UAE start-ups raise $371 million in first nine months of 2023

More than 82% of round sizes in the Emirates were below $5 million, Magnitt report says

The mean valuation of UAE start-ups in seed rounds rose by 25 per cent annually in the third quarter, according to Magnitt. Pawan Singh / The National

Start-ups in the UAE have raised $371 million in the first nine months of 2023, according to a new report.

A total of 109 investors invested in UAE-based start-ups in the first nine months, down 41 per cent on an annual basis, according to start-up data platform Magnitt’s Q3 UAE Venture Investment report.

More than 82 per cent of round sizes in the UAE were below $5 million and the mean valuation of UAE start-ups in seed funding rounds rose by 25 per cent from the previous year, the report found.

However, Series A valuations are declining. The average gap between Series A valuations for UAE start-ups this year is approximately $13 million compared with $40 million in 2022, it revealed.

“It is an interesting time to monitor the happenings in the UAE’s ecosystem, especially as Gitex just wrapped up and the conference season is still under way. We’re hoping to see some more funding pick up in the coming few weeks before the holiday season begins,” Philip Bahoshy, founder and chief executive of Magnitt, said.

“Another interesting event unfolding in the UAE is Cop28, due towards the end of November.

“When we look at the valuation trends in UAE-based start-ups, 2023 proved to be an interesting year as the average and median valuation corridor for Series A start-ups narrowed down to levels not witnessed since 2018.”

The role of start-ups has grown continuously over the past few years. They have been touted by governments as a key driver of economies, especially in preparing for the future of a society that is highly digital-focused.

Start-ups in the Middle East and North Africa raised $643 million in late-stage funding during the first half of 2023, helping the region to significantly outpace global figures, Magnitt said in a separate industry report recently.

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, it said.

The development of start-ups’ contribution to the economy will also help achieve the target of doubling the UAE’s gross domestic product by 2031, Abdulla bin Touq, Minister of Economy, said last month.

The UAE recorded 12 funding rounds in the past week, and more than $105 million was invested in the country in October, up by approximately 194 per cent from September, according to the Magnitt report.

The Emirates led the way in the Middle East, Africa, Pakistan and Turkey in terms of exits, and contributed 30 per cent of all exits in this region, the findings showed.

Meanwhile, Saudi Arabia’s proportion of the share of exits in the MEAPT region has continued to increase since 2021 despite low activity.

However, the kingdom’s exit activity has remained relatively low compared with its peer markets, like the UAE and Egypt, the report outlined.

Saudi Arabia, the Arab world’s largest economy, accounted for 21 per cent of the total merger and acquisition deals in the region, Magnitt data showed.

One of Saudi Arabia’s most notable exits in the third quarter was Delivery Hero’s acquisition of HungerStation in a $297 million deal in July, the report cited.

Regional investors dominated the venture landscape, with US VC firm 500 Global and start-up accelerator Y Combinator being the only international investors in the top 10, Magnitt’s findings revealed.

Among the two, 500 Global had all of its 2023 investments distributed across the entire MEAPT region, whereas Y Combinator had about 67 per cent of all its investments concentrated in sub-Saharan Africa, the data showed.

“When we look at the leading investors in MEAPT by capital deployed, only China’s Tencent Holdings, Switzerland’s Blue Earth Capital, Japan’s Sumitomo, and the UK’s Apis Partners were the global players in MEAPT, while the other six investors hailed from the region,” Mr Baloshy said.

The Magnitt report ranked US-based Y Combinator as the leading accelerator by deals in the MEAPT region, with more than 78 per cent of its investments in Africa, more than 12 per cent in the Middle East and 8 per cent in Pakistan.