Earlier this week, Amazon announced that it acquired Souq, the largest horizontal e-commerce company in the Middle East, for $650M.
The transaction has been covered at length elsewhere so I won’t repeat this coverage here. Instead, I’ll share my two key takeaways from the transaction.
First, it’s proof that big tech exits do happen in the region. After Turkey’s leading food ordering marketplace Yemeksepeti’s $589M purchase by Delivery Hero in 2015, this takes us a step closer to producing the Middle East’s first billion dollar tech company exit.
Amazon, which has a track record of growing on its own in international markets, chose instead to acquire Souq. This decision reflects the quality, size, and strength of the company that Souq’s team built. Souq is a big entrepreneurial success story.
Second, making money as a regional tech investor is possible, but not easy. Souq is reported to have raised $425M of funding prior to its exit and its last $275M round is said to have been completed at a $1B post-money valuation.
The second fact suggests that investors in the company’s last round only got their money back or made a return because of the liquidation preference on their investment. In its absence, they would have lost money.
This also shows that headline private market valuations should often be taken with a grain of salt.
Regarding the first fact, since the Souq team also walked off with money from the exit, the return to the average investor in the company was less than $650M / $425M = 1.5X. That’s not a great return for a risky and illiquid asset class like venture capital.
In other words, depending on what the liquidation stack looks like, some investors made money on the exit but many others didn’t.
Just because you have shares in a company that achieves a large exit doesn’t mean you make money.