The Rising Tide
As I’m sure most of you have heard by now, a few weeks ago, Amazon acquired Souq.com for over USD 650 million. That makes the acquisition the largest technology M&A deal in the region and, by all measures, a landmark transaction that will be talked about for many years to come. But the region has witnessed much bigger deals in other sectors, so what makes this one special and why does it matter?
At a recent event in Alexandria inaugurating the launch of the Alex Angels, I was asked this very question and, honestly, it caught me a little off guard; I had to step back and think about it. For those who are quite involved in the startup economy, or “ecosystem”, it is assumed that the benefits are self-explanatory, but the question made me realize that for newcomers or outsiders, it may not be.
As with many things in life, in order to fully appreciate the present, you must first study the past. Prior to the Souq.com deal, the previous landmark technology transaction was the acquisition of Maktoob by Yahoo! In 1999, in the midst of the dot com boom in the US and the arrival of many of the technology giants we have today, including Amazon, Jordanian founders Hussam Khoury and Samih Toukan founded Maktoob, which sought to expand e-mail usage across the Arab world at a time when e-mail capabilities were expanding globally.
Maktoob grew rapidly and turned a profit in 2004, hitting over 16 million unique monthly visitors in 2009. This level of growth and success in the technology sector was unprecedented in the region and caught the eye of Yahoo!, who ended up acquiring Maktoob in 2009 for reportedly USD 85 million, marking Yahoo!’s grand entrance into the Arab world.
Instead of taking the money and going for early retirement as many of us would be temped to do, Hussam and Samih doubled down and founded Jabbar Internet Group, a region-wide umbrella company geared towards investing and establishing more technology companies.
Meanwhile, Syrian tech entrepreneur Ronaldo “Ronny” Mouchawar founded Souq.com in 2005, which was initially an auction site linked to Maktoob. The connection between Souq.com and Maktoob didn’t stop there and, after the successful sale of Maktoob in 2009, Samih and Hussam invested a significant portion of the proceeds in Souq.com through Jabbar Internet Group and joined Ronny as co-founders. Soon after, the founders decided to pivot the business model of Souq.com from an auction site to an e-commerce online shopping site and digital marketplace.
Souq.com proceeded to grow from strength to strength and break one regional fund raising record after another, which funded aggressive expansion across new markets in the MENA region. This caught the attention of all sorts of acquirers, including Amazon of course, who were able to successfully acquire Souq.com in the end, despite some fierce competition (and an allegedly higher offer) from Alabbar’s Emaar Malls.
There is one other leading protagonist that ties both Maktoob and Souq.com together – Fadi Ghandour. Most people know Fadi as the ultra successful Jordanian entrepreneur who founded Aramex, which he grew from scratch to a regional logistics heavy weight before exiting in 2016. Some might also know Fadi as the founder of Wamda Capital, one of the most active venture capitalist firms that invests in technology startups in the region.
Fewer people still might know Fadi as one of the very first investors in both Maktoob and Souq.com; in fact, at the recent Step Conference 2017 in Dubai, he stressed that he is immensely proud to be a “founding” investor in both startups. Fadi’s ability to consistently pick winners and to provide them with investment and support is legendary and he has been elevated to godfather status for technology in the region.
That is all well and good, but what does it all mean? Is it just another hyped deal or is this really a watershed moment?
The truth probably lies somewhere in between. The deal has been hyped, but that should not detract from its merits. For starters, Amazon, which is recognized as one of the largest and most innovate companies on the planet, is not doing the deal because of the kindness of their hearts, but because they have recognized the potential of e-commerce in the region and for them the Souq deal is just the beginning. If you believe in the Amazon brand, then this could only be a good thing for consumers. Amazon will continue to aggressively drive growth, which means job opportunities and further acquisitions of e-commerce businesses they can integrate into their well-oiled machine.
As for the founders of Souq.com, apart from continuing with Souq in its new form and facilitating know how and innovation transfer from Amazon, there can be very little doubt that they will double down on the technology sector yet again, either as founders themselves or as active angel investors. The Samihs, Hussams and Ronnys of this world are just not the type that can switch off and enjoy the golf course for the rest of their lives. These inspiring entrepreneurs have already taken their rightful place in the godfather club of technology. Instead of our obsession with Steve Jobs and Bill Gates, it is refreshing to witness the birth of our own role models.
The investors in Souq will have come away from the Amazon deal turning a tidy profit, but more importantly, they have validated their investment thesis and will motivate yet more investors to join their ranks. This will result in more capital geared towards technology and innovation and a more competitive landscape for startup investment, which, providing it doesn’t go too much the other way, means it’s an even better time to be a startup and should inspire yet more entrepreneurs to build bigger and better startups.
This is a “virtuous cycle”, whereby success breeds even more success. The hope is that we will not have to wait too long before the next Souq type deal and the obvious candidate, for now, is that Careem will make the headlines sooner rather than later.
For the Egyptian startup ecosystem, there is a lot to like and learn from for this deal. To my mind, the fact that 3 out of the 4 leading characters of the Souq story are Jordanian is not surprising at all. The Jordanian startup scene has become a model for the region – if you have strong education, good technology infrastructure, a government that is committed to supporting the sector as well as investors who provide smart capital, then this provides fertile land for startups to grow. It is not a coincidence, but a result of a long-term vision and hard work.
Another interesting quirk of the Jordanian startup scene is that, because their home market is relatively small, they know that they need to quickly and effectively expand into new markets before they can be labeled as a “success”. I truly believe that while the size of the Egyptian home market is in many ways a blessing, it is also a little bit of a curse as businesses are not incentivized early on to target other regional markets and to benefit from all of the efficiencies and proactive strategic thinking that comes with competing regionally. Fortunately, it seems that Egyptian startups are turning a corner in that regard – for more on this, read this excellent article from Wamda.
As my good friend, entrepreneur and angel investor Karim Hussein points out in his recent article, the Egyptian ecosystem is at an inflexion point. The Souq deal is a rising a tide that lifts all boats. Whether you are thinking of starting a business yourself or investing in startups, this is the time to do it.