Into the rise of Middle East’s first unicorn: Careem
In March 2019, Careem became the first unicorn exit in the Middle East and North Africa region, by being acquired by Uber for a groundbreaking $3.1 billion. However, this success was years in the making.
Those of us that have been in Dubai longer than a few years, before the launch of the public transportation network, will most likely remember how different it was to move from one place to another—either you had to have your own car, or you would have to take a taxi in order to get to your destination. However, taxis are not always around to pick you up. Of course, many people do still own a car or travel by public transport, but isn’t it convenient to have an app at your disposal with which you can order a ride that will arrive within just a few minutes, and you can track it all the time? That is where Careem, Uber’s main competitor in the Middle East, came in.
Careem was co-founded in July 2012 by Mudassir Sheikha and Magnus Olsson, who had both worked as management consultants at the reputed consulting firm McKinsey & Company. Initially, however, the well-known ride-hailing app started out as a website-based service for corporate car bookings, soon after which it evolved to become a transportation network company that we know and love today.
Speaking about the problem that Careem solves, Magnus Olsson points out that “Dubai is a truly global city, but as soon as you leave Dubai for places like Oman or Cairo or many other cities, you realise that public transport infrastructure is not extensive. Plus, in our markets, if you look at the numbers, car ownership is also very low.” In other words, cities around the Middle East still face the same issues that Dubai faced just a few years ago—transportation is not extensive enough, and it is very cumbersome. Moreover, whilst women can drive in many places in the Middle East, in some they cannot, and many simply do not. Careem, with its simple pick-up and drop-off, offers an easy and quick solution for that segment.
With its solution to this common problem in the Middle East, the company grew like wildfire across the entire region, and operated in 80 cities by 2016, just four years after its launch. This quick growth had not gone unnoticed by investors, and Careem had raised over $70 million when it announced its funding round in 2016: $350 million, which was later increased to $500 million in 2017, with participation of well-known investors and companies such as Saudi Arabia’s Kingdom Holding, Rakuten, Daimler, and more. With this funding round, the company became the first unicorn (a private company valued at $1 billion) in the Arab world. According to TechCrunch, the company’s valuation was $1.2 billion at the time.
Just a year later, Careem announced that it had raised another $200 million in October 2018, and it aims to increase that to $500 million relatively soon, Reuters reported. However, a few months following one of the biggest funding rounds of the region, it accepted the acquisition deal from its international competitor, Uber for a record-breaking US$3.1 billion.
Even though Careem’s story is one in a million, it does not mean that the company does not face challenges. One of the major issues for Careem, which is perhaps more specific to its location as a start-up (mostly focused on emerging markets), is payments. The large majority of consumers either do not have credit or debit cards, or simply prefer to pay in cash; for which the company came up with a mix of solutions, including a network of people that act as collection managers, taking funds and then paying out drivers, as well as the in-app wallet that allows drivers to provide change to customers in the app rather than in person.
Moreover, the company received fierce competition from its international competitor: Uber. The US-based company has expanded quickly across the world after its founding in 2009, and came to the Middle East in 2014. Even though Careem remains the largest ride-hailing provider in the region, it has expanded its horizon to include other offerings as part of its portfolio as well.
In February 2018, Careem acquired RoundMenu, a Dubai-based restaurant listing and reservation platform, and started food delivery services. On top of that, just half a year later, Careem launched its own delivery service Careem Now, with which it aims to compete with international competitors, namely Deliveroo and Uber Eats, among others. According to Reuters, the company is planning to spend more than $150 million on this service.
Around the same time that it announced its food delivery platform, Careem announced that it would offer bus rides as well, with an initial launch in Egypt. Olssen comments, “Careem Bus represents the middle ground between the existing public transport and ride-hailing cars. We believe that a middle-priced service that middle-income residents and commuters can use every day will make a big difference. The middle segment in Egypt is currently forced to buy cars for their daily commute simply because there are not any other viable options that suit them.”
We can see that Careem offers something incredibly important and valuable: convenient transport from one place to another for people that did not previously have that option. However, the company is constantly staying on its toes and expanding its horizon to retain its dominant position in the region; as evident with recent launches of its own delivery service and expansion of its fleet of captains.
It set up and built the market ahead of Uber’s launch in the region, making it ripe for the taking. Yet with its market insights, it was able to prove a fierce competitor to the international bigwig, leading to the largest acquisition deal the region has ever seen.
Considering it will operate independently and keep its brand name, along with its plans to expand to other segments to gain a larger market share and diversify its competition and revenues, everyone in the investment circle is tracking its glory and is eager to learn how the next few years will play out for the Middle East’s first homegrown unicorn, post its exit.