Silicon Valley has maintained its position as the world's best start-up ecosystem but cities in the Mena region are on the rise even amid a global market correction that has scaled back funding, according to a report from Startup Genome.
“For more than a decade, near-zero per cent interest rates proved a safe haven for start-ups with ample VC [venture capital] funding sources,” the San Francisco-based research company said.
“This led to the overvaluation of start-ups, generating record funding and exit valuations, and a high number of unicorns [start-ups with a valuation of more than $1 billion].”
That all changed in the first quarter of 2022 when Russia's invasion of Ukraine, an energy crunch and supply-chain disruptions, as well as rising inflation and interest rates, combined to create widespread uncertainty.
Overall, 2022 registered an annual decline of 35 per cent in VC funding.
Startup Genome looked at more than 3.5 million start-ups across 290 locations and found that the top three ecosystems from 2020 weathered the storm and maintained their positions into 2023, based on metrics such as start-ups' business performance, funding, market reach and talent.
Silicon Valley remained at the top, followed by New York and London in second place despite a shrinking market share as emerging ecosystems gained traction.
The Mena region held steady in the correction from 2021 to 2022, with only a very slight decrease in the amount of early stage funding (minus 5 per cent), a decline of 19 per cent in fund-raising totals for series B rounds and beyond, and a 14 per cent decline in total VC funding.
Even during the downturn, the region remained above 2020 funding amounts.
Tel Aviv remained the region’s leading ecosystem. It moved from seventh in the rankings to fifth, buoyed by several exits valued at more than $1 billion.
FinTech Pagaya reported the highest exit at $8.5 billion. The number of unicorns also rose with 33 new entrants bringing the total to 57, including Blockchain company Fireblocks, valued at $8 billion.
Meanwhile, the UAE also ranked favourably in the region.
“The United Arab Emirates has made significant strides in diversifying its market from oil and gas, establishing itself as an innovation hub and hot spot for entrepreneurs,” Start-up Genome said.
“The nation prides itself on having a strong talent pool, ample funding opportunities and both legislation and infrastructure that nurtures the growth and success of start-ups. Abu Dhabi and Dubai are both global hubs for entrepreneurship.”
Dubai moved up three places and is the highest ranked Mena entry in “emerging ecosystems”, in 12th place.
The number of exits valued at more than $50 million has grown by 50 per cent while the number of exits exceeding $1 billion doubled, with Swvl at $1.5 billion.
The number of unicorns increased from two to four, with Astra Tech and Fenix Games joining the club in 2022. Early stage funding deal numbers also increased in 2022 by 45 per cent.
Abu Dhabi returned to the ranking in 2022 after dropping off in 2021.
The emirate landed in the 81 to 90 range amid emerging ecosystems. The city has experienced a 134 per cent increase in ecosystem value to $3.9 billion, partly attributed to the growing number of exits valued at more than $50 million, with Agtech Pure Harvest Smart Farms at $1.3 billion.
“I call it the North Star of data and insights into start-up ecosystems all around the world,” Amer Aidi, head of marketing and operations at Hub71 in Abu Dhabi, told The National, in reference to the ranking.
“We're in a prime position today to attract start-ups that are looking for new geographies to expand to because there might be a correction in their respective countries where they operate,” Mr Aidi said.
The government-backed start-up centre has more than doubled the number of applications it has received from founders seeking to join the community, attracting more than 1,400 applicants in the last cohort.
Cairo shot up from the 71-80 range to the 51-60 range in the emerging ecosystems ranking. Its ecosystem value grew by 97 per cent to $8 billion.
Riyadh also jumped from the 91-100 range to the 61-70 range in emerging ecosystems. Food delivery platform Jahez is valued at $2.4 billion while the number of unicorns doubled to two, with Foodics valued at $1.2 billion, increasing the ecosystem value by more than 100 per cent.
Artificial intelligence and big data accounted for a little more than a third of series A deals in the region between 2018 and 2022.
Startup Genome emphasised that 2023 was a year of opportunity.
“A recession is a good time to invest in start-ups,” it said, pointing out that start-ups that fundraised during the global financial crisis had slightly higher exit multiples than those funded during economic expansions.
“Tangible examples of successes born in a recession include Spotify raising a series A in 2008, Twitter doing the same in 2007 and Flipkart in 2009.”