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The Venture Capital Scene in MENA Continues To Flourish in 2023

The Venture Capital Scene in MENA Continues To Flourish in 2023

In 2023, the Middle East continued to see a significant increase in venture capital activity, turning the region into a bustling enclave of innovative startups, accelerators and incubators.

According to official data, startups in the Middle East and North Africa region (MENA) raised $3.94 billion in 2023 across 795 deals, a rise of 24% in investment value when compared to 2021, and a 22% increase in the number of deals.

Diversity, but Fintech Remains the Most Invested Sector

The sectors that have seen the most investment activities include fintech, healthtech, as well as logistics, e-commerce, and transportation.

Fintech remains the topmost invested sector in MENA, with startups attracting $1.1 billion in investment in 2023, nearly double 2021's figure and accounting for more than a third of the $3.94 billion raised in 2023. Amongst the key growth sub-sectors within fintech were neobanks, crowdfunding, open banking, and corporate & personal lending.

Coming in as a close second to fintech is Cleantech which registered a 101% rise in investment value from 2021, thanks to Yellow Door Energy's $400 million raise in October 2023. The Logistics segment came in third, having brought in $362 million in funding, fuelled by the growth in e-commerce and the rise in the need for efficient warehousing and last-mile delivery solutions.

Source: Wamda Capital

Smaller Deals, More Funding Rounds

One notable observation in the deals generated in 2023 was that individual deal sizes were smaller but came with a higher number of funding rounds; this was especially evident in startups at later stages of funding. Such deal types accounted for more than half of all deal flows last year. Debt financing has also become more popular - last year saw almost $500 million raised in debt, an increase of 89% when compared to 2021.

Source: Wamda Capital

Number of Exits Saw Significant Increase

While investment inflows have been on the uptick, the number of exits have also been increasing, which shows that the venture capital scene in the region is maturing and that investors are able to realise their gains.

According to a report by startup data platform MAGNiTT, there was a 71% increase in exits last year as compared with 2021, with more than 50% of the exits coming from startups founded five years ago or earlier. The UAE, Saudi Arabia and Egypt saw the number of mergers and acquisition (M&A) deals double from a year ago.

Source: MAGNiTT

The UAE Continues To Rake In The Most Investments

As the venture capital scene in MENA matures and thrives, the UAE, which emerged as a major hub for startup activity after the government has been actively promoting entrepreneurship and tech innovation as part of its diversification strategy to reduce reliance on oil, continues to dominate the deal flows, fetching the most investments last year to the tune of $1.85 billion across 250 deals. Saudi Arabia came in second with $907 million raised across 153 deals, while Egypt was third, having secured $736 million across 180 deals.

Source: Wamda Capital

One of the key reasons why the UAE is taking in the most investments has been the rise of government-backed funds like the Abu Dhabi Venture Capital (ADVC), Dubai Future Foundation (DFF), and the Sharjah Entrepreneurship Center (Sheraa). These organizations have been instrumental in providing early-stage funding and support to local startups and in bringing in the larger ticket deals.

In addition, these establishments have also helped to attract international venture capital firms to the region. Some examples of notable independent venture capital firms that have a strong presence in the UAE include Wamda Capital, Beco Capital, and Middle East Venture Partners (MEVP). These firms typically invest in early-stage startups, providing seed and Series A funding, while also providing mentorship and advisory services to portfolio companies, thereby strengthening the UAE’s position as the mecca of venture capital investments within MENA, with the ability to attract the top deals.

Source: Wamda Capital



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