Covid-19 impact on the startup ecosystem

The pandemic has adversely affected the regional startup ecosystem. But there is help, writes Zainab Mansoor

Entrepreneurship in the GCC region, particularly in the UAE, has come a long way. In recent years, regional governments designed programmes and initiatives to support startups in a bid to reposition the region as an innovation and knowledge-based hub. But the impact of the Covid-19 virus outbreak has weighed down the local and regional startup ecosystems.

The Dubai Future Foundation, in a report launched jointly with the Dubai Future Council for Entrepreneurship and Innovation Ecosystem, highlighted that many strong startups that have high burn rates will require government support to survive the crisis.

“According to a recent survey of the startup community in the MENA region, companies have reported that the Covid-19 crisis is affecting their business, with revenue generation, fundraising and burn-rate being the most significant concerns,” the Life After Covid-19: Innovation and Entrepreneurship report read.

According to a survey of 100+ startup founders conducted by startup data platform MAGNiTT, 59 per cent of founders said that their businesses had already been impacted by the crisis and 48 per cent mentioned revenue generation as their major concern while 41 per cent foresee lower-than-expected revenue growth rates in 2020.

KEY SUPPORT

The UAE government has announced stimulus measures specifically for the startup ecosystem in the aftermath of the pandemic. In March, the Abu Dhabi Executive Council announced 15 new initiatives under its Ghadan 21 scheme which included subsidising electricity connection fees for startups until the end of 2020 and exempting them of performance guarantees for projects up to Dhs50m ($13.6m).

In April, the Dubai World Trade Centre Authority’s support came in the form of a three-month rent postponement for SMEs and startup tenants. In addition, the Sharjah Entrepreneurship Centre (Sheraa) pledged a $1m solidarity fund to help strained startups weather the tide of the Covid-19 crisis. The fund will be distributed through equityfree grants and commissioned projects.

Dubai Future Foundation has also launched the ‘One Million Arab Coders’ Covid-19 hackathon to develop solutions for challenges that have emerged due to the coronavirus outbreak, such as access to healthcare services, education, social solidarity and supporting startups. The five award-winning projects will receive $50,000 through the initiative.

In Saudi Arabia, InspireU, a programme launched by the Saudi Telecom Company (stc), confirmed its commitment to incubate startup projects in its sixth and seventh intakes despite the Covid-19 crisis. Additionally, Saudi’s Social Development Bank, with support from the National Development Fund, launched a SAR12bn ($3.2bn) programme, in which SAR2bn will be extended to 6,000 entrepreneurs enabling them to set up development projects.

WHAT’S NEXT

The first quarter of 2020 saw $277m in funding for MENA-based startups, but the number of startup investment deals in Q1 – 108 – dipped 22 per cent from Q1 2019, MAGNiTT’s Q1 2020 MENA Venture Investment Report revealed. March alone recorded a drop of 67 per cent in transactions compared to the same month last year, reflecting the impact of the coronavirus on the ecosystem. With regional economies anticipated to reopen completely in the second half of this year, startups will also hope to start witnessing some form of economic recovery, with 2021 expected to bring better growth prospects.