The hidden cost of rushing funding for MENA startups

Wamda

07-04-2025

An article by the CEO of Atiom, Matthew Spriegel.
Startups often chase large early funding rounds, believing that more capital equals immediate success. However, targeting steady, sustainable investment figures can sometimes prove to be a smarter approach because it allows businesses to grow responsibly without the pressure of unrealistic expectations. Early success must be managed carefully to ensure long-term stability while recognising the right signs for market expansion crucial for sustainable growth. Equally important is handling failures with a level-headed approach, as setbacks are inevitable in any entrepreneurial journey.
The Great Software Recession of 2022 is a reminder of the dangers of prioritising growth over everything. Many startups that pursued quick expansion found themselves struggling, forced to either make drastic budget cuts or seek additional funding just to stay afloat. While government initiatives continue to fuel funding for tech startups, 80% of startups in the UAE fail within their first two years – a statistic that overstates the need for thoughtful planning. The UAE presents exciting opportunities for tech entrepreneurs, but success depends on how well founders balance ambition with careful investment and long-term sustainability.
Implementing a growth plan that works for you
Crafting a growth strategy that fits your business is a time-consuming process, and it cannot be rushed. There is no one-size-fits-all approach or fixed timeline for scaling a company. This holds true in the UAE's ever-evolving tech ecosystem; every business must figure out a growth trajectory that works for them. Two companies that differ in growth strategies are Uber and Klaviyo.
Uber, founded in 2009, took an ambitious approach to searching for funding. The business was able to quickly secure seed funding of $1.3 million within its first year and then went on to raise over $20 billion in debt and equity before its IPO in 2019, which was known as the largest ever first-day dollar loss in the U.S. Uber did not become profitable again until 2023.
In comparison, Klaviyo, founded in 2012, established a more intentional strategy, self-funding its operations for the first three years before they were able to secure $1.5 million in seed funding in 2015. Due to their deliberate expansion strategy with a customer-centred approach, the company reached profitability and entered the public market in 2023.
Recognising when early success needs more work
Telling the difference between short-term traction and actual investment readiness can sometimes be difficult, especially directly after early success. Many believe that just because there is an initial customer interest in the business, it signals a green light for fundraising, especially within the UAE's competitive tech sector. However, gaining a couple of customers and neglecting churn for example, can lead to a lot of pain without proper traction. Real product-to-market fit is critical.
It is also essential for founders to ensure they can spot early signs of organic growth. When satisfied customers are naturally spreading the word about your product and clearly expressing its usefulness, it's a good indication that the business has achieved a solid product-market fit and the messaging is effective.
Evaluating these growth patterns helps determine if a business is genuinely prepared to be invested in or if it needs more time to develop its foundation.
How investor partnerships can shape your startup's future
Choosing the right investor is one of the most important decisions a founder will make, and choosing the wrong partner, whether it's a potential investor or a future board member, can lead to problems down the road. Securing investment without careful consideration can lead to expensive mistakes, with many founders confusing early financing with success. This results in partnerships with the wrong VCs, leaving startups with financial backing they will regret. Securing investment early rather than bootstrapping doesn't prevent mistakes; it just makes them costlier and harder to fix.
It's important to note that raising capital goes both ways; investors must see your business fit to invest, and founders must select the right investors to bring value to their business. This crucial process determines the future of your business.
Failure is essential for growth
Failure is an unavoidable part of the journey, and learning to navigate it is an essential skill for founders to develop. This is especially true in the UAE's startup ecosystem, where fluctuating market conditions and competition from international players are common, causing many businesses to fail. Entrepreneurs must be okay with failing to discover valuable opportunities, not just for their business but also for their personal development. Mistakes are bound to happen along the way, and it's through these missteps that success is achieved.
Maximising local opportunities for sustainable growth
For tech entrepreneurs in the UAE, staying updated on local trends and opportunities can help their business grow significantly. It is estimated that the UAE's venture capital market is expected to reach a total of 2.46 billion AED by the end of 2025. This growth is partly driven by initiatives like the MGX fund, which has amassed around AED 367 billion through investing in AI while supporting companies like G42. Fintech, healthtech and agritech sectors are also receiving considerable investments, bolstered by government initiatives and regional venture capital. The UAE's free zones, such as Dubai Internet City and Abu Dhabi's Hub71, provide essential infrastructure, funding, and networking opportunities to support tech companies globally.
In conclusion, startups in the UAE should approach fundraising with careful consideration, choosing the right investors at the appropriate stage of their development. They must thoroughly assess market conditions to reduce risks, though it's important to acknowledge that some level of uncertainty and failure is inevitable. These challenges can provide invaluable lessons for growth and improvement. Ultimately, it's clear to see that quick and rushed decisions rarely lead to lasting success. A more effective strategy involves pursuing steady, consistent investment growth over time.