To hoard or not to hoard? Hamlet in 2022.

Hoarding money for worse times? Not trending with everyone. Some startups are burning more cash than ever. VCs keep spending, too. a16z wrote its largest individual check ever ($350M) to a pre-launched residential real estate startup Flow, which was founded by Adam Neumann – the WeWork founder. Fingers crossed that the future of Flow won’t have a similar fallout and Adam will be a nicer boss.

To hoard or not to hoard? Hamlet in 2022.

2 headlines stand out from the last few days. Adam Neumann’s comeback and Saudi’s PIF shopping for US-based stocks worth $7B. The Fund’s portfolio has hit the market value of $40.8B after it bought shares in Zoom, Meta, Starbucks, PayPal…

3rd headline out there: Global VC funding is descending the ladder it climbed in 2021. CB Insights projects Q3’22 results to be very similar to Q3’20 because:

– growth and late-stage deals are down, early-stage is rising,
– payment startups funding saw its largest drop QoQ since 2020,
– blockchain is down except in Europe (a record of 106 deals last quarter),
– insurtech funding levelled off,
– manufacturing tech shows resiliency,
– healthtech AI and wearables are thriving,
– cybersecurity will keep on attracting funding and
– tight labor market in certain sectors. As companies have less talent to choose from, they must retain the talent they have and pamper the employees with higher compensation levels.

All the while, deposits at Silicon Valley Bank are going downhill but the lack of VC funding is not the main reason; some startups haven’t put a break on their cash burn. Before they can cut back on spending, startups need to take care of expenses like severance packages for terminated staff… We will only get to see the belt-tightening affecting runway balances in Q3’22.

Let’s bring our region under the lens. The drop in global venture funding shown above is the opposite of what happened in the Middle East during H1’22. Up the ladder.
During the first six months of 2022,

– 70% up: $1.7B was invested through 332 deals vs. $1B and 312 deals during the same period last year.
– Majority of the funding went into UAE-based startups (37.2%), followed by Saudi and Egypt (source: Digital Digest #191).
– Three-digit growth: Saudi attracted 245% more funds compared to H1’21. Bahrain 678% more 🤑
– Egypt, too. Egyptian startups attracted 106% more. But layoffs and shutdowns are a common scenario these days – and not only in Egypt (source: H1 2022 UAE Venture Report).

Up the ladder go the region’s SWFs, too. PIF for one (see the intro). Mubadala keeps investing opportunistically.

Up but for how long? July’22 and its $105M in deals showed a 68% MoM drop in VC funding across the region, which is possibly due to summertime and people finally taking proper time off work after 2 years. And possibly also because of the global trends? We must wait for complete Q3 data to be wiser. However, so far, August’22 balance stands at ~$201M across 25 deals and the month is not over yet. Back-to-school/office season kicks in 2 weeks and that should boost the end of this quarter. P.S. We @ArzanVC are considering 5 deals at the moment.

Plus, there’s that increased M&A activity around us. Market consolidation is on fire and in daily news. Our in-house research tells us that 53 startups got acquired since January’22 (vs. 42 in the whole of 2021). That includes our Cartlow and its acquisition of Melltoo.

On the startup front, founders have been forced to shrink their over-hired teams. Blitzscale strategies are also over. Unit economics 101 is in full swing even before the school started. Founders and their teams are being once again forced to learn how to take control of their runways. (Arzan VC team is here to advise if you need it. First session free of charge :P).

Like I hinted above, the region’s VC funding will most probably drop in Q3’22, and that would be the first time since Q4’20. Despite that – valuations everywhere remain high. The recent Tech Valuations Report Q2’22 by CB Insights shows that valuations are still above 2020 levels although median tech valuations fell across most stages in Q2’22 vs. Q1’22. That’s because although we’ve seen some rounds with lower valuations, the best startups out there haven’t done down rounds yet. When they start doing that, we will get closer to 2020 levels – and we certainly will, because the valuations reset is bound to continue. The infograph below reflects global valuation data (source: CB Insights Tech Valuations Report Q2’22).

Teams are consolidating along with the market. While some companies are forced to resort to layoffs, there’s an upside: influx of high-performing tech talent that is ready to get hired. Some of our portfolio companies are making key hires right now. Check them out below.

Melltoo ➡️ Cartlow

Cartlow acquired Melltoo, a classified platform for second-hand items.

$20M for Swvl

Swvl announced $20 million private placement from US-based institutional investors.

5% cashback

Khazenly partnered up with Lucky to allow its customers to benefit from the Lucky One card for free. 5% cashback included.

Talabat gifts

Merit Incentives partnered with UAE’s talabat to provide customers with digital gift card solutions redeemable on any talabat offerings.

• Partnership & Sales Manager at Merit (Kuwait)
• Business Development Manager – KSA at Cartlow (Riyadh)
• Product Manager at Zid (Riyadh)
• (multiple vacancies) at Citron
• Creative Marketer at Haseel (Riyadh)
• Senior Backend Engineer at SubsBase (Cairo)
• Senior Accountant at Armada (Kuwait)

It’s the school and summits season again… Anyone at Tunisia’s AfricArena Summit this week? Laith is around 😉

Hasan