering content marketing (any educational content for that matter) plays a major role, too. Zid provides education (online courses) for its users in various e-commerce-related topics through its Zid Academy. Also, Altibbi’s “Ask about Coronavirus” hotline has been praised by H.M. Queen Rania for raising medical awareness among the public.

🥁 rebranding
Reportcard rebranded to Classcard. Check out their new website!

2 stars in Forbes’ Top 10

TruKKer and Swvl got featured in Forbes’
list of top 10 Most-Funded Startups in the Middle East in 2020.

Top SaaS 👑

Crowd Analyzer was listed in SaaStock’s top SaaS & tech companies in the Middle East and Africa.

Instant commission

FlexxPaysuccessfully launched the “instant commission feature” for Zain KSA sales staff.

Meet Mejuri for Men

Mejuri debuts men’s jewelry offering by launching nine-piece collection for men as of October.

Latest Jobs @ArzanVC Family

• Front-end Developer at Classcard

• Back-end Developer at Classcard

• Head Chef at iKcon (Dubai)

• Operations Manager at Swvl(Amman)

• Senior UI/UX Designer at Crowd Analyzer (Cairo)

Ready for the pumpkin season?

Hasan

We exited OnFleet with a higher than 4x return! Thank you @khalednaim for the exciting 4-year ride. We saw how the OnFleet team grew the company and overcame challenges and we wish them all the best in taking OnFleet to the next stage!

And we continue with the good news. Do you know we can now get our emotional states analyzed through our voice? Thank you, Halo by Amazon. This month we will focus on mental health startups. So… how’s your mind today?

Touch base: mental health startups

Covid19 gave us a cold shower of the many realities we neglected. Among them the simple fact that emotional and mental health is sometimes more important than the physical; or let’s say—the mental health is often described as the founding stone of the physical. If the mind is at peace, the body will follow.

Healthtech startups gained sky-high momentum thanks to Covid19 and a huge chunk of them are focused on mental well-being. But how big is the Middle East’s health tech footprint within the mental health field? Small but growing. Yes, there is the issue of stigma when it comes to mental illnesses, but the demand for online mental health services is increasing. Here are some examples of local startups within this field.

Shezlong (Egypt), the first online platform in the MENA where you can book anonymous online mental sessions, had a 31% increase in the number of therapy sessions bookings between February and March. They also recently secured a new investment to expand. Sympaticus (Lebanon) is an online psychotherapy and well-being platform with a prime focus on women.

Saudi Arabia’s Youpositive offers online coaching. There are also various platforms providing medical information and advice such WebTeb (Jordan) and Sohati (Lebanon). eTobb (Lebanon) is a medical Q&A platform while Altibbi (UAE) offers access to health answers from a network of doctors as well as live consults.

Family Postcard

No.1

Cartlow is trending as the no.1 shopping app on the Google Play Store.

Luxury sustainable fashion + beauty tycoon

The Luxury Closet has raised an investment from Huda Beauty Investments (HBI).

$10M

iKcon has secured $10M funding since inception, including a recently closed pre-series A round of $5 million led by ArzanVC, AlTouq Group, Nazer Group and others.

At the request of the merchants, Zid’s network now covers more than 170 cities.

Latest Jobs @ArzanVC Family

• Business Development Associate at FittiCoin (Egypt)
• Sr Front-end Engineer at POSRocket (Jordan)
• Sales Manager at TruKKer (Egypt)
• Product Manager at Crowd Analyzer (Egypt)
• Call Center Supervisor – Arabic speaking at iKcon (Dubai)

Take good care.

Hasan

Our topic this month is slightly atypical. We focused on kids-centered startups and platforms from around the region that are trying to take the pressure off the parents’ shoulders while the travel and physical socializing options equal to almost zero.

P.S. some are for adult-friendly, too😎

P.P.S. in case you missed it, our super-visual fintech report is available here.

Spotlight on kids’ edtech and edutainment

The famous World Health Organization’s Wash Your Hands With Peppa Pig is just the tip of the iceberg of the edutainment content out there.

Activities and socializing are crucial for the development of kids and, Covid19 aside, the summer in our region is already a tough nut to deal with. Luckily for all of us, there is an increasing number of regional startups/platforms focused on kids (from toddlers to teenagers) and their education, entertainment and socializing.

We prepared for you a snapshot of what the region offers in terms of online learning, coding, gaming, socializing & activities, robotics & engineering and books & music:

Under online learning there are 3asafeer and Alhodhud which are dedicated to teaching Arabic. Cherpa provides courses for teenagers (12-18y) in self-driving cars, building smart cities and cyber security. Coded Minds offers practical tech-enabled iSTEAM subjects designed for both children (4-16y) and adults. And PraxiLabs offers a 3D virtual lab simulation of physics, chemistry and biology.

Coding covers Coded, which runs coding programs (and bootcamps) for high school students and older wanna-be coders, HelloCode, a platform where kids can learn the concepts of coding, and Hello World Kids, which operates HelloCode and teaches programming at eight different levels.

In the gaming field there are players such as GBarena, Play3arabi, RABABA Games, Tamatem and The Stories Studio.

Socializing & activities include Join, a go-to guide for activities & clubs in Kuwait, Kiddo App, an education marketplace that recommends activities and classes in the UAE, Kidzapp, a platform listing activities for kids in the UAE and Egypt, Nowaday, a marketplace for kids clubs in Kuwait, and Play:Date, a UAE-based app that helps build your kids’ social circles.

The robotics & engineering field comprises Junkbot, where kids can make their own robots, and The Little Engineer.

Finally, books & music cover excellent platforms for audio books such as Dhad and Kitab Sawti. Book quizzes are available at Quizzito. Kidzigo is a YouTube channel streaming fairytales. And those who love music can take lessons at I3zif.

Family Postcard

5 US stores and 15 minimalist jewelry brands

Mejuri opened its 5^th retail store in the US located in Boston and it is one of the 15 best minimalist jewelry brands to shop now.

2 integrations

🎙️🎙️🎙️
TruKKer‘s founder and CEO Gaurav Biswas had an interview with Arab News. Tamatem was featured in The National UAE. Also, iKcon was quoted in an article on the GCC’s cloud kitchen sector by Wamda.

And Shieldfy is now live on Product Hunt.

Latest Jobs @ArzanVC Family

• Senior Software Engineer (Python) at POSRocket (Jordan)
• Technical Support Astronauts at POSRocket (Egypt)
• Back- and front-end developers at Zid (KSA)

Remember how we spoke last month about the rise of super apps in the Middle East? You definitely came across Careem’s latest announcement of their very own super app. Mind you; we don’t have a crystal ball in our office (yet). Future-telling is our natural talent 🔮

And in July, we are introducing to you super comprehensive visuals accumulating data from 240 local fintech companies in the MENA. This is only a tiny entrée of our upcoming fintech report.

MENA’s fintech riches

You heard it. We are living through the biggest global crisis since 1945. It will set the tone for the years to come. And maybe even decades. Some say that the crisis may lead to a new way of economic thinking. It most probably will. And to new (or enhanced) and more flexible business models.

We @ArzanVC do stress on the fact that proper regulatory scrutiny of the sector is essential least to say. If we nurture proactive, innovative regulators, we will be able to avoid situations like Wirecard. However, if we end up having strictly reactive regulators, then we will face similar problems in the MENA. So, the Wirecard story is a good lesson for our region.

There is certainly no fintech hype in the MENA; on the opposite—there is a need for it. This month, we dug deep to present you the stellar leaders as well as untapped areas—and there are quite a few.

Recently, Fintech is MENA’s most active industry by the number of deals. Below is a snapshot from our research—we will be sending you our MENA fintech report in a few days’ time, so stay patient.

The first snapshot is a geographical overview based on an analysis of 240 fintech companies and platforms from the region. The biggest fintech footprint is in the UAE (88), followed by Saudi Arabia (33) and Egypt (28). However, there is a big gap between the UAE and the rest of the countries, especially those at the tail, who need to catch up—in other words, there is a lot of space to grow. For example, we see Bahrain to improve their ranking within the next year due to their proactive regulations which will attract fintech to the kingdom.

Secondly, it’s a must to look at the general functions of MENA’s fintech. We split the functions into 4 key areas: currency & transactions, funding & capital markets, business tools & management and financial marketplace. The findings conform to the global reality: currency & transactions are at the forefront of the fintech landscape and they represent nearly half of MENA’s fintech market (!).

The last snapshot shows categories that MENA’s fintech companies may fall into. Some companies belong to two or even more areas, so please remember that certain companies may be overlapping categories. Based on the functions graph above, it is clear that payment solutions are by far the top category, followed by alternative private equity and alternative lending. There’s a potential for more growth in areas such as fintech-focused cybersecurity, real estate or niche wealthtech such as retail investments, which have, for now, only few players.

Family Postcard

💰 1 billion Saudi riyals
Sales executed by stores that rely on Zid amounted to 1 billion Saudi riyals!
 

Latest Jobs @ArzanVC Family

1. Senior iOS Developer at Cartlow (Dubai, UAE)
2. Front-end Engineer at POSRocket (Jordan)
3. Sales Astronaut at POSRocket (Kuwait)
4. Junior Sous-chef at iKcon (UAE)

And how’s the summer going with you?

Hasan