A new report titled “VC Valuation in MENA: A Reality Check” offers an in-depth look into the methodologies venture capitalists use to value portfolio companies in the Middle East and North Africa (MENA) region. Co-authored by Claudia Zeisberger, a Senior Affiliate Professor at INSEAD, and David Munro, Head of Research at 5 Quadrants, the report was commissioned by Jada Fund of Funds.
The report combines data, surveys, and interviews with fund managers and investors across the region, providing insights into MENA's rapidly developing private capital markets. Zeisberger and Munro clarify that while private equity optimizes a company, venture capital (VC) creates one, leading to different risks, investment horizons, expected returns, and valuation methods.
The MENA start-up environment is experiencing substantial growth, bolstered by a youthful demographic, available capital, and governmental support, particularly in Saudi Arabia through initiatives like Vision 2030. Accurate and reliable valuations are seen as essential for strengthening the private capital ecosystem in this promising area.
The report is considered timely due to the global technology sell-off from 2022 to 2023, which highlighted the need for accurate, transparent, and consistent valuation methods. Zeisberger and Munro assert that sound valuation is essential for maintaining trust and transparency, particularly in the private capital markets.
The document explores the complexity of valuing start-ups, addressing issues such as the proliferation of SAFE notes, poorly managed capitalization tables, and the use of common valuation tools like venture valuation and comparative company analysis. It stresses the importance of choosing valuation methods that correspond with the start-up's stage and acknowledges that a combination of tools is often employed by experts, highlighting valuation as more of a craft than an art or science.
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