Gulf startups are staying private for longer

Gulf startups are prolonging their time in private ownership, according to a trend observed globally. This shift is attributed to weakened exit and initial public offering (IPO) activities caused by public market fluctuations, as reported by private capital tracker Pitchbook. In the United Arab Emirates (UAE), the only Gulf country ranking among the top 20 venture capital markets, the value of venture capital exits remains low at just $402 per capita. In comparison, Singapore records $8,000 per capita and the United States $12,600.

Nalin Patel, director of research for EMEA private capital at Pitchbook, highlighted the dominance of AI in the US market, which is funneling capital into a few prominent companies like OpenAI and Anthropic, diverting resources from local markets. The ongoing conflict in Iran exacerbates the subdued exit environment in the Gulf, as geopolitical uncertainty poses a significant challenge for companies preparing to sell and maximize valuations.

Both domestic and foreign investors are impacted, with local investors delaying or reducing participation, and foreign investors hesitating on Middle East listings or potential acquisitions.

Despite the initial shock, the region has resumed business as usual. Patel noted that exits create positive cycles vital for the region's shift towards a market reliant on intellectual property rather than hydrocarbons. A notable example is Careem, a Dubai-based company acquired by Uber in 2019 for $3.1 billion, which made 75 of its employees millionaires, creating new generations of potential founders and backers in the region.

However, being a relatively new venture capital market, the Middle East exhibits heightened sensitivity to shocks. This sensitivity, coupled with higher transparency and financial disclosure requirements, poses challenges in accurately assessing a company's true performance and fair value during preparation for listing or sale. Global investors closely monitor the performance of significant IPOs, such as SpaceX and potential listings of frontier AI companies, as crucial indicators of market confidence and exit trends.

A series of successful market debuts could bolster investor confidence and stimulate more exits globally, including in the Gulf. Conversely, disappointing performances may reinforce a reluctance to list, keeping the exit window limited. Patel emphasized that the lack of exits is not a reflection of companies being unprepared for exit or being suboptimal candidates, but rather a consequence of prevailing market conditions.