Tech IPO's in the GCC
A growing path to exit for startups in Emerging Asia
This post is taken from Sturgeon Capital’s Q4 2024 manager update to LPs. As an early-stage investor, we can optimise as much we want for entry valuation, ownership, team, market size, product, etc., but it is meaningless unless we can exit and return funds to our LPs. This letter is a reflection of how we are thinking about the different paths to exit for our portfolio companies and the work we are doing to increase that probability. If you would like to learn more, please get in touch on LinkedIn.
As we enter 2025, we are approaching the halfway point for our first fund, Sturgeon Emerging Opportunities (SEO I). Now fully deployed, the fund is focused on supporting the active portfolio companies with everything from new market expansion to hiring and fundraising. A part of that support is building our understanding and network of potential paths to exit. The path to exit question is also the most common one that we are asked by prospective LPs for SEO II, so addressing it in this letter is relevant for both funds.
We have covered this topic already in a previous investor letter and published on our Substack blog, Terra Incognita. In that article, Exits in Emerging Markets, which focused on exits in Emerging Asia, we concluded, “there are certain traits, consistent across markets and business models, that have been common to successful exits, and that by optimising around these we can increase the probability of cash returns for our founders and investors.” We identified these four traits as:
being number one matters, and being multi-market is important for global acquirers;
better margins = higher multiples;
captive distribution attracts ecosystem builders; and,
business complexity is attractive in the long term.
In this letter, we wanted to look at exits in MENA, an adjacent market to Emerging Asia, where the path to IPO is becoming increasingly well-trodden. While Kaspi is a shining example of what is possible in Emerging Asia, its triple listing locally, in London and the US is still the exception rather than the norm when it comes to exits. The other exits have been strategic acquisitions ranging from a few million to hundreds of millions.
While MENA has had its share of large strategic acquisitions, such as Uber’s $3.1b acquisition of Careem or Amazon’s $580m cash acquisition of Souq, recent years have seen several technology companies IPO locally and internationally. Examples to date include food delivery giants like Jahez and Talabat, leading FinTech players like Fawry and Rasan and consumer platforms like Yalla Group and Anghami.
It has not all been smooth sailing for technology companies that have gone public. Those that listed during the frothy years of 2020-2022 have struggled due to contractions in valuation multiples. Jahez, for example, went public at a 7.4x LTM revenue multiple and today trades at a ~2.3x LTM revenue multiple. Despite nearly doubling revenues between 2021 and 2024, the stock price is down 20% from the IPO.
Those that chose to IPO in the US have also struggled. This is, in part, a reflection of the same reality; they went public at a time of irrational valuations and have suffered as a result. It is also a reflection of the limited interest in and understanding of the markets where these companies operate amongst the US investor base. With such a broad investable universe, a lot of which is much closer to home and easier to understand, the incentive to research and take risks on companies from MENA is limited, and stock prices will inherently perform worse. Connected to this, both Swvl and Anghami went public via SPAC's. While at the time these appeared to be attractive liquidity opportunities with lower disclosure requirements, with the benefit of hindsight they were selling into markets that didn’t understand the fundamentals of their business at valuations that those fundamentals did not support.
Fawry is a cautionary tale about the risks of currency volatility. Despite being a dominant market leader in payments and digital finance in Egypt and expanding into new markets, Fawry’s USD stock performance has been halved by the depreciation of the Egyptian Pound. Over the long term, and if the EGP stabilises, then Fawry is in a strong position to recover these losses and continue growing, but in the short term, its pain is probably not over yet.
Why, then, is MENA becoming an attractive place for technology companies to list?
A key part of this is down to government support. Regional governments see capital markets as an important part of their path to diversification away from oil-dependent economies and have been implementing policies to foster this. Examples include the launch of the IPO Accelerator Program by the Dubai Financial Market (DFM) and Dubai Chamber of Commerce in 2023 and the creation of specialised market platforms like Saudi Arabia's Nomu parallel market and the Qatar Stock Exchange Venture Market (QEVM). This government support extends to government-backed funds that invest heavily in domestic IPOs. Combined, this support creates more favourable conditions for regional companies to list, whether technology or otherwise.
Connected to this is increasing retail and international investor participation. The number of individual investment portfolios on Tadawul grew 12% year-on-year in the third quarter of 2024, reaching 12.8m portfolios among 6.5m investors. In the UAE, retail investors accounted for 35% of the total trading value during 9M 2024 on the DFM. The exchange attracted 91k new investors in 9M 2024, 85% of whom were foreign. Foreign investors contributed 49% of the total trading value during this period, with net purchases by foreign investors amounting to AED 1.5bn ($400m). There is a similar dynamic on the Tadawul, where foreign investors today own around 11% of listed equities, and in Abu Dhabi, where foreign investors account for 43% of registered investors on the Abu Dhabi Exchange. These international investors are attracted by the government support and the strong post-IPO performance of recent listings. Greater participation by retail and international investors can be a catalyst for technology companies whose high growth and exposure to the local demographic dynamics make them attractive to both groups of investors.
At a fundamental level, the stock exchanges have a depth of liquidity that you do not usually find in more emerging markets. The Tadawul Saudi exchange had an average daily traded volume in December 2024 of SAR 5.20bn ($1.4b) with a $2.7tn market cap. The DFM exchange in the UAE recorded a total trading value of AED 72.7bn ($19.79b) in the first nine months of 2024. For comparison, the Tashkent Stock Exchange (TSE) had a weekly trading value of $108k in January 2025. The Pakistan Stock Exchange performs marginally better, with a daily trading value of $108k. This depth of liquidity is the lifeblood for any company, technology or not, and is a key driving force for companies to choose to list.
Such IPOs are only getting started. There are expectations that Dubizzle , the UAE’s largest online classifieds platform with operations in Pakistan as well, will IPO in 2025. While a date has not been confirmed, the group has mandated Emirates NBD, Goldman Sachs, HSBC and Morgan Stanley to facilitate its DFM-based deal, worth between $500 million and $1 billion. Two of the largest startups in Saudi Arabia are also planning their IPOs. Fintech services provider Tabby closed a $200m Series D round in October 2023 and plans to go public in late 2025 or 2026. Saudi Arabia-based digital freight network TruKKer raised $100m in pre-IPO funding in 2022, led by Bahraini investment firm Investcorp as part of the recently launched Investcorp Saudi Pre-IPO Growth Fund LP.
Why is this important for startups and investors in adjacent markets like Emerging Asia?
First of all, the publicly listed companies in the GCC will be looking for growth, which Emerging Asia’s large markets can sustain. Presight AI CEO, Thomas Pramotedham, explicitly stated the company's goal is to "take the brand out of the UAE and into the Middle East, Central Africa, Central Asia region and even South Asia," using their recent IPO as a springboard for global growth. Part of TruKKer’s pre-IPO round was dedicated to expanding in new markets, including Central Asia where we know they have operations in Kazakhstan. This opens opportunities for startups and investors to exit through acquisition by GCC companies with the balance sheet to acquire companies that provide access to these markets.
Secondly, as the depth of liquidity and the number of investors on the GCC exchanges increase, they will be looking for new investment opportunities. A limited number of local companies in the GCC, technology and otherwise, can achieve the scale necessary to IPO. Therefore, much like we see many early-stage VC investors in the GCC struggling to find high-quality deals, so we believe that this will translate into public markets as they grow. This opens a path for startups from Emerging Asia to IPO directly on these exchanges, leveraging government support that wants to promote each country as a regional hub.
What does it mean for Sturgeon?
The implications of this vary by fund and by company. SEO I is fully deployed and 100% focused on supporting the companies towards the most relevant exit path, including a potential IPO. SEO II is still deploying, and the companies are at an earlier stage, so these plans are further away on the horizon for now but no less important to think about. Some companies are unlikely to reach the scale necessary for an IPO, and for these, we will focus on strategic acquisitions by regional and international players. For those that have the potential, however, we are already in conversation with several GCC government entities about how we can get them ready for an IPO, including raising strategic investment and redomiciling to the region.