GPCA: Navigating Global VC with MEA as a Bright Spot
Updated 5/28/2024 8:00:00 AM
Arab Finance: The Global Private Capital Association’s (GPCA) annual report examines the flow of venture capital investments in various regions, including Africa, India, China, Southeast Asia, Latin America, Central and Eastern Europe, and the Middle East. It focuses on recurrent investment trends in GPCA markets and significant transactions that occurred during a period of ongoing market changes influenced by geopolitical shifts.
So, Arab Finance interviewed Carlos Ramos de la Vega, GPCA’s Director of Venture Capital and Tech, about their 2024 report.
He provides a closer look at the state of VC activity in Egypt, exploring key sectors that attract investor attention and the opportunities for entrepreneurs seeking venture funding. The interview also delves into how global trends are impacting VC activity and the promising sectors attracting investment.
1- Can you briefly introduce the Global Private Capital Association (GPCA) and its mission in the global VC and technology landscape?
The Global Private Capital Association (GPCA) is an independent membership organization that represents private capital investors managing more than $2 trillion in assets across Asia, Latin America, Central and Eastern Europe, and the Middle East and Africa (MEA).
GPCA’s mission is to connect and influence key market participants, promoting the sectors, strategies, and deals that will drive investment returns and meet societal needs in the long term. This is being achieved through our investment database, dedicated research, and robust media publication platform.
Our venture capital and technology workstream are sought to uncover and highlight the technological progress made by entrepreneurs and backed by private capital investors in global markets, which can sometimes leapfrog the innovations found in traditionally more developed economies like the US or Western Europe.
2-What were the key factors contributing to the decline in venture capital (VC) deal value in 2023 across GPCA markets?
The higher cost of capital, along with broader monetary policy updates, have reset expected valuations in the public markets, which in turn has had a ripple effect on price-sensitive late-stage investors in the private markets. Those investors have either adjusted their average ticket size to the downside or repositioned their investment mandates altogether.
We have seen global investors pull back from our capital markets with an opportunistic strategy, while other allocators have purposefully structured region-specific teams and funds.
Adjusted private company valuations in the technology space have also impacted portfolio construction for institutional investors who invest in both public and private markets during 2022 and 2023.
Due to the significant rebase of public benchmarks, some portfolios were overexposed to private markets. This made some of these allocators pause their commitments to private funds and their direct investments.
The decreased availability of late-stage financing, coupled with smaller and slower commitments from institutional investors, has caused VC managers to be more cautious and selective when analyzing potential investment opportunities.
The new generation of tech-enabled companies backed by private capital investors will reprioritize profitability as a key metric over top-line or market share growth.
3-Despite the decline, the MEA region is identified as a bright spot. What factors are contributing to the growth of VC investment in this region?
Investor attention in the Middle East has been on consumer lending or buy-now-pay-later platforms, with Tabby and Tamara raising a combined $798 million in equity financing during 2023, making up the lion’s share of the total capital invested.
Last year, sovereign wealth funds and corporate venture capital entities significantly drove capital deployment and ecosystem growth. Active investors include Public Investment Fund’s (PIF) Sanabil Investments, Saudi Telecom Company’s (STC) Saudi Technology Ventures, and Aramco’s Wa'ed Ventures.
Cleantech and e-commerce have also captured major investor attention in Africa. In 2023, Kenya registered the largest VC deal in its history with cleantech M-Kopa’s $250 million round.
At the same time, horizontal consolidation in e-commerce has become a clear opportunity to build category-leading companies spanning the entire continent. The clearest example of this is the pending merger of the Egyptian VC-backed e-commerce platform MAXAB and the Kenyan e-commerce platform Wasoko.
Global investors have shown great interest in Africa. Verod-Kepple Africa Ventures and Asia Africa Investment and Consulting, which have ties to Asia, closed funds in 2023, while Sony Ventures and Strategic Business Innovator (SBI) Holdings launched dedicated corporate venture capital (CVC) arms or committed capital to local managers.
4-Public market activity in China and India is a significant driver of VC exits. Are there any efforts to create a more robust exit ecosystem in the Middle East, particularly for early-stage startups?
Historically, mergers and acquisitions (M&A) have largely contributed to VC exit value in the Middle East. Moving forward, local and global corporations and strategic investors have plenty of room to grow and become active and sophisticated acquirers.
Given limited public listing opportunities, the Middle East tech ecosystem is likely to be well served by the development of a secondary investor market to provide additional sources of liquidity for early-stage general partners.
This liquidity will in turn enable both healthy reinvestments from institutional investors into proven managers as well as a stronger case for new allocators looking to diversify their core positions and expand into the region.
5-The pending merger of MAXAB and Wasoko is a significant development in the African tech landscape. How does this merger fit into the broader trends observed in the report?
The current point in the market cycle enables well-capitalized companies to consider inorganic growth opportunities in the form of strategic acquisitions at attractive valuations.
Successfully acquiring the right target could help a company expand its geographical footprint or its distribution capabilities.
On the other hand, African startups facing headwinds in their fundraising timeline or profitability may consider partnering with another company through horizontal or vertical consolidation.
6-Can you share your insights on the current state of the VC landscape in Egypt? Are there any specific sectors attracting a lot of VC interest?
In 2023, venture capital activity in Egypt experienced a slowdown, echoing a global trend of retrenchment after years of rapid growth.
Since 2021, 95% of capital invested has been directed towards seed and early-stage startups, highlighting the nascent yet evolving nature of the local venture ecosystem.
During this period, VC investment in Egypt has primarily focused on established sectors like fintech (32% of VC capital) and e-commerce (27%).
Notable fintech startups like Paymob, Khazna, and Money Fellows have secured funding rounds worth over $30 million in recent years to improve access to financial services and accelerate digital adoption.
In addition, DistrupTech Ventures closed its debut fund of $36 million, further bolstering support for local fintech startups.
7-Finally, based on the GPCA’s report findings, what are your recommendations for Egyptian and Middle Eastern entrepreneurs seeking VC funding?
Entrepreneurs seeking to raise venture funding or third-party capital need to demonstrate a clear understanding of the new market dynamics globally.
Specifically, conveying their ability to execute a strategy that can lead the business to attain healthy unit economics and eventually become profitable would decrease its dependence on outside financing.
Startup founders should maintain a long-term perspective on company building, focusing on the early nurturing of relationships with local and global investors looking into the Middle East. These investors might be a good fit as either meaningful capital providers in late-stage rounds or strategic partners offering potential exit alternatives down the road.
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