Funding to Mena start-ups rises 2% first quarter from same period in 2019

Egypt recorded the most number of deals in the first quarter of 2020, accounting for 37% of all deals in the Mena region

Certain sectors such as grocery delivery, health care, e-commerce and education technology recorded an increase in customers and investor appetite. Victor Besa.

Start-ups in the Middle East and North Africa secured $277 million (Dh1 billion) in funding during the first quarter of the year, up 2 per cent year on year, according to data platform Magnitt.

The increase in funding in the quarter is “largely attributed to a strong start to 2020”, before Covid-19 became a pandemic and brought the global economy to a standstill, Magnitt’s Q1 2020 Mena Venture Investment Report said.

Large funding rounds in January and February included $60m for Dubai cloud kitchen company Kitopi, $40m for Egyptian health-tech start-up Vezeeta and $35m for Dubai's SellAnyCar.com. The UAE still leads in the highest funding amount, accounting for 51 per cent of the total investments.

While funding increased marginally, the number of deals in the first three months of this year fell 22 per cent to 108. Egypt accounted for 37 per cent of all deals in the Mena region while the UAE accounted for 25 per cent and Saudi Arabia 12 per cent.

The number of start-up deals in the Mena region dropped 67 per cent in March compared to the same month last year.

While we anticipate that overall deal numbers may be flat, if not negatively [affected] to year-end, total funding will very much be [affected] by investors' risk appetite.

"Many businesses and investors will be hit by Covid-19, which may have an effect on their fundraising capabilities in the coming months," Philip Bahoshy, Magnitt's founder and chief executive, told The National.

"The true ramifications will most likely not be seen until a few months down the road as the fundraising exercise, on average, takes six months for start-ups in the Mena region."

In 2019, a record number of start-ups received venture funding, with the number of deals increasing by 31 per cent to 564.

The total value of deals dropped about 15 per cent to $704m last year but that was partly because of a $200m funding deal for Careem in late 2018.

The platform had estimated that the region's venture capital scene could witness $1bn worth of investments this year but the worldwide coronavirus outbreak is expected to put a damper on both overall deal numbers and funding, Mr Bahoshy said.

There were more than 1.85 million confirmed cases of Covid-19 globally as of Monday, according to Johns Hopkins University, with over 114,000 deaths.

More than 400,000 people have recovered.

Strict measures to contain the virus, such as stay-at-home directives and business closures, have led to the greatest challenge to the global economy since the 2008 financial crisis.

“Reaching $1bn was based on a prediction where the venture capital landscape was in a growing and stable state. The current crisis has led to a change in investment behaviour,” Mr Bahoshy said.

"While we anticipate that overall deal numbers may be flat, if not negatively [affected] to year-end, total funding will very much be [affected] by investors' risk appetite," he said.

As start-ups look for alternative ways to fundraise, Magnitt's online Investor Applications Tool recorded a 117 per cent increase in applications from January to March.

The tool, which was introduced almost two years ago, allows users to connect with 74 investors and accelerators across the region.

“We’ve seen a real spike since Covid-19 closed borders and made meeting in person impossible,” Mr Bahoshy said.

“Our data shows that 25 per cent of start-ups who apply to investors on Magnitt get accepted to a first meeting, and we know of a few start-ups so far who have actually raised rounds by initially applying to their investors on Magnitt.”

Certain sectors such as grocery delivery, health care, e-commerce and educational technology recorded an increase in customers and investor appetite. For example, Saudi online grocer Nana raised $18m in a funding round led by Saudi Technology Ventures.

"We are particularly proud to support Nana in light of the unfortunate Covid-19 outbreak," STV said last month, as Nana tripled its capacity in just 10 days amid the kingdom's restrictions to stop the spread of the virus.

Investors and accelerators in the region said in March that they are still actively investing despite the current crisis, according to Magnitt research.