When thinking about the MENA startup ecosystem, most conversations revolve around major hubs like the UAE, Saudi Arabia, and Egypt. These countries have rightfully earned their status as innovation centers, attracting large-scale investment and fostering high-growth startups. However, focusing solely on these markets means overlooking a goldmine of untapped opportunities in smaller, less-saturated ecosystems across the region. A key focus area for us is making sure we are actively looking at startups in smaller, generally overlooked markets.
I have a strongly held belief that there are great founders in every country, and that our role is to find these 2-3 amazing founders that emerge each year from smaller markets and invest in them. Historically, this has gone well, with my best performing investments coming from Bahrain (Calo) and Kuwait (Floward).
Why does this work?
Great founders in small markets can show execution ability in that market. Once that’s proven, generally within the first year, they can then much more easily expand in a big market. Small markets are perfect for testing, getting to product market fit and experimentation, and then using all that knowledge to much more easily and quickly scale in a big market. Acquiring 10,000 users in a market of 1,000,000 people, once you move into a market that is 30x or 100x the size means you have a lot more room to play in.
As an investor, finding these deals early means investing at lower valuations, with a higher upside. It makes sense.
Founders in these markets also tend to have other advantages. Not having a lot of funding, they grow in their journey with a lot more emphasis on capital efficiency and profitability – they’ve learnt from the earliest days to figure out ways to survive, thrive and grow with little resources.
The other benefit is hiring in smaller markets generally is cheaper than in bigger competitive markets for the same caliber of resources.
But there are downsides.
Sometimes, founders in these markets get stuck. They stay working in a small market for too long. I’ve had to encourage many to leave their comfort zone earlier than they would have liked. Generally, within the first year or 2 they need to be operating in other markets, or it will forever be a small startup.
The second issue you see in small markets is that some founders are trying to replicate startups that are already successful in the big markets, with a long track record and a lot more funding than they have, to just serve the small market. That doesn’t work. Those deals are generally not investible, and show a lack of broader understanding of the regional market and their competitors.
Does this work for expansion plans?
Yes. Actually I have seen many startups scale by targeting smaller markets and dominating there before scaling into a big market. I saw this with Eyewa, which initially expanded into Saudi by going into the smaller cities before Riyadh. In these smaller markets, there is usually a lot of demand as they aren’t served well by big incumbents. Customer acquisition costs tend to be lower than in bigger markets, and demand ends up being higher. Justlife followed a similar path, expanding from the UAE into Bahrain and Qatar first. It works, and works well. Even in bigger markets like Egypt, serving customers outside of Cairo can work better than going into a crowded field.
Small markets have value, have demand and make sense.
Other benefits in some smaller markets are the support that the government may be able to provide. The best example of this is what Abu Dhabi has done with Hub71. In Qatar, there is a huge push towards attracting and investing in startups. We see the same support and demand in the emerging ecosystem of Oman. And markets like Bahrain provide significant incentives to companies looking to set up and hire locally.
The MENA startup ecosystem is evolving rapidly, and the best opportunities often lie where few are looking. By expanding focus beyond major hubs and into smaller, high-potential markets, both founders and investors can unlock new avenues for success. In an increasingly interconnected region, today’s underestimated market could be tomorrow’s breakout success story.
It’s time to look beyond the obvious and tap into the future of MENA’s startup growth one small market at a time.
