Start-ups in the Middle East and North Africa have raised $643 million in late-stage funding during the first half of 2023, helping the region significantly outpace global figures, a study has found.
This has resulted in the region's late-stage funding scene posting a 20 per cent annualised growth since 2018, compared to a 49 per cent decline globally during the same stretch, start-up data platform Magnitt said in its latest industry report.
Late-stage funding, in this report, is defined as investments made after series A deals, spanning disclosed and undisclosed deals.
While investments at global level have been impaired by economic uncertainty and macro factors, Mena has managed to remain a hotbed for funding, with mega deals – those valued at $100 million and above – accounting for more than 85 per cent of late-stage investments in the first six months of 2023 alone, Magnitt said.
The performance during the first half of the year is also the third highest since the pre-pandemic period of the second half of 2019, trailing only the $714 million in the second half of 2022 and the peak of $892 million in the second half of the previous year, according to Magnitt data.
"The Mena region offers relatively untapped markets and emerging venture capital economies, presenting a wealth of opportunities for start-ups to address unmet needs and disrupt industries," Noor Haider, a senior research associate at Magnitt and author of the report, told The National.
The efforts of Mena nations in diversifying their economies from oil dependency and towards technological advancement is also driving this shift, recognising that technology and innovation are key drivers of sustainable economic growth, job creation and global competitiveness in a rapidly changing world, she said.
"Geographically, Mena serves as a bridge between Europe, Asia and Africa, making it a strategic location for businesses aiming to expand globally. Being relatively nascent, the region has seen a rising number of acquisitions and offers potential opportunities for international players to enter the region and for investors to secure exits," Ms Haider said.
The role of start-ups has grown continuously over the past few years as a driver of digital adoption and growth, enabling consumers to access services with convenience.
A shift that was noted in the report is the retreat of international investor participation from the region: from 2019 to 2022, they dominated the late-stage VC landscape by capital deployed, contributing about 57 per cent of late-stage venture investments, the report said.
However, in the first half of this year, only 13 per cent of the capital deployed was from international investors, putting "greater pressure" on regional investors to bridge the gap left by their international counterparts, it said.
Regional investors are indeed stepping up, with nine of the top 10 investors by transactions from 2019 to the first half of 2023 headquartered in Mena, Philip Bahoshy, chief executive of Magnitt, wrote in the report.
“This year's market volatility resulted in a global investor retreat in both absolute dollar terms as well as relative participation by international investors ... this is not to say that Mena has not been attracting global players into the region," he said.
"In fact, since the start of the year, we’ve seen an increased interest from international investors, however, this has been largely driven by GPs [general partners] of global funds looking to raise capital from sovereign LPs [limited partners] locally."
GPs are those who have unlimited liability and have full management control of a business. LPs, on the other hand, have little to no involvement in management but also have liability, which is limited to their investment amount in the LP.
In terms of valuations, the average start-up valuation from Series A to Series C rounds in Mena surged by 23 times between 2019 to 2022, Magnitt said.