Report reveals Saudi Arabia as top recipient of MENA start-up funding in Q1 2023

The Middle East and North Africa (MENA) region’s start-up ecosystem is experiencing a rapid surge in investment, with Saudi Arabia leading the pack as the biggest recipient of venture capital investment in Q1 2023. According to a recent report by Magnitt, the country secured $359m out of a total of $818m raised in the region, with Egypt coming in second with $284m and the UAE third with $152m. However, despite the impressive numbers, the MENA region faces significant challenges that could potentially hinder the growth of its start-ups.

UAE emerges as Q1 2023 leader in exits, but liquidity concerns loom

The UAE, despite having seven fewer exits compared to the same period in 2022, had the highest number of exits in Q1 2023, with ten out of the 11 recorded in the region. The country’s launch of the Entrepreneurial Nation initiative in 2022 aims to become a regional centre for innovation and entrepreneurship, has attracted support from a range of public-private partnerships. However, with liquidity becoming an issue, more mergers and acquisitions could be on the horizon for MENA-based start-ups, as noted by Magnitt.

MENA region’s start-up funding trends reveal FinTech as most funded industry in Q1 2023

FinTech emerged as the most-funded industry in the MENA region in Q1 2023, attracting $365m, accounting for 21% of all deals in the region. Three of the top five deals were in the sector, including two $20m-plus deals for UAE-based start-ups Tabby and Qlub, and a $100m-plus deal for Egypt’s Halan. E-commerce and retail was the second-most transacted industry, capturing 16% of total deals and aggregating $317m. The report notes that the majority of the funding (67%) came from three mega deals in the region, with Floward and Nana, both Saudi Arabia-based start-ups, and Egypt’s Halan being the recipients of the investments.

Interest in MENA region growing, but international investment share falls

The Magnitt report revealed that 113 active investors gained interest in the MENA region in Q1 2023. However, the share of international investors decreased from 43% in 2022 to 32% in Q1 2023. Investors showed a greater preference for investing in start-ups valued at $1m or less, indicating a shift in investment strategies.

Challenges hindering MENA start-up growth

Despite the positive trend in start-up funding, the MENA region faces significant challenges that could potentially hinder the growth of its start-ups. The pandemic has caused disruptions to the global economy, leading to tighter financial conditions and a slowdown in valuations. Moreover, the region has been affected by volatile food and energy prices, further impacting investor appetite. The report notes that the mean value of funding decreased from $3.8m in 2022 to $3.5m in Q1 2023, indicating a slowdown in valuations.

MENA governments investing in developing start-up ecosystem

The MENA region’s governments are taking steps to support the growth of their start-up ecosystem. Initiatives such as the Entrepreneurial Nation in the UAE and Saudi Arabia’s ambitious plans to invest in its start-up ecosystem aim to reduce the countries’ dependence on oil and diversify their economies. With continued investment and support from governments and investors, the MENA region has the potential to become a leading centre for innovation and entrepreneurship.

Conclusion: MENA’s start-up ecosystem shows resilience and potential for growth

The MENA region’s start-up ecosystem is witnessing a growing interest from investors, with a surge in funding and a positive outlook for growth. While challenges such as tighter financial conditions and a slowdown in valuations persist, governments and investors are investing in developing the start-up ecosystem, which bodes well for the future. With an emphasis on innovation and entrepreneurship, the MENA region has the potential to become a global leader in these areas. As the report suggests, continued investment and support are crucial for the MENA region to realize its potential and become a centre for innovation and entrepreneurship.