More scrutiny of certain sectors
Startups raised $289m in May
Technology investors in the Gulf are adjusting their investment strategies to account for heightened risk in the Middle East.
Middle East startups raised a total of $289 million across 44 deals in May – a 25 percent increase from April, according to entrepreneurs’ platform Wamda. However, the Iran-Israel conflict that broke out on June 13 has given investors pause for thought.
“We haven’t broadly paused investments due to the flare-up. However, we have seen more targeted caution,” Ryaan Sharif, general manager at VC firm Flat6Labs UAE, tells AGBI.
While direct financial exposure of most venture portfolios may be limited, second-order effects include currency volatility, increased costs or founder relocation. These are the risks that Flat6Labs is asking founders to keep in mind, according to Sharif.
“For many, this is not a ‘stop everything’ moment, but it does heighten scrutiny around certain sectors, as well as geographies,” he says.
Logistics, defence and cross-border fintech are among the sectors that Flat6Labs is watching closely for knock-on effects.
The conflict is changing how VCs manage their portfolios.
Some are temporarily prioritising existing portfolio support over new deals. Others have adjusted risk premiums or funding structures to reflect heightened uncertainty, Sharif says.
Lucy Chow, general partner at the WBAF Angel Investment Fund, says “there are always opportunities” in uncertain times “if investors remain focused on long-term returns”.
“Any sector or company that relies on maritime access or tourist dollars may not be a good bet right now. However, sectors such as healthcare benefit in times of conflict,” she adds.
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For Chow, the real concern is that if global VCs and investors hold off investing in the region, this could affect the ability of local companies to grow.
The regional ecosystem as a whole is at risk if the conflict persists or widens.
“This will impact the amount of funding available for our regional entrepreneurial ecosystem for sure,” says Chow.
Securing funding is still possible for startups looking to expand, however.
“Founders who demonstrate scenario planning and a clear grasp of regional dynamics are more likely to secure funding in this climate,” says Sharif.
