A regional VC-backed startup selling itself to a bigger rival for billions of dollars is usually viewed as a big win in itself: The founders get a windfall, while investors are rewarded for their show of faith.
But Careem CEO and cofounder Mudassir Sheikha hopes that selling his ride-hailing company to Uber for north of $3.1 billion will deliver much more than a big payday — he views the transaction as a “lift-off moment for the region,” one that could put the Middle East’s startups on international investors’ radar.
“Every ecosystem needs a landmark transaction, and we hope this will be ours,” Sheikha said in an open letter to Careem’s workforce today.
The story so far
Founded in 2012, Dubai-based Careem today claims more than 30 million users across 14 markets, with a strong focus on the Middle East. And the company had raised around $770 million before Uber came a-callin’.
Reports that Uber was looking at a merger with Careem surfaced last July, and Uber was rumored to be in advanced talks to buy Careem outright last month. Last weekend, reports that a deal was soon to be announced intensified, culminating in yesterday’s confirmation from Uber.
In effect, this deal was the better part of a year in the making — and it might not have happened at all were it not for Uber CEO Dara Khosrowshahi’s inclusive attitude and “empowering leadership style,” as Sheikha puts it. Careem was initially hesitant to join forces with Uber, but Khosrowshahi’s willingness to allow Careem to retain its own brand and identity and essentially continue normal operations was key to sealing the deal.
“At first, the Uber option did not make much sense to us,” Sheikha said. “Yet over many talks with Dara, we developed a stronger relationship with him and his team — it felt different. It was clear they had a deeper appreciation of the platform opportunity in markets like the Middle East and had realized that capturing the opportunity would most likely require a focused local operator.”
So rather than following the well-worn route of Silicon Valley companies wresting control of a company from its local founders, Khosrowshahi chose not to mess with the elements that had created Careem’s success — the local knowledge and experience of its team.
“He spoke from a position of respect and focused primarily on how we could join forces to go after the bigger opportunity to transform the region,” Sheikha added.
It’s clear that Careem values the impact it is having in the MENA region (Middle East and North Africa), something Sheikha refers to numerous times in his letter: “Our combined scale and resources means we can simplify and improve the lives of more people in the region.” But beyond the world of ride-hailing and transport logistics, Sheikha wants the Uber deal to kickstart something much bigger.
Excluding Israel, which has traditionally claimed a more mature startup ecosystem, the Middle East isn’t a region that garners headlines for big-buck exits or investments. There have been a few, of course, such as Amazon’s $580 million acquisition of Middle East rival Souq.com in 2017 and Yahoo shelling out a reported $164 million for Jordan’s Maktoob in 2009.
The MENA region is growing in terms of venture capital investment, however. A recent startup funding report found that 2018 heralded a record amount of investment into MENA companies, up 31 percent year-on-year to $893 million. California-based seed fund and accelerator 500 Startups is among the most active investors in the region, certainly in terms of early-stage rounds — just yesterday it closed its first MENA fund at $33 million.
Other notable international investors to enter MENA last year include New York-based General Atlantic, which led a $120 million investment in UAE-based Property Finder in late 2018, and China’s Gobi Partners, which led a $16 million investment in UAE’s Holidayme. Palo Alto’s Accel also invested in Holidayme back in 2016.
MENA startups already have some of the elements needed to flourish, and big exits in the region will only create more millionaires and billionaires, which can lead to more angel investors and further stoke the fire. For now, Sheikha seems content that Careem has helped put MENA in the spotlight, which could lead to more immediate investment opportunities for other companies in the region.
“A transaction of this magnitude puts the region’s emerging technology ecosystem squarely on the map of regional and foreign investors,” Sheikha said. “It will radically and irreversibly enhance the support and funding opportunities for local entrepreneurs.”