How can corporate venturing elevate MENA’s entrepreneurial landscape?
Published on Wamda
Written by Kevin Holliday (Managing Director) and Mohand Nour (Strategy & Partnerships Director) of C3, a UAE-based startup accelerator.
The Middle East is home to some of the world’s most prominent sovereign wealth funds. Fuelled by a concerted push for economic diversification and widespread tech adoption, a vibrant venture ecosystem has emerged, welcoming startups and small and medium enterprises (SMEs) into a thriving landscape. These tailwinds are creating a conducive ecosystem for small organisations and corporations to capitalise on their strategic positioning and harness innovation with an entrepreneurial lens.
With corporations looking for ways to set a framework for their strategic investments, corporate venturing has emerged as a compelling alternative to traditional funding and partnership models in the region. This paradigm shift is not only reshaping the investment landscape but is also propelling innovation within large enterprises. Encompassing diverse collaboration avenues between large corporations and startups, corporate venturing is a gateway for innovation and gaining access to cutting-edge technologies. Examples range from corporate incubators and accelerators to internal and external hackathons and corporate venture capital (CVC) deployment, where corporate funds are directly invested in external startups.
Going down the CVC route
The success of CVCs in fostering enduring collaboration between startups and corporations is notable, especially in established markets like Europe and the United States. According to Pitchbook, European CVCs participated in over a fifth of all regional VC rounds in 2022. Additionally, a significant 71% of Fortune 500 companies in the US boast active CVC units.
Companies with CVC units in both regions have a significant strategic and competitive advantage. A successful case study is Volvo Group Venture Capital, the CVC arm of the Swedish automotive giant, which invested in Einride in 2019, an early-stage Swedish autonomous electric truck startup. Einride has since achieved unicorn status, securing customer contracts valued at over $3.25 billion. The benefits for Volvo extend beyond mere financial gains; the collaboration has paved the way for the advancement of autonomous, connected transport solutions, aligning with the company’s commitment to sustainability.
Although some corporations in the Middle East have experienced notable success, CVCs still constitute less than 10% of active investors in the region.
Actively engaging with innovative smaller companies provides corporations access to the latest technological trends as well as potential commercial opportunities and ensures they remain competitive in a rapidly evolving landscape. The widespread adoption of technologies like AI underscores the necessity for organisations to innovate their operations, enhancing their brand image and reputation. Furthermore, regional corporations can leverage corporate venturing to contribute to national agenda targets, particularly in areas such as innovation and sustainability. A recent example is e& Capital, the corporate venture arm of e&, which invested $5 million in Maxbyte, a UAE robotics startup focusing on Industry 4.0 solutions. This investment supports sustainable entrepreneurship and enhances e&’s operations through innovative technology, contributing to the digitisation of the UAE’s manufacturing industry is in alignment with the Ministry of Industry and Advanced Technologies (MOIAT) vision.
Another positive outlier is Crescent Enterprises (CE), part of Crescent Group, a leading multinational family business headquartered in the UAE, which has significantly contributed to the economic development of the Middle East and North Africa (Mena). Operating within a sustainability framework prioritising environmental stewardship and social impact, CE directs investments towards tech-enabled solutions addressing critical challenges and generating meaningful impact, deploying over $300 million across the US, MENA, India, and Southeast Asia. The success of CE lies in the harmonisation of commercial priorities with social and environmental objectives. For instance, CE-Ventures spearheaded the seed round of Kitopi, a sustainability-driven cloud kitchen startup boasting over 1,000 employees and recently surpassing $100 million in revenue.
In recent years, environmental, social, and governance (ESG) considerations have ascended to the forefront of the corporate agenda, as exemplified by 92 per cent of the S&P 500's sustainability reports. Considering this trend, demonstrated by the success of initiatives like CE-Ventures, collaborations that address intricate business challenges while simultaneously contributing to sustainable and impactful KPIs present corporations with an enticing avenue to foster engagement with startups.
Successful CVC models thrive when its focus aligns with core business priorities, whether that involves innovating or disrupting existing operations, and are most effective when driven by investment and value creation professionals collaborating closely with internal senior management. This synergy is further heightened when viewed as a long-term strategy rather than a one-off fund, fostering sustained growth and strategic alignment.
Leveraging open innovation through corporate accelerators
Contrary to popular belief, when executed effectively, corporate venturing and collaborative efforts with startups can offer large organisations invaluable access to cutting-edge innovation and untapped markets. Simultaneously, this dynamic collaboration can instigate positive transformations in corporate culture. Platforms like C3 specialise in facilitating corporate and startup partnerships and designing initiatives that address tangible impact and business challenges.
A notable illustration is the EGA Ramp-Up Programme, powered by C3, a corporate accelerator initiated by Emirates Global Aluminium in collaboration with The Entrepreneurial Nation. In line with the UAE’s National Agenda for Entrepreneurship, this programme provides intensive training for startup founders on impact and fundamental business principles, resulting in some successfully piloting their solutions with EGA. Similar initiatives showcase how strategic collaborations fostered by innovative programmes can yield tangible and mutually beneficial outcomes.
The collaboration between corporations and startups, facilitated by ecosystem enablers, can forge a mutually beneficial dynamic: corporations leverage startups’ agile methodology and innovative prowess, while startups gain access to industry-level infrastructure and in-house research and development tools and services.
Fostering innovation from within: The power of intrapreneurship in corporations
Many global leaders opt to cultivate innovative concepts internally, nurturing creativity and problem-solving capabilities within their teams. This process, commonly known as ‘intrapreneurship,' involves employees conceiving new enterprises or commercially viable ideas within the corporate framework. While not widely known, numerous products we use daily result from intrapreneurship efforts, such as the iconic yellow Post-it notes, the Macbook, and Amazon Prime.
PwC reports that, at a regional level, 43% of large organisations in the Middle East have established channels to support and scale such innovative ideas internally. Venturing internally instils a sense of ownership and autonomy among employees and amplifies job satisfaction, contributing to an overarching culture of empowerment and continuous growth.
Taking the first step towards corporate venturing
The challenging financial environment, influenced by factors such as recessionary market conditions with elevated interest rates, the impact of the COVID-19 pandemic, and ongoing geopolitical uncertainties, has diverted corporate attention from innovation. Paradoxically, these challenges have heightened the need for innovation to meet evolving demands. Corporations might face a dilemma in choosing between external innovation, like CVC for market access, and internal innovation, such as intrapreneurship for cultural transformation. Striking a balance requires corporations to define their objectives and carefully consider the type of venturing that best addresses their challenges.
The significance of innovation and agile methodologies is steadily rising in a rapidly evolving market characterised by dynamic shifts in consumer behaviour, the continuous introduction of new regulatory requirements across various sectors, and an ongoing imperative to stay competitive. Against this backdrop, corporate venturing emerges as a potent catalyst, laying the groundwork for business sustainability and growth.
