Fund IV Thesis

Jan 14, 2024

Sector Focus

We are founder-first, sector-agnostic, and focused on investing in early-stage technology companies, with our ideal entry point being Seed and Pre-Series A investments. The MENA region, specifically the GCC, is at the precipice of a large-scale transformation that will create substantial opportunities for tech investing, particularly for those who understand the nature of the market. Below, we have outlined our thesis for our Fund IV, detailing sectors of interest and the new breed of companies we expect to emerge.

Historically, some of the largest and fastest-growing sectors in our core markets, particularly the GCC, have been traditional sectors that lacked a digital-first approach. However, the region has experienced a significant shift, with these sectors now undergoing an exciting transformation and disruption through technology, bringing them into the sphere of venture investing. This shift is driven by large-scale government digitization efforts, ambitious growth plans, and AI technology enabling rapid innovation. While BECO remains sector-agnostic, we have high conviction in the following sectors:

Proptech: The real estate markets in the UAE and KSA are both nominally large and rapidly growing. With both markets totaling $250B today, the Dubai real estate market, for instance, grew from $30 billion to $100 billion in less than 15 years. This exponential growth presented opportunities for tech. Real estate marketplaces such as PropertyFinder (BECO Fund I), which began digitizing the industry in MENA in 2007, activated the first wave of online innovation. We expect offshoots to emerge in Proptech with innovative models such as fractional ownership, embedded finance, and other exciting opportunities taking off. In Saudi Arabia, we anticipate that the government-led digitization and large-scale real estate projects will experience even more rapid growth than what Dubai witnessed over the past decade, leapfrogging the digitization stage and fast-tracking to innovative offshoots.

Construction-tech: Currently valued at $100 billion, construction-tech stands as one of the sectors poised for substantial growth, especially with the anticipated infusion of over $2 trillion into the UAE and Saudi Arabia in the coming decade. Historically, the adoption of technology and software within this traditional, fragmented sector has been slow. However, our conversations with some of the region's leading operators and contractors reveal a notable shift in attitude towards embracing various technologies, indicating a strong appetite for digital transformation. Comprehensive solutions, including fleet management, IoT, supply chain optimization, and digital platforms for procuring construction materials, are now in high demand. In alignment with these trends, we have made promising investments in this space, such as Brkz, through BECO Fund IV.

Retail tech / Consumer: Retail presents a $300-billion opportunity in our core markets. BECO invested in this sector in Fund I through Fresha, an excellent example of how the GCC can serve as a launchpad for global businesses due to its unique unit economics. Fresha, a SaaS solution for the beauty industry, began as a UAE-based company and has since grown into a global business, now headquartered in London. In the coming years, we are excited about the growing opportunity in D2C and consumer brands, given the recent rise of local consumer brands in a region where consumers have historically leaned heavily towards Western trends and brands. In recent years, the paradigm has shifted, with local and homegrown trends gaining rapid momentum and achieving profitable growth. The GCC's unique consumer landscape — characterized by a high spending propensity and a combination of high online activity alongside an embedded mall culture — positions the region as fertile ground for omni-channel consumer strategies. These omni-channel brands, especially in dual markets such as KSA and UAE, are poised to generate venture-scale returns, which is an exciting recent development.

Fintech: The fintech sector has been the most well-funded sector in VC across the region, yet progress was often hampered by protracted regulatory procedures. This landscape is transforming as the UAE and KSA have started to warmly welcome fintech companies, significantly enhancing their speed to market. The lending space, in particular, shows immense potential for expansion. This optimism is underpinned by the region's support for technology and SMEs, coupled with the success of Buy-Now-Pay-Later models that have uncovered a substantial demand for consumer finance. These developments signal a bullish outlook for the growth of Lending Fintech.

Within this promising $300-billion market, targeted areas such as SME lending and vertical-specific financing, along with innovative investment solutions like Thndr from BECO Fund III, stand out as particularly promising opportunities. These segments are poised to benefit from the current wave of enthusiasm and support for fintech innovations, setting the stage for significant advancements in the sector.

AI From The Region - A Compelling Investment

AI, the 50-year overnight success that took off in 2023, is a sector BECO is excited about and will continue to monitor. While we don't believe the pure-play AI opportunity in MENA is ripe for the taking today, we do believe that there will be some very exciting opportunities during the life of Fund IV. Since 2017, the region, particularly the UAE, has made progress in a number of moving parts to position this part of the world as a trailblazer in AI and innovation. The UAE started its AI journey over 8 years ago, appointing the first minister of AI in 2017, and Abu Dhabi made a significant bet on the space, both in terms of academia and non-academia. Our hypothesis is straightforward: the distributed nature of work, world-class talent and research coming out of the UAE (specifically Abu Dhabi), and quality of life here will result in top talent spinning out of government entities to launch global cutting-edge companies from the region, and we will ensure that we are well-positioned to capitalize on this shift.

A New Breed of Companies

Our investment thesis at BECO is anchored around a new breed of companies, unlocked by rapidly evolving AI technology and ambitious growth plans of regional governments across the UAE and Saudi Arabia.

We expect a new wave of winning startups to emerge that are characterized by:

  1. Higher capital efficiency with optimized margin profiles:

Capital efficiency remains a critical consideration in our assessment of startups, now gaining even more significance. Today, capable management teams can harness the power of readily accessible AI technologies to enhance their margin profiles and achieve operating leverage sooner than previously possible. Traditionally, tech companies could only reap the benefits of operating leverage and efficiency after reaching a certain scale; this is what makes investing in tech so inviting. However, generative AI has revolutionized access to AI for both customer-facing and internal applications, enabling businesses of all sizes to achieve these efficiencies early in their lifecycle. This advancement leads to significantly improved margin profiles and, in many cases, reduces the need for capital.

  1. Data driven founders: 

To identify winning startups, we are also enhancing our focus on identifying founders that make data-driven decisions. Although data-driven decision-making has always been a core pillar of our founder selection criteria, it is becoming increasingly more integral to a startup's success. Despite us doing data deep dives on companies we were analyzing, we expanded our efforts in 2020 by building out our own Data and Product team. To enable founders with this crucial tool, our dedicated data team supports portfolio companies in enhancing their data-decisioning abilities as well as aiding in the tech / product diligence of companies.

  1. Large single country outcomes are now possible

Focusing on building substantial and profitable businesses within a single market, particularly in Saudi Arabia, is a viable strategy today—a scenario that seemed implausible just a few years ago. This shift has been propelled by the swift adoption of consumer technology, exceptionally high average revenue per user (ARPU), and rapid digital transformation within traditionally offline sectors. The feasibility of achieving significant outcomes in a single country is now a reality, as demonstrated by the success of companies like Jahez (Saudi), Bayanat (UAE), Presight (UAE), and Hunger Station (Saudi), among others.