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|10 January, 2019

Capital appreciation: MENA start-up funding deals hit record high in 2018 - report

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Image used for illustrative purpose. An employee shows the logo of ride-hailing company Careem on his mobile in his office in the West Bank city of Ramallah July 17, 2017.

Image used for illustrative purpose. An employee shows the logo of ride-hailing company Careem on his mobile in his office in the West Bank city of Ramallah July 17, 2017.

REUTERS/Mohamad Torokman

The number of venture capital deals backing Middle East and North Africa (MENA)-based start-ups hit a record high of $893 million in 2018, a 31 percent increase on the $679 million raised in 2017, and 2.6 percent higher than the $870 mllion raised in 2016, according to a 2018 MENA Venture Investment Report released by data platform MAGNiTT.

The number of investments also increased by 3 percent on  last year, with 366 investments made, the report added.

The United Arab Emirates remained the most dominant MENA country in 2018 in terms of its share of total deals, which reached 30 percent in volume terms, but around 70 percent of the total funding, Philip Bahoshy,  CEO and founder of MAGNiTT told Zawya by email.

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UAE authorities have been trying to create encouraging conditions for start-ups, passing a bankruptcy law in 2016, as well as announcing the availability of 10-year visas to entrepreneurs last year. It also continues to draw the interest of global venture capitalists (VCs). (Read more here).

Egypt was the fastest growing start-up ecosystem in 2018, recording the second-highest number of deals at 22 percent of the total deals, rising by 7 percent from 2017.

“Egypt has seen the fruits of the seeds planted of the last couple of years from investors, the government and the public sector efforts,” Bahoshy said.

Foreign investment in Egypt was supported by the central bank’s decision to float the currency in November 2016. (Read more here).

The country’s economy has also undergone a series of economic reforms agreed with the International Monetary Fund in late 2016, which is linked to a $12 billion loan package. (Read more here).

“In terms of market dynamics, it is a big population with an educated youth who are moving away from corporate employment towards entrepreneurship for their futures,” Bahoshy said. “Success stories such as Eventtus, Wuzzuf and Vezeeta have acted as inspiration to new generations of start-ups,” he added.

“New private sector VC funds and international IMF and World Bank initiatives have helped fuel the ecosystem,” he added.

In terms of money raised, both Egypt and Lebanon were the second-highest countries, with each accounting for 9 percent of total funding, Bahoshy told Zawya.

Although Lebanon was the third-biggest market in terms of the number of deals, with 10 percent of the total, it witnessed a 4 percent decline in deal numbers on the previous year. Lebanon’s startup ecosystem  faces a brain drain obstacle as the majority of  talent prefer to work abroad. (Read more here).

FinTech (financial technology) emerged as the sector with the highest number of deals in 2018, overtaking e-c ommerce, and accounting for 12 percent of all deals.

“But in terms of the amount of funding, delivery & transport topped other sectors. This was largely due to the $200m investment in Careem,” Bahoshy told Zawya.

In October last year, Dubai-headquartered ride-hailing firm Careem raised $200 million funding from investors and announced that it was expecting to raise more funds to finance expansion plans. (Read more here).

The Middle East and North Africa region is expected to see a spike in investments from 550 million UAE dirhams in fintech starups in the last decade to 7.3 billion dirhams in the next ten years, according to a Mena Research Partners study released in November last year. (Read more here).

On a quarterly analysis of the number and value of deals in 2018, the final quarter of the year was marked by a sharp spike in the value of deals to $277 million, up from $137 million from an earlier quarter, despite a large drop in the number of deals to 69 deals from 116 in the third quarter. 

“Many of the regional investors began to close their new funds. Much of the investment was then deployed in portfolio companies that were at much larger stage of investment,  i.e Series B and beyond,” Bahoshy said. “This accounted for the very strong finish in terms of dollar funding, while there was a slight drop in the number of investments that took place.”

The three biggest fundraising deals to take place in the region last year were the $200 million invested in Careem, $120 million in Dubai-based Propertyfinder and the $45 million in Kuwait-based beauty ecommerce site Boutiqaat.

Further reading:

(Reporting by Nada Al Rifai; Editing by Michael Fahy)
(nada.rifai@refinitiv.com)

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