Last month, LinkedIn unveiled top startups across different markets in the world; UAE, Saudi, and Egypt in the region. All these three are apparently among LinkedIn’s largest markets in MENA (in terms of active users and revenue).
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This is perhaps the second time LinkedIn has announced top startups for some MENA markets.
This is what they said in the piece announcing the rankings:
Our second annual LinkedIn Top Startups list is the resource to find the startups to pay attention to right now, featuring 10 UAE companies that are rising to the challenges of the moment and continuing to innovate and gain attention in 2022.
There’s nothing wrong with these lists, Forbes 30 under 30, and all other similar things out there as long as you don’t take it at their face value.
A mistake an average person would make by reading the LinkedIn Top Startups list, for example, would be to assume that these are the great companies to work at.
They may be great companies to work at but that’s not what you should conclude from the rankings by LinkedIn. Let me explain.
Here’s the methodology LinkedIn used to get to these rankings:
LinkedIn measures startups based on four pillars: employment growth, engagement, job interest and attraction of top talent. Employment growth is measured as percentage headcount increase over methodology time frame, which must be a minimum of 15%. Engagement looks at non-employee views and follows of the company’s LinkedIn page, as well as how many non-employees are viewing employees at that startup. Job interest counts rate at which people are viewing and applying to jobs at the company, including both paid and unpaid postings. Attraction of top talent measures how many employees the startup has recruited away from any global LinkedIn Top Company, as a percentage of the startup’s total workforce. Data is normalized across all eligible startups. The methodology time frame is July, 1 2021 through June 30, 2022.
Apart from the attraction of top talent (maybe), none of these four pillars tell you that a company has great work culture. You could have a poor work culture and still have employment growth, great engagement on your LinkedIn page, and job interest.
In the 2021 list of Top Egyptian Startups (by LinkedIn), Capiter was at number three. That may have led people to believe that the company had great work culture which was not the case. Just because people are engaging with a company page or applying for vacant positions at a company or a company growing its workforce by X percent during a specific period, it does not mean that it is a great company to work at.
In this case, one should always ask the current and former employees at a company to form an opinion about it. If you don’t have that access, you can maybe rely on Glassdoor reviews.
Saudi’s growing influence
The Saudi food delivery startup Jahez’s $36.5 million Series A was the largest-ever financing round raised by a Saudi startup at the time. The investment which was announced in June 2020 was led by Impact 46. Jahez went public earlier this year.
Impact 46, according to Jahez’s reports, owns 31.29 percent (as the second largest shareholder) of the company which is worth $800 million today.
I am not sure if Impact 46 had invested any additional capital in the company after the Series A but assuming that the stake they owned at the end of 2021 was acquired only through the $36.5 million they invested, they could generate 22x return (should they wish to sell their entire stake in the company). At Jahez’s peak share price of SAR 1,444 ($384), their position would’ve been worth $1.25 billion. As of today, the share is trading at SAR 914 ($243).
I’ll try to dive deep into this one of the best growth-stage investments (which unfortunately hasn’t been highlighted much by the media) made by a local investor in a local technology company but today we’re talking about something else.
STC Pay was the first Saudi technology firm that raised a nine-figure (USD) investment. Western Union invested $200 million in the company to acquire a 15 percent stake in it, in 2020. Before this, there had been six technology (or VC-backed) companies in the region that raised $100 million or more in (eight) nine deals. All these six companies were headquartered in the United Arab Emirates.
In the last two years (since the start of 2021), there have been eleven $100 million+ deals by nine companies in the region (this does not include debt-only rounds and Swvl’s PIPE).
(Table below)
Five of these $100 million rounds had Saudi-headquartered companies: Trukker’s $100 million Series C (Trukker had started in UAE in 2016 but moved its HQ to Saudi in 2020/2021), Tamara’s $100 million Series B, Foodics $170 million Series C, Unifonic’s $125 million Series B, and Tamara’s $100 million Series A (equity and debt).
Three of the eleven deals involved UAE-headquartered companies: Pure Harvest’s 180 million investment, Kitopi’s $300 million Series C-2, and Kitopi’s $415 million Series C.
The other $100 million+ deals include Instadeep from Tunisia’s $100 million Series B, Bahrain-based Rain’s $110 million Series B, Egypt-based Halan’s $120 million investment.
The startups in Saudi have been growing their share in (the number of) growth capital deals in the region and they’re at the top now. The figures don’t change much even when we expand the pool to also include $50 million+ deals.
Since the start of 2021, there have been eighteen $50 million+ deals. Here’s their breakdown:
Saudi: 8
UAE: 5
Egypt: 3
Bahrain & Tunisia: 1 each
Saudi is the largest market in the region and has a large tech-savvy population so it is natural for good startups to thrive there. The increase in late-stage deals in Saudi, however, is largely fueled by two firms that are making it easy for Saudi startups to raise growth capital; PIF-owned Sanabil Investments and STC-backed STV.
Three out of five $100 million+ deals of Saudi startups included a local lead (or co-lead). Six out of eight $50 million+ deals included a local lead (or co-lead).
The local lead or co-lead in all these deals was Sanabil or STV.
When we look at the data of $50 million+ deals in the UAE & Egypt, most of them have been led by international investors.
STV recently published a report to highlight the opportunity of how MENA can produce 45 unicorns by 2030. There are a lot of interesting insights in the report so it’s a must-read if you’re interested in MENA’s startup ecosystem. In the report, STV also shares its strategy on how it wants to help create unicorns in/from Saudi. Here’s an excerpt:
Working and strategizing side by side with our portfolio companies enabled us to identify a playbook for MENA ventures to scale up and to address two major challenges: the fragmentation of our region across a number of countries, and the often limited size of total addressable markets.
This playbook consists of three main phases: the first phase aims to grow the venture into a successful and sizable platform by cracking the Saudi market. The second phase focuses on cross-border expansion, and aims to inorganically boost the growth rate of the venture through M&A by leveraging the capabilities and know-how developed in phase 1. M&A represent an efficient tool to enter new geographies and product categories, and to overcome market size limitations of the initial focus. This is particularly applicable for markets with high barriers to entry and for companies whose products are challenging to organically scale across borders. Finally, phase 3 aims to maintain company independence – compared to being acquired by foreign entities – and to maximize growth potential through IPO.
There are a number of companies in our portfolio that are already in advanced stages of this playbook, and may soon have the opportunity to list publicly. We foresee several others that have the potential to follow a similar path as well.
Foodics and Trukker are apparently among the STV portfolio companies that ‘are in advanced stages of this playbook'.’
Trukker as I wrote above had started in the UAE but moved its headquarters to Riyadh in 2020/2021. It has since raised $196 million in equity and debt across two rounds - one of which was co-led by STV. The firm had first invested in the startup in November 2019 when it led its $23 million Series A. Trukker is a Saudi-nurtured venture that could potentially go public on Nomu, a Saudi parallel market with lighter requirements. It does not require companies to have a profitability track record.
The other example is Foodics. Started in Saudi, the SaaS company that offers POS and restaurant management system, has grown to have a presence across different markets in the region. Before raising its $170 million Series C led by Prosus and Sanabil Investments in April this year, Foodics acquired its rival POS Rocket for an undisclosed sum.
POS Rocket’s founder Zeid Husban documented his experience of going through an acquisition in a three-piece small series on Medium. We’ve hardly seen any founder in the region publicly share anything like this so kudos to Zeid for doing this. You can read them here: Part 1, Part 2, Part 3.
The deal was a mix of share swap which was majority and cash (minority). In these behind-the-scenes details, Zeid highlighted how at one point the deal almost fell through as Foodics was offering a different class of shares to investors of POS Rocket. Zeid suggested Ahmad Al-Zaini, the CEO of Foodics to buy everyone out. And Ahmad was able to raise a quick convertible note from existing investors of Foodics in an hour to do that. Here are the details in Zeid’s words (with minor edits for clarity):
Foodics also offered different class of shares to our investors who were converting which was problematic to venture capital firms, so things started to get out of control. I then called Ahmad and told him the situation. If we want this deal to go through I think it is best if you give the option to buy everyone out and I will stay with ESOP.
Can you guess what was Ahmad’s response? He told me, “Done, let’s buy them out.” I was like Ahmad, you only raised $20m in your “Series B” I am not sure you have enough cash to buy them out. He then asked me to give him an hour.
An hour later, Ahmad called and said, “DONE”. We managed to raise a quick convertible round from our current investors and we are willing to buy your shareholders out.
There are very few multi-stage investors in the region who can lead growth-stage rounds. If you’re a Saudi company or a company with a large presence in Saudi, it is relatively easier for you to raise these large rounds than companies outside Saudi. This would lead to consolidation in many other verticals, with Saudi companies flush with cash acquiring large stakes in their regional rivals to potentially expand their market share.
The presence of a local anchor is always a great sign for potential international investors coming in. The startups need to have board members that are on the ground. International investors can help with capital, strategy, and company building but they don’t understand the nuances of these markets like a local investor does.
(We’ve seen this in the case of Capiter where the board of the company had no idea of what was going on in the company. Capiter had only one local investor; Foundation Ventures - which had a small position in the company and did not have any representation on the board. The largest shareholders; Quona Capital, MSA Capital, and Savola, were not on the ground.)
It is still early days but Saudi has come a long way in a very short time.
(P.S. There’s so much that I still haven’t covered in this issue - including Jada, SVC, and the angel investor base in the country. There’s a lot more to be shared about STV and Sanabil but will leave that for the future.)
Here’s a table with a graphical representation of these insights.
In the news: Jahez acquires Marn for $16 million
The Saudi food delivery platform Jahez has acquired Marn, a Saudi startup that sells POS software for $16 million (less than 1 percent of Jahez’s market cap). Marn recorded revenue of a little over $1 million in 2021, up 270 percent YoY ($390,000 in 2020) and a net profit of about $88,000 in 2021 (net loss of $197,000 in 2022).
This means that Jahez is paying 16x of revenue which is a pretty decent outcome for Marn. It may seem expensive but it is a strategic acquisition and Jahez can help Marn grow faster very easily by tapping into its network of about 17,000 restaurant outlets.
What this also means is that Jahez will compete head-to-head with Foodics, the company I’ve discussed above.
Correction
I got a few things wrong in the previous issue. Careem’s logo. I had mistakenly used an old one. The post did not mention that Careem had left Lebanon earlier this year. And the downloads chart mistakenly listed Uber in Kuwait - that shouldn’t have been the case. Uber does not operate in Kuwait. The app download data for Kuwait had Uber in it apparently because of downloads by users in Kuwait who download the app before traveling abroad.
All the errors were fixed in the web-version of the post. Can’t do the same with an email in your inbox so sharing this here.
Termsheet Numbers
The open rate for the last issue was 47 percent. The subscribers have grown to 2,363. I expect the open rate to go down for this issue.
Don’t forget to hit the like button and share this post with your network if enjoyed reading it.
Shukriya, Zubair
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