Start-ups in the Middle East and North Africa secured record funding of more than $1 billion in 2020, although the capital was spread across fewer deals sealed mainly in the first half of the year, according to data platform Magnitt.
The amount raised was a 13 per cent annual increase and was the first time that fundraising for Mena start-ups broke through the $1bn barrier, Magnitt's 2021 Emerging Venture Markets report showed. The capital was invested into 496 companies, which was 13 per cent fewer than the previous year.
Start-ups raised most of the $1bn in funding during the first six months of the year when they secured $725m, a 29 per cent increase from the $563m secured in the first half of 2019.
The second half of 2020 was more muted, however, as the Covid-19 pandemic took its toll on the global economy. Start-ups raised $306m during the period, down 13 per cent from the second half of 2019. The capital was invested in 198 deals, which was a 35 per cent decline from the same period in 2019.
“2020 was a rollercoaster year that highlighted the importance of leveraging data to make opportunities visible across borders,” Philip Bahoshy, chief executive of Magnitt, said. “Covid-19 rapidly accelerated the adoption of technology across emerging markets, creating larger markets and more opportunities to scale."
The Covid-19 pandemic has plunged the global economy into a deep recession, unleashing havoc on sectors from air transport, tourism, supply chains, manufacturing to shipping. On the other hand, businesses operating in key sectors such as healthcare and technology have seen an uptick in demand.
The pandemic has prompted investors to re-allocate capital away from early stage ventures to bigger-ticket seed and Series A investments ranging from $100,000 to $3m, Magnitt said.
Investors also opted to back industries such as e-commerce and FinTech, which saw increased demand during the pandemic and retained the two top spots by number of deals.
Together, e-commerce and FinTech garnered almost a quarter of all deals in 2020, according to Magnitt. Investment in healthcare start-ups more than tripled to $72m during the pandemic.
Within the region, the UAE, Egypt and Saudi Arabia accounted for 68 per cent of total deals disclosed in 2020.
The UAE, the Arab world's second-biggest economy, received the largest share of funds raised and ranked first in terms of the number of deals, the report showed.
Start-ups in the UAE attracted more than half of the total venture capital into the region and just over a quarter of the total Mena deals. Its total share of funding rose 5 per cent to $579m but its share of total deals dropped 17 per cent.
Start-ups in Saudi Arabia, the Arab world's biggest economy, sealed 18 per cent of the region's deals and 15 per cent of the total funding. The oil producer registered the highest increase in the number of deals, up 35 per cent year-on-year, and funding flows to the kingdom's start-ups rose by 55 per cent.
Bahrain recorded the highest increase in funding, with capital flows to its start-ups tripling year-on-year to $20m.
Lebanon, which is facing the worst economic crisis in its history, saw the number of deals drop by 64 per cent to 16, falling out of Magnitt's Top 7 Mena country deal ranking in 2020.
Topping the five biggest funding rounds in Mena, UAE-based EMPG raised $150m in its Series E round in April, followed by the UAE's Kitopi with $60m and Egypt's healthcare start-up Vezeeta with $40m.
Last year, a total of 243 investors participated in at least one funding round in Mena, with international funds accounting for 22 per cent of all active investment institutions, Magnitt said.
The number of international investors increased to 54 in 2020 from 51 a year earlier, while the number of active investors remained relatively stable – up 3 per cent at 243.
The impact of the pandemic was highlighted during the third quarter of 2020, when Mena start-ups recorded 91 deals, the lowest in eight quarters. The fourth quarter showed signs of a recovery, with a 57 per cent uptick in total funding.
Looking forward, Magnitt expects there will be no mega deals of more than $100m across the Mena region in 2021. It also expects Saudi Arabia will surpass Egypt in terms of both the total number of investments and total capital deployed in venture funding this year.