E-commerce and fintech start-ups dominated venture capital financing in the Mena region during the first half of this year despite global economic headwinds, according to 1H 2023 MENA Venture Capital Report by data platform Magnitt.
Mega financing deals in both sectors accounted for nearly 80 per cent of the total funding in the region during the first six months of 2023.
Yet, the number of deals and the value of financing for Mena start-ups dropped amid continued global economic volatility and geopolitical headwinds.
“Cautious investor sentiment at a time of economic uncertainty saw funding [value] and deals decline by almost 50 per cent in the region on a year-on-year basis,” stated the report.
“Almost half of the total capital aggregated by the Mena region in the first half came from the three mega deals.”
The three large financing rounds propelled the e-commerce/retail and fintech to the top sectors, followed by transport and logistics, software and media and entertainment sectors.
Globally, the e-commerce market is forecast to reach $55.6 trillion by 2027, growing at a compound annual growth rate of about 27.4 per cent, from an estimated $13 trillion in 2021, data from US research firm Imarc Group suggests.
In February, Saudi Arabia-based grocery shopping and delivery platform Nana raised 500 million Saudi riyals ($133 million) in a new funding round to expand its services across the region.
Floward, a start-up delivering gifts and flowers in the Mena region and the UK, secured $156 million in funding in February as well to expand operations before a planned initial public offering.
The pre-IPO series C funding round was led by Aljazira Capital, Rainwater Partners and STV, Floward said at the time.
Overall, Mena start-ups raised more than $1 billion through 193 deals, with the region’s venture capital ecosystem seeing a 42 per cent retreat in the funding levels and a 49 per cent decline in the number of transactions closed to 193, Magnitt said.
In terms of the quarterly number of transactions, the second quarter this year was the lowest since the second quarter of 2017, Magnitt data shows.
In the broader Middle East, Africa, Pakistan and Turkey region, start-ups bagged $7.2 billion through 1,473 deals last year. Funding for Mena start-ups crossed the $3 billion mark in 2022 – an annual increase of 8.3 per cent.
“With the increased probability of further interest rate hikes and subsequent economic challenges, any chance of a recovery is likely to appear after September in Q4, when deals closed in the summer are announced and high-profile tech summits are organised,” said the report.
The UAE government has launched the Dubai Economic Agenda D3 to prioritise the growth of start-ups, while Egypt has introduced a five-year tax exemption for start-ups.
In February, a report compiled by Wamda showed that Mena start-ups secured $103 million in January across 22 deals, translating into a 17 per cent month-on-month decline in funding value.
