THE TRUTH FROM ACTUAL STARTUPS PERFORMANCE DATA (2011–2019)
Did the Ecosystem Really Make An Impact On Startups Growth in UAE?
Analyzing 927 startups to assess the outcome of ecosystem support and $2bn investments in MENA’s largest startup hub
Going into my third year in the UAE ecosystem in a government accelerator, I find myself facing a problem.
Reports show that startups receive investment and programs graduate cohorts. There is good media buzz that should benefit entrepreneurs in UAE. But, there are very few success stories that we can point out.
If I’m a startup founder in the UAE ecosystem, or thinking about using its support, what impact should I expect on my startup’s growth?
If I’m an investor who wants to invest in UAE startups, what growth velocity should I expect from them?
The data we find in reports about investments and programs cohorts don’t answer these two questions. And so I decided to set out trying to find those answers. As ecosystem builders, are we really making a difference?
In this article, I share with you the key findings of going through records of 927 startups founded in UAE over the past decade, to assess, with better clarity, the impact this ecosystem has made on startups growth.
Table of Contents
- The state of the ecosystem
- Impact: Reality vs. assumptions
- Identifying the core impact of startup ecosystems
- Data findings & insights:
1. How long does it take to reach Seed level in UAE?
2. How long does it take to reach Series A level in UAE?
3. How long does it take to reach Series B level in UAE?
4. Ecosystem impact at Seed stage
5. Ecosystem impact at Early Stage (Series A)
6. UAE Ecosystem Startup Lifecycle
7. Can we project startup success & exits for the next two years? - Ecosystem Impact Score & Conclusion
The State of the Ecosystem
UAE is the leading entrepreneurial hub in MENA region.
This is expected to continue despite rapid growth in Egypt and strong government support in Saudi Arabia.
Since 2011, UAE has seen at least 927 startups founded in the country.
Of those, 307 startups (33%) have successfully secured funding from investors, 240 of which (78%) are Seed or Venture Series. [Crunchbase]
This figure has been growing annually at an impressive rate of 11% over the past 8 years. It is, by far, the largest in the region. In fact, 4 out of every 10 funded startups in MENA come from the UAE ecosystem. (Dubai SME, ArabNet, 2019)
And since startups use investments to progress and further their growth, it stands to reason that the more investors, deals, and larger deal value in the ecosystem, the greater the advantage which startups in that ecosystem have.
There is a reason, then, why startup investment data (number of investors, deals and deals value) is used to assess the state of the ecosystem in all publications.
So, what was the outcome of investments and other forms of support in reality?
Impact: Reality vs. Assumptions
Let’s examine one unit of observation: exits.
In total, there has been 89 exits so far in MENA. (Magnitt, 2017, 2018, 2019)
14 from the cleaned sample of startups founded between 2011 and 2019 received funding and exited across all ecosystems in MENA. 9 of them come from the UAE ecosystem.
UAE has 80% more exits compared to the rest of MENA combined.
For every exited startup in the rest of MENA, UAE produces two. A clear advantage.
But there is a surprise in the data.
Within the same time frame, in the same cleaned sample, 25 exits have been recorded in UAE.
9 of them (36%) are the startups we have just mentioned, who relied on ecosystem support (funding) at least once in their lifetime to progress.
The remaining 16 did not.
78% more exits come from startups who had progressed without ecosystem investment, compared to startups who relied on it.
For every exited startup in the UAE ecosystem, this group produces two.
Serious Questions About the Impact of Ecosystem Support
Even if these exits belong to wealthy, well-connected founders, the disparity between the two numbers (64% vs. 36%) justifies serious questioning.
It is, literally, the null-hypothesis to the ecosystem impact theory.
If ecosystem support, with over $2 billion worth of investments, cannot even match the number of exits without it, does it mean that the environment is not optimal for startups to capitalize on the advantage they are handed?
Identifying the Core Impact of Startup Ecosystems
The Benefits of Impact Assessment
Impact is change attributed to an intervention.
We evaluate impact through a comparison between what actually happened and what would have happened in the absence of the intervention. (White, 2006)
This comparison can be a chellenge since startup goals are not recurring events.
When a startup exits or scales without ecosystem support, we cannot ask it to repeat that with ecosystem support so that we can measure the impact.
We can only evaluate impact by comparing the startup to a control group.
Impact assessment (evaluating and measuring impact) looks for change in an observable outcome that is directly attributable to the intervention, and then scores this change.
It is strategically used to:
- Raise support for the intervention by clarifying and communicating if it has achieved its goals
- Help identify cause-and-effect in areas addressed by the intervention
- Monitor intervention’s impact over time to identify trends, continuously improve it, identify its shortcomings and fix them
- Replicate successful interventions
So, What Do Startup Ecosystems Exist To Change?
A startup ecosystem exits to help startups achieve a certain set of growth goals “faster”. This is done through investment, connections, exposure, training and lobbying.
“Faster” means that the core impact which the ecosystem ‘must have’ is growth as time-data.
Concretely, it is the amount of startup lifetime that has been accelerated as a result of ecosystem support given to the startup, compared to startups in a control group.
If the startup takes less time to hit its growth goals, then the ecosystem has created positive core impact.
If it takes more time, then the ecosystem has made negative core impact.
If it takes the same amount of time as the control group, then the ecosystem has made no core impact.
Startup Growth Goals
Though almost every stakeholder in the ecosystem uses their independent framework and definitions of ‘growth goals’, and despite the current venture spiral shift and the accompanying ‘round inflation’ through which the ecosystem is currently going, all startups in all frameworks would share three main growth milestones:
1. Proof of Demand
For startups, it is proof that early adopters pay for this new product in a novel business model variation.
For SME’s, it is proof that customers still welcome another product in a tried-and-proven business model.
With proof of demand, both seek their first Seed investment to build proof of scalability. Without it, the likelihood of securing Seed investment is low.
Because of that, we can use “time until first Seed round raised” to track this milestone.
2. Proof of Scalability
For startups, it is proof of serviceable obtainable market and records of sustainable per-account customer lifetime value which offsets customer acquisition costs in a multiple.
For SME’s, it is proof of serviceable obtainable market and records of overall non-negative net profit, regardless of multiple.
With proof of scalability, startups (and optionally, SME’s) seek their first Venture Series (Series A, sometimes B) investment to scale. Without it, the likelihood of securing Venture Series investment is low.
Because of that, we can use “time until first Series A raised” to track this milestone.
3. Scaling Complete
For startups, it is actual growth in customer base with LTV:CAC of 3:1 or better.
For SME’s, it is achieving a pre-agreed profit level.
With scaling complete or at least close to completion, startups and SME’s have the option to seek their first Series B+ investment to grow or expand. Without it, the likelihood of securing Series B+ investment is low.
Because of that, we can use “time until first Series B+ raised” to track this milestone.
We are now ready to examine time-data relative to these three milestones (“how fast” each milestone was achieved) to measure how startups performed after receiving ecosystem support since January, 2011.
Using this outcome, we will be able to measure the impact of the ecosystem.
Impact of UAE Ecosystem on Startups Growth (2011–2019) — Data Findings & Insights
Dataset: 927 startups founded in UAE between Jan 1, 2011 and Jul 30, 2019; 307 funded, 240 Seed-funded or above, 620 not funded.
Data source: Crunchbase reported data.
How Long Does It Take To Reach Seed Level In UAE?
Impact On Startup Growth Until First Seed Round
For this category, we measure the amount of time startups have spent on building proof of demand (traction) and then use it to raise the first Seed round. The control group raised a Seed round, then continued successfully until they reached Series B+ or exited.
We want to see if the ecosystem average is doing better, worse or about the same as the top performing startups in the ecosystem.
Out of 240 funded startups (Seed and above), 75% raised at least one Seed round (181).
[Click any image to enlarge it.]
Ecosystem startups managed to raise their first Seed round early on in the second year on their lifetime (month 14).
The top performing ecosystem startups did so by the end of their first year (month 12).
The difference of means is not statistically significant, and so it is safer to expect that, on average, the ecosystem helps startups reach Seed stage around month 14 of their lifetime.
Compared to the top performing startups, the ecosystem average is 1–4 months slower. That translates to 20.1% slower.
While margins of error would put UAE ecosystem within reach of the Silicon Valley reference, the central points are still quite far apart. Ecosystem average here is 61% slower.
This is a possible indicator of any or all of the following:
- Sub-optimal quality of pre-Seed support, including angel investment, incubators and/or access to training resources
- Many startups face difficulty building their MVP
- Many startups face difficulty entering their early market
- Many startups face difficulty building proof of demand (traction)
- Many startups face difficulty finding or closing Seed investment
Technical notes: We use funded startups in UAE who raised Series B+ or exited (14 startups) as the control group. We also use Silicon Valley estimates as standard reference.Cleaned dataset n = 167+14; Confidence level = 90%; p-value = 0.36 > 0.1; Samples margin of error = ±0.94 (rest of startups), ±4.9 (top startups); Samples confidence level = 95%
How Long Does It Take To Reach Series A Level In UAE?
Impact On Startup Growth Until First Series A Round
For this category, we measure the amount of time startups have spent on building proof of scalability (product-market fit) and then use it to raise their first Series A round. The control group raised a Series A round, then continued successfully until they reached Series B+ or exited.
We want to see if the ecosystem average is doing better, worse or about the same as the top performing startups in the ecosystem.
Out of 240 funded startups (Seed and above), 21% raised at least one Series A round (51).
Ecosystem startups managed to raise their first Series A round in the second half of the third year on their startup lifetime (month 32).
The top performing ecosystem startups record similar time, though we state that with lower confidence.
The difference of means is not statistically significant, and so it is safer to expect that, on average, the ecosystem helps startups reach Series A level around month 32 of their lifetime.
Compared to the top performing startups, the ecosystem average is 1–2 months faster. That translates to 4.68% faster.
Compared to Silicon Valley, UAE ecosystem startups (including top performers) raise their first Series A round 52% slower.
This is a possible indicator of any or all of the following:
- Lifetime to Series A comprises of lead time to Seed and time to finish Seed. Good performance here reflects good performance in one of both time frames.
- Compared to Silicon Valley, many startups face difficulty activating their early majority market (retaining customers with repeat purchase behavior)
- Many startups face difficulty optimizing their LTV:CAC
- Many startups face difficulty finding or closing Series A investment
Technical notes: We use funded startups in UAE who raised Series A followed by Series B+ or exit (13 startups) as the control group. We also use Silicon Valley estimates as standard reference.Cleaned dataset n = 37+11; Confidence level = 90%; p-value = 0.952 > 0.1 (Yuen-Welch 2T); Samples margin of error = ±6.2 (rest of startups), ±3.1 (top startups; windsorized at k=0.2); Samples confidence level = 95% (all startups), 67% (top startups)
How Long Does It Take To Reach Series B Level In UAE?
Impact On Startup Growth Until First Series B+ Round
A startup that has scaled is a startup that has successfully completed its early stage and, based on investment behavior in UAE, are extremely likely to exit.
For this category, we measure the amount of time startups have spent until scaling is finished or close to be finished, and then use it to raise their first Series B round.
This is the first time we can compare against an external control group. We use startups who exited without ecosystem’s support.
Out of 240 funded startups (Seed and above), 13% raised at least one Series B or more advanced venture series round (33).
Ecosystem startups managed to raise their first Series B+ round or exited in midway through the fourth year on their startup lifetime (month 44).
Non-ecosystem startups, on average, exited slightly later at the end of their fourth year (month 48).
Both groups performed similarly. (The 4–6 months improvement proved to be not statistically significant.)
On average, the ecosystem helps startups reach Series B level around month 44 of their lifetime.
When compared to Silicon Valley, UAE ecosystem startups reach Series B+ or exiting level 50% slower.
This is a possible indicator of any or all of the following:
- Cumulatively, the ecosystem matches the performance of non-ecosystem startups.
- Compared to Silicon Valley, startups face difficulty identifying growth or expansion opportunities to justify moving beyond Series A.
- Startups face difficulty finding or closing Series B+ investment.
Technical notes: We use exited startups in UAE who do not report prior funding rounds (16 startups) as the control group. We also use Silicon Valley estimates as standard reference.Cleaned dataset n = 30+16; Confidence level = 90%; p-value = 0.11 > 0.1; Samples margin of error = ±8.1 (ecosystem), ±3.8 (non-ecosystem); Samples confidence level = 95%
We now move to ecosystem impact at stage-level.
Ecosystem Impact At Seed Stage
Does receiving ecosystem support at Seed stage accelerate startups growth better than not receiving that support?
We compare the amount of time startups spend to build proof of scalability with ecosystem’s support at Seed stage and then use this proof to raise their first Venture Series or exit, vs those who manage to do so without this support.
We want to see if Seed stage support makes startups perform better, worse or about the same compared to its absence.
Out of 180 Seed-funded startups in our sample, 12% raised at least one Seed and one Venture Series rounds.
Out of 67 Venture Series-funded startups, 22% skipped the Seed round.
On average, ecosystem startups manage to raise their first Venture Series round towards Q3 of the third year in their lifetime (month 34), if they had raised prior Seed round.
Without prior Seed round, they manage to raise Venture Series around the first half of their fourth year (month40).
Ecosystem startups who raise a Seed round first reach Ventures Series level 7–8 months faster compared to startups who don’t skip raising a Seed round.
That translates to 18.5% faster, with statistical significance.
This is still far from Silicon Valley, compared to which ecosystem’s average is 65% slower at building startup’s proof of scalability.
This is a possible indicator of any or all of the following:
- The ecosystem’s Seed stage support is performing well, including investors and accelerators
- Startups use Seed stage support efficiently
- Compared to Silicon Valley, ecosystem startups take a long lead time to move from pre-Seed phase to Seed stage
- The large population of startups at Seed stage improves the quality of the ecosystem’s Seed stage support by accelerating its iteration cycle
Technical notes: We use funded startups in UAE who raised Series A+ or exited without having raised a Seed round (15 startups) as the control group. We also use Silicon Valley estimates as standard reference.Cleaned dataset n = 29+15; Confidence level = 90%; p-value = 0.03 < 0.1 (1T); Samples margin of error = ±6.1 (raised Seed), ±11.1 (no Seed); Samples confidence level = 95%
Ecosystem Impact At Early Stage (Series A)
Does receiving ecosystem support at Early Stage accelerate startups growth better than not receiving that support?
Startups at this stage actively scale up.
With a scaled up business, they seek Growth Venture Series to grow or expand.
We track the amount of time startups spend to scale and then use their success to raise their first Series B+ or exit, whichever earlier. And then we compare those who did so with Series A investment vs. those who scaled without it.
We want to see if Early Stage support (namely, Series A) makes startups perform better, worse or about the same compared to its absence.
Out of 30 Series B+ funded startups in our sample, 47% reported having raised at least one Series A round. 53% skipped Series A.
On average, when ecosystem startups raise their first Series A round, they manage to raise their first Series B+ round or exit midway through the fifth year in their lifetime (month 55). Though we state this with lower confidence.
In comparison, startups who skip Series A and move directly to Series B+ manage to do so in the second half of their third year (month 34).
Ecosystem startups who raise a Series A round first complete scaling or become close to complete scaling 21–26 months slower compared to those who don’t raise Series A.
That translates to 68.5% slower, with statistical significance.
When compared to Silicon Valley, ecosystem’s average is 95% slower at completing scaling or becoming close to completing scaling.
This is a possible indicator of any or all of the following:
- Sub-optimal level of quality of Series A support in the ecosystem
- Startups face difficulty scaling successfully in their market.
- Startups face difficulty identifying growth or expansion opportunities.
- Startups face difficulty finding or closing Series B+ investment.
Technical notes: We use funded startups in UAE who raised Series B+ or exited without having raised a Series A round (16 startups) as the control group. We also use Silicon Valley estimates as standard reference.Cleaned dataset n = 14+16; Confidence level = 90%; p-value = 0.01 < 0.1; Samples margin of error = ±7.0 (raised Series A), ±10.3 (not raised Series A); Samples confidence level = 77% (raised Series A), 95% (not raised Series A)
UAE Ecosystem Startup Lifecycle
With this historical data, we can reconstruct the average timeline of startup growth in the ecosystem.
Based on performance data of 240 funded startups (Seed or above), the estimated overall time the startup spends in the ecosystem until it scales up successfully, or be close to completing scaling up, is 5 years (59 months).
The average startup lifecycle in the UAE ecosystem = 5 years
Let’s put that in perspective.
A few points worth observing:
1 Compared to Silicon Valley, UAE ecosystem startups spend two years (12–29 months) longer to succeed (scale up). That is 51% slower.
2 Access to Seed investment comes at a substantially later point in the UAE ecosystem.
3 The duration of Seed Stage, the period to Build Proof of Scalability, is close in both ecosystems, which is a positive sign.
4 Early Stage, the period to scale up (Series A), is significantly longer in the UAE ecosystem.
5 In a surprising reversal, the average point of exit for startups in UAE occurs in the second half of Early Stage (scaling), compared to Silicon Valley where it happens well into the Growth Stage.
This correlates with the more tolerant behavior towards startup acquisitions and lack of IPO’s which we see in the region.
Experiment: Can We project Startup Success & Exits For the Next Two Years?
Taking the estimated lifecycle model, we can look at the current lifetime of each funded startup, and match it to the equivalent stage on the lifecycle.
The assumption here is, if the startup is funded and spends a certain amount of time in the ecosystem, with no extraordinary events involved, then it is likely to find its growth level close to the average of the group of startups who have spent an equal amount of time in the ecosystem.
With this, let’s create a heatmap of the distribution, and then consolidate startups based on time filtering.
The median age of Seed and above startups who were founded since 2011 and have not reported closure in the ecosystem today is 4 years (47.5 months).
34% of this group have surpassed the point where average startups in the ecosystem have scaled, close to completing scaling, or exited.
43% more are expected to be at that point in the next two years.
If everything holds, expect a wave of startup successes and exits over the next two years. We have already started seeing indicators this year.
If this happens, then this model can be further tested as a first-line indicator to assess startup growth, and thus be used to benchmark startups or assist stakeholders in their screening process.
If it does not happen, then it would be an indicator of the extent of the valley of death and dormant startup effect in the ecosystem.
UAE Startup Ecosystem Impact Scores
By how much does the UAE startup ecosystem support impact startup’s growth, in terms of accelerated lifetime, compared to not receiving that support?
Seed Stage
UAE Ecosystem Seed Stage Core Impact = +18.5%
The ecosystem has accelerated startups growth at Seed stage, compared to growth in absence of this support.
Early Stage
UAE Ecosystem Early Stage Core Impact = -68.5%
Without Early Stage support from the ecosystem, namely Series A, the velocity of startups growth is better.
Overall Impact Score
Calculating the average of accelerated growth up to Proof of Demand (up to Seed = -20.5%), up to Proof of Scalability (up to Series A = -0.9%), and up to Scaling Completion (post-Early Stage = +8.7%), as ratios vs. the control groups, we cover the core milestones in startup growth and calculate the overall impact.
UAE Ecosystem Overall Core Impact On Startups Growth = -4.2%
Overall, the ecosystem has made no substantial change to startups growth, with a slight negative impact, compared to not having its support.
Final Thoughts
And so I have the answers.
We are going through the golden age of Seed stage in the UAE ecosystem.
Startups have access to decent support that helps them build proof of scalability and activate early majority market, to go into venture series faster than normal.
This is a testament to the quality of work done by Seed investors and accelerators in UAE, such as Techstars, 500, Dtec and Beco Capital.
As ecosystem builders and ecosystem growth professionals, we can ensure that startups get the most value out of the ecosystem today by bringing them to Seed stage as quickly as possible, without compromising quality.
That, however, shouldn’t take our sight off the necessity to improve Early Stage support, which leaves quite to be desired and limits the positive impact of the ecosystem.
In Short:
- If you are a startup founder at Seed stage or about to enter it, seek support from ecosystem players and investors who have a history of investing in Seed startups. You are more likely to benefit from it.
- However, if you are at Early Stage or about to enter it, you must be extremely diligent when raising a Series A round or getting support from the ecosystem. Clarity about expectations is crucial for any business relationship to succeed.
- If you are a Seed stage investor or accelerator, maintain the quality of your support through interacting with fellow Seed stage players in the ecosystem.
- If you are an Early Stage investor or accelerator, then you need to improve the value which you add to startups quite significantly.
- If you are government or an ecosystem builder, maintain a community of Seed stage players and find out ways to help Early Stage players improve.
Want to discuss this further and have a look at the data?
I’d be happy to!
Message me or drop by Sheraa hub, and we’ll talk startups growth and ecosystem growth.
