INSEAD and MAGNiTT launch a report on startup sentiment in MENA
Mita Srinivasan
10x Industry

INSEAD and MAGNiTT launch a report on startup sentiment in MENA

Survey reveals 61 percent of founders and 48 percent of investors expect the crisis to end between Q4 ‘20 & Q1 ‘21while startups surveyed from Saudi Arabia and later-stage ventures across MENA are the most worried

INSEAD joined forces with MAGNiTT to launch the report from their first startup and VC sentiment survey in early June 2020. The report aims to provide useful reference points as a tool for policy makers in shaping initiatives that can help the start-up community navigate the COVID-19 crisis and plan its aftermath more confidently.

Key findings from the survey, found that startups, particularly late-stage ventures, are more downbeat than investors – with 19 percent being very worried. With a recession following the COVID-19 lockdown and a growing emphasis on the need for digitization, technology ventures are at the forefront of the systemic change that is occurring across the economy. These companies look like they might be the driving force behind the region’s digital transformation and its evolution to the new normal.

Across the region, ventures in Saudi Arabia are the most concerned, with the highest worry sentiment index of 3.8/5.0, followed by ventures in Lebanon (3.5). Founders have the most pessimistic outlook on MENA, with 24 percent of startups expecting a depression. In contrast, the majority of investors (75 percent) forecast a recession. Overall, both founders and investors anticipate a lasting impact of the crisis, with almost a quarter of founders expecting the crisis to not be over before the fall of 2021.

Fintech and ICT ventures accelerated fundraising, while retail, transportation, and entertainment ventures saw reduced valuations.

Some of the other key findings include:

  • 60 percent of founders are facing a revenue decrease and a subsequent lack of cash (47 percent);

  • Several also struggled to stick to the projected business plans (41 percent) due to disrupted operations (46 percent).

  • Fundraising (61 percent) preoccupies more than half of responding founders

  • Cash-strapped founders report to have resorted to changing business models (45 percent) as well as products and services (40 percent) reflecting the need of tech ventures to adjust their value proposition

  • Investors indicated that managing the workforce with salary cuts (78 percent), hiring freezes (64 percent) and layoffs (39 percent) were their portfolio ventures’ most common responses to the lack of cash

Looking ahead, 27 percent of investors are changing their mandate towards positively impacted tech-driven industries, while the VC appetite for new ventures or geographies has dried up.

You can download the full report here. INSEAD and MAGNiTT plan a follow-up survey later this year to measure the full-scale impact of the pandemic on the MENA startup environment, as well as its resilience to this unprecedented situation.