Coronavirus crisis creates opportunities for venture capital entrepreneurs

Coronavirus crisis creates opportunities for venture capital entrepreneurs
A number of sunrise sectors have emerged in response to coronavirus-linked business and lifestyle challenges, according to Fady Yacoub, co-founder and managing partner at the global technology investment firm HOF Capital. (Supplied)
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Updated 08 August 2020

Coronavirus crisis creates opportunities for venture capital entrepreneurs

Coronavirus crisis creates opportunities for venture capital entrepreneurs
  • A number of sunrise sectors have emerged in response to pandemic-linked business and lifestyle challenges
  • In the GCC bloc, funding to MENA startups was up 2 percent in the first quarter compared with a year earlier

DUBAI: A resource crunch and the expansion of new economic sectors in the wake of the coronavirus pandemic could have a major impact on the availability of venture capital (VC) for entrepreneurs in the Middle East.

Yet, even as startups in the region, like their global counterparts, face significant challenges to fundraising, a number of sunrise sectors have emerged in response to coronavirus-linked business and lifestyle challenges, according to Fady Yacoub, co-founder and managing partner at the global technology investment firm HOF Capital.

“While angel investors and family offices accounted for a record-breaking amount of the capital deployed in the region in 2019, COVID-19 has made this source of funding scarce,” Yacoub said. “This is similar to trends abroad, but it is most acutely felt in the region as family offices have historically represented a significant share of invested dollars.”

Global VC funding has plunged 20 percent since the coronavirus outbreak in December last year, data from Startup Genome shows.




Global VC funding has plunged 20 percent since the coronavirus outbreak in December last year, data from Startup Genome shows. (Supplied)

In the Gulf, funding to MENA startups was up 2 percent in the first quarter compared with a year earlier, although the number of venture capital deals fell 22 percent, principally because of a steep drop in March, according to the regional data platform Magnitt.

Given the interruption to business schedules, VCs are doubling down on their holdings, Yacoub said.

“Most VC dollars are being spent on putting out fires at existing portfolio companies rather than on new investments.”

Winning VC funding is now a challenge, even for companies growing in double or triple digits week on week, he said.

“Rounds that were once oversubscribed have had investors walk away, forcing companies to mark down valuations and raise at lower levels per share than their previous round. We have seen this play out with quite a few firms.”




Winning VC funding is now a challenge, even for companies growing in double or triple digits week on week, Yacoub said. (AFP/File Photo)

Yacoub, an Egyptian, teamed up with compatriots Onsi Sawiris and Hisham Elhaddad to found HOF Capital in 2016. The firm is backed by more than 70 influential families and organizations, including leading brands such as Morgan Stanley, Etihad Airways and BNP Paribas.

Its investors have $350 billion of assets under management. HOF focuses its investments on nascent technologies with the potential to solve major social problems, backing entrepreneurs in areas including artificial intelligence software, next-generation finance, and genetics and computational biology.

Yacoub and his colleagues believe the downturn offers an opportunity to launch category-leading businesses. Challenging times present new problems to be solved, creating new market prospects.

Given the widespread changes to lifestyles around the world, Yacoub pinpoints four possible growth sectors:

Remote work: “Beyond tools enabling remote work, we are excited about how this trend will alter the distribution of tech talent. Clusters beyond expensive central locations will emerge in places offering better quality of life or that are closer to home for migrants, even in the MENA region.”

Electronic sports and gaming: As alternatives to live sporting events and other in-person experiences, e-sports and video games have seen player activity levels rise. Yacoub predicts exciting times ahead for the sector, particularly with localized Arabic-language products.




Lockdowns and social distancing have forced consumers to shop online, with regional platforms Noon and Souq enlarging their workforce even as companies in other sectors have laid off staff. (AFP/File Photo)

Telemedicine: Telehealth claims in the US rose by more than 4,000 percent in the year to March 2020. “A similar trend may follow in other countries, which was part of our motivation for investing in Helium Health. Its telemedicine service has seen rapid growth during the pandemic.”

E-commerce: Lockdowns and social distancing have forced consumers to shop online, with regional platforms Noon and Souq enlarging their workforce even as companies in other sectors have laid off staff. “Overall, e-commerce has grown in the GCC and Egypt at a 30 percent compound annual growth rate. Investors will be keen to find the next e-commerce winner in the region.”

With a number of factors expected to affect consumer spending in the medium term, VC funding could be affected accordingly. Yacoub said that founders should expect longer fundraising cycles as VCs look more closely at all aspects of a company’s business model and operating market.

“VC investors are generally exposed to hundreds or thousands of startups each year, so it’s important to stand out from the crowd in a good way, such as having a world-class team, a best-in-class or unique product or technology, market-leading traction, and being able to convey an interesting and compelling story to investors,” he said.

* This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.


Will Turkey succeed with its new charm offensive?  

Will Turkey succeed with its new charm offensive?  
Updated 5 min ago

Will Turkey succeed with its new charm offensive?  

Will Turkey succeed with its new charm offensive?  
  • Erdogan said that he expects to “turn a new page” in ties with Europe and “set a positive agenda” in 2021
  • Turkey also initiated the 61st round of exploratory talks with Greece on Jan. 25 to resolve longstanding conflicts

ANKARA: Turkish President Recep Tayyip Erdogan is downplaying Ankara’s tensions with a host of countries as he launches a charm offensive on a variety of fronts. 
Meeting with the ambassadors of EU member states in Ankara on Jan. 12, Erdogan said that he expects to “turn a new page” in ties with Europe and “set a positive agenda” in 2021. 
However, his comments came at the same time as Brussels draws up an expanded sanctions list targeting Turkish individuals over Ankara’s decision to drill for offshore natural gas near Cyprus in the eastern Mediterranean. The punitive measures are set to be announced in March. 
Turkey also initiated the 61st round of exploratory talks with Greece on Jan. 25 to resolve longstanding conflicts over energy rights and maritime boundaries that pushed both countries to the brink of war last year. 
Similarly, Turkish and French presidents, after trading barbs last year, especially over their divergent regional policies, recently exchanged letters in which they agreed to resume talks to improve ties. The two countries are working on a roadmap to normalize relations. 
Despite growing tensions last year over the drilling activities of the Oruc Reis research ship in contested waters off Greece, Erdogan also called for cooperation in the eastern Mediterranean rather than competition. 
Experts remain skeptical about the success of this diplomatic sea-change and the hidden motivations behind it. Whether these steps will lead to tangible gestures in the region and globally is still a matter of concern. 
Ian Lesser, vice president at the German Marshall Fund of the United States, believes Ankara is trying to modulate its foreign policy messaging, above all with the US and the EU. 
“Part of this is tactical, including the desire to forestall or limit future sanctions, and to offset the influence of more hawkish voices within the EU,” he told Arab News. 
According to Lesser, Ankara would prefer an agenda that is more German and less French in the coming months, and this will also be read closely by the new administration in Washington.  
“With the important exception of the eastern Mediterranean, the Trump administration was not overly concerned about Turkish-EU relations or the range of issues affecting these relations. The incoming Biden administration is likely to pay more attention to migration, human rights and media freedom, all issues on the EU agenda with Ankara,” he said. 
But according to Marc Pierini, a visiting academic at Carnegie Europe in Brussels and a former EU envoy to Turkey, “we have seen this movie before.” 
“When Turkey finds itself stuck with failed policy choices, it performs abrupt U-turns, this time on monetary policy, and relations with the US and the EU,” he told Arab News. 
In the meantime, Ankara hopes to rebuild its relations with Washington under Joe Biden, and failed to react harshly to the appointment of Brett McGurk, a staunch Turkey critic, as the National Security Council’s Middle East and North Africa coordinator. 
Pierini believes that such Turkish U-turns have zero credibility.  
“You can’t say that Turkey’s future is in Europe — only weeks after saying Germany was ‘Nazi’ and France needed to get rid of its mentally impaired president,” he said, referring to the feud between Erdogan and his French counterpart Emmanuel Macron last year when the Turkish leader advised Macron to have a mental health checkup over his comments on Islam. 
“While dismantling the rule of law week after week, Turkey’s leadership wants European leaders to believe that major governance reforms are around the corner and that its accession ambitions are alive,” Pierini said. 
“The same goes with NATO, at a time when Turkey has deliberately facilitated Russia’s strategic objectives against the Atlantic alliance,” he added. 
Ankara’s stubborn stance over the S-400 Russian air defense system remains a strong deterrent for any normalization with the US administration as the system is considered incompatible with the NATO version and could be used by Moscow to obtain classified details on the US F-35 jets. 
However, experts are divided about whether these efforts will prove successful.
Lesser believes that rhetoric does make a difference, and that the Turkey debate has become so critical on both sides of the Atlantic that leaders and observers are looking for concrete change on the S-400 issue and other fronts. 
“This will not be easy. There is probably a time-limited window for Ankara to demonstrate that there is substance behind these multiple signals of detente,” he said. 
For Pierini, to find a way out of these massive contradictions, EU leaders will have to strike a balance between their own credulity and the artificial narratives emanating from Ankara. 
“Before doing so, they will talk to the Biden administration,” he said. 
At the end of 2020, Erdogan also expressed a desire to mend ties with Israel amid speculation that both countries would reappoint ambassadors. 
Gallia Lindenstrauss, senior research fellow at the Institute for National Security Studies in Israel, said that the drivers behind Turkey’s overtures to Israel include: Preparations for the incoming US administration; tensions in the eastern Mediterranean, and the desire to drive a wedge between Israel, Cyprus and Greece; the Abraham accords and the end of the blockade on Qatar which requires Turkey to rethink its policies toward the Middle East; and the recent war between Armenia and Azerbaijan that reminded Ankara of the advantages of cooperating with Israel.
Although the return of diplomatic ties is a feasible aim, she doesn’t expect any change before the Israeli elections in March and the formation of a new government. 
“However, this will not fundamentally improve relations as there is deep suspicion between the two states,” Lindenstrauss told Arab News.
“Also Israel will likely make additional demands from Turkey to show that its overtures are sincere, such as Ankara halting Hamas military activity organized on its soil and directed against Israel and the West Bank, as well as more transparency about Turkey’s projects in East Jerusalem,” she added.