Saudi Arabia leads Mena in start-up funding as UAE tops exits in first quarter

Kingdom's start-ups attracted $359m out of the total $818m capital for the region, Magnitt report shows

Saudi Arabia's capital Riyadh. The kingdom and the UAE accounted for the highest number of start-up deals, at 30 each in the first quarter, Magnitt figures show. EPA

Saudi Arabia led the Middle East and North Africa region in attracting the highest number and value of venture capital investment for its start-ups in the first quarter of 2023, while the UAE led in terms of the number of exits, a report has said.

The kingdom was the most funded for start-ups in the three months to March, attracting $359 million out of the total $818 million capital for the Mena region, the report compiled by start-ups platform Magnitt showed.

Egypt came in second with $284 million, followed by the UAE at $152 million, the report found.

Saudi Arabia and the UAE accounted for the highest number of deals, at 30 each in the first quarter, according to Magnitt, followed by Egypt at nine.

The region recorded 94 transactions in the first quarter, down by 55 per cent compared with the same period last year, and the lowest since the fourth quarter of 2018.

“The rise seen in Saudi Arabia and Egypt was mostly backed by Floward, Nana, and Halan’s $100 million-plus mega deals all closed in the second month of 2023,” Magnitt said.

“Removing the impact of those deals rearranges the ranking, putting the UAE ahead of its Mena peers with UAE’s Tabby and Qlub’s $58 million and $25 million landing among the top five deals in the region.”

Gulf countries are investing in growing an entrepreneurship ecosystem as they look to diversify their economies and fuel post-pandemic growth.

Total financing from venture capital funds in the Middle East surged 132 per cent to almost $2 billion last year, with the total number of deals up 5 per cent to 410, according to Magnitt.

The UAE aims to become home to 20 start-ups valued at more than $1 billion by 2031, in its push to become a regional centre for innovation and entrepreneurship.

Last year, the country launched the Entrepreneurial Nation initiative, which aims to offer support through a series of public-private partnerships that help entrepreneurs to set up operations in the Emirates, expand their businesses, export products and tap into online sales.

In the first quarter of this year, exits hit their lowest level since the third quarter of 2021, yet they stood in the double digits, according to Magnitt’s latest data.

With 11 exits, the Mena region had seven fewer than the number reported in the first quarter of last year.

Ten of these exits came from the UAE, the data showed.

“Exit activity peaked in the Mena region in 2022, with the liquidity crunch putting mergers and acquisitions as an option for start-ups with limited funding resources,” the report said.

“A similar performance is expected to extend into 2023 with the continuous rise in interest rates along with cash conservation imperatives weighing heavily on funding resources, allowing for acquisitions to be a resort.”

Meanwhile, FinTech was the most funded industry, attracting $365 million. It accounted for 21 per cent of all deals in the Mena region in the first quarter, according to Magnitt.

Three of the top five deals in the region were in FinTech, namely a $100 million-plus deal for Egypt’s Halan and two $20 million-plus deals for each of UAE’s Tabby and Qlub.

E-commerce and retail was the second-most transacted industry, capturing 16 per cent of the total deals in the region. The industry aggregated $317 million in the first quarter.

Of the total funding, 67 per cent was backed by three mega deals closed in the region.

Two of these mega deals were by Saudi Arabia-based start-ups Floward ($156 million) and Nana ($133 million) and the other was by Halan ($260 million), Magnitt data found.

Stripping the impact of the mega transactions, the number of deals valued at less than $100 million stood at $269 million in the first quarter, down by 68 per cent compared with the same period last year, the report said.

Round size $0K-$1 million captured the lion’s share of deals in the Mena region, with 48 per cent of the total.

“When removing the $100 million+ deals, the mean value of funding decreased from $3.8 million in 2022 to $3.5 million in the first quarter of this year, better reflecting the slowdown in valuations,” the platform said.

“The decline in ticket size represented the curbed investor appetite affected by the market edge down buffeted by several shocks including the global slowdown, volatile food, and energy prices, and faster tightening of financial conditions.”

The Mena region gained the interest of 113 active investors in the first quarter of 2023, the research showed.

However, the share of international investors contracted to 32 per cent in the quarter from 43 per cent in 2022.