Venture capital funding for start-ups in the Middle East and North Africa rose 20 per cent annually to more than $2.3 billion in the first three quarters of 2022, putting it on track to potentially surpass the total investments attracted in 2021, a study carried out by Magnitt has found.
Funding reached $512 million in the third quarter, which was the lowest since the first quarter of 2021, the data intelligence company said in its quarterly update, citing global economic and geopolitical factors.
That, however, put total funding in 2022 at more than 80 per cent of the 2021 level, leaving the industry with a full quarter to match or even surpass last year's total of about $2.8bn.
"This comes along with a slowdown in global investment amidst the overall uncertainty due to the ongoing economic crisis, rising inflation levels and mounting interest rates," Magnitt said in the report.
The start-up sector has grown exponentially over the past few years as entrepreneurs use innovation to address consumer needs. They are also increasingly seeking funding from global investors to accelerate their development.
The sector's growth has risen in tandem with the increase in digitalisation in key sectors such as retail, services, e-commerce and government.
Egypt, the UAE and Saudi Arabia retained the top three positions in terms of both funding value and number of deals, capturing more than 75 per cent of overall Mena investments, Magnitt said.
Financial technology remained the leading industry during the period, with 94 deals valued at $747m, which is an annual increase of almost three quarters, it added.
Venture exits during the first nine months were at a new high of 56, which already surpasses the 40 exits recorded in 2021 with a full quarter left this year.
Funding for start-ups in the UAE rose about 5 per cent in the third quarter to $148m from $141m a year ago, Magnitt said in a separate report.
The first nine months of 2022 were "relatively slower" — funding decreased by 7 per cent to $845m and the number of deals were essentially flat — after a record 2021 for the Emirates, it noted.
"This came in coherence with the trend in the global market as the ecosystem was impacted by challenging economic headwinds," Magnitt said.
Companies in the UAE raised $699m in the first half of 2022, ranking the Emirates as the leading country for venture capital financing in Mena, Magnitt reported in August.
UAE-based startups raised 57 per cent of total 2021 funding over 67.6 per cent of total deals so far this year, and the Emirates' funding value made up more than a third of total investments in Mena, making it the top destination in the region for the period.
FinTech remained the most-funded industry in the UAE through September, securing more than a quarter of total deals, while the number of exits doubled that of the whole of 2021, marking a record.
Saudi Arabia, on the other hand, had a 3.5 per cent rise in start-up funding in the third quarter of 2022, to reach $232m from $224m a year ago, Magnitt said in another report.
While the latest three-month period was the lowest by far during the year, total funding for the first nine months of 2022 almost doubled to $818m over 106 deals, it added.
"Saudi Arabia saw a positive performance in the first three quarters of the year, defying the slow trend in the global ecosystem. The kingdom saw a significant growth at the level of funding," Magnitt said.
The investment value for the first three quarters of 2022 surpassed the record funding posted for the entirety of 2021 by 50 per cent, taking over a 35 per cent share of the total Mena funding.
Saudi Arabia was also the only country in Magnitt's emerging venture markets category that recorded mega deals — funding worth $100m or more — in the third quarter.