The amount raised by start-ups in the Middle East and Africa has doubled so far this year, compared with the same period in 2020, as investors tap into the growth of the region's fast growing digital economy.
The region's start-ups raised $2.1 billion since January 2021, which is also twice the annual funding raised over the past three years, according to management consultancy RedSeer.
“The digital economy has been driving this upsurge, with players across sectors and stages of evolution closing strong funding rounds,” RedSeer said in a report.
The consultancy also expects the size of the region's consumer digital economy to more than double by 2023, led by the online retail and travel sectors.
The growth of the digital economy has picked up pace as a result of the Covid-19 pandemic, with more people turning to the internet and shunning brick-and-mortar shops.
Online sales in the Middle East and North Africa are set to triple to $28.5bn next year, from $8.3bn in 2017, according to research by Bain & Company and Google.
FinTech and food services recorded the strongest investor backing over this period.
“FinTech had led the funding this year with a 20 per cent to 30 per cent contribution, both in terms of the amount of funding and the number of funding rounds,” said Sandeep Ganediwalla, RedSeer’s managing partner in the Middle East and North Africa.
In addition to FoodTech, software-as-a-service, or SaaS, companies also registered an increase in the number of early stage deals.
"As the overall digital maturity across sectors increases, software or Saas players will become an important enabler to build capabilities across the value chain,” Mr Ganediwalla said.
Other emerging sectors that could offer a strong medium- to long-term growth potential to investors include education technology, health technology and electronic retail.
Series B, or the second round of funding, accounted for the lion's share, or 40 per cent, of the total fund-raising by companies in value terms in the period from January to August.
Meanwhile, early stage funding and series A deals continued to dominate in terms of the number of deals closed over the past three to four years. Large investments were also made in series B-plus rounds and debt funding in 2021.
There was strong growth in average deal value across stages, indicating a more sizeable funding inflow that will enable robust growth over the medium term, according to the India-based research house.
“The average ticket sizes have increased significantly across all stages of investments. This is reflective of the increased confidence investors have in coming players and would auger well to provide a stronger growth runway for these platforms,” the report said.
Meanwhile, the average time between funding rounds is declining, indicating that players are scaling up fast, with strong and timely investor backing.
The average time between subsequent rounds has decreased consistently, falling below the one-year mark in 2021, Redseer said.
Investors are also reinvesting in companies that faced headwinds due to the Covid-19 pandemic, to ensure they come out stronger.