Signs of a maturing startup ecosystem in MENA
Startups have been growing in the region, both in number and size. With increased funding, government support and international interest, we’re now seeing signs of the region’s once-upon-a-time nascent startup ecosystem, maturing to compete on a larger scale.
The startup ecosystem in the Middle East and North Africa is growing at a rapid pace. If you are involved in the space, this should not come as a surprise – seemingly every day, there are events that take place at some place or another. Not only that, but entrepreneurship, startups and innovation in general have seen a surge of government support, as governments understand the need for a flourishing startup ecosystem to build a sustainable economy and long-term prosperity.
However, a trend that has gone largely unnoticed until recently is the shift in the startup ecosystem: it is maturing. This is not a shift that happened overnight, but a gradual process that has taken place over the last few years. Of course, an ecosystem matures per definition as time passes, but there have been significant signs of it happening. This article highlights 3 trends that show the maturing ecosystem.
1. A shift in industry focus
One of the first signs is the rise of investments in FinTech startups, as highlighted by MAGNiTT’s 2018 MENA Venture Investment Report. According to MAGNiTT, a startup data platform based in Dubai, 2018 was the year that FinTech leapfrogged e-commerce to become the number one industry in terms of investments in MENA-based startups. Of all investments that took place in the MENA region in 2018, 43 were in FinTech, which just surpassed e-commerce that accounted for 41 in total.
This phenomenon indicates a shift in investor appetite and the overall underlying ecosystem. In emerging markets, traditionally industries that are most popular with both entrepreneurs and investors in the early stages of the ecosystem are transport, logistics and e-commerce. This is not strange, as startups look to solve identifiable problems, for which they can build a scalable product. This, in turn, attracts investors, as they are looking for a large market. Once they invest in a startup, they want to make sure that their potential return is extremely high, which is only if the market is sizeable enough. The aforementioned industries meet all those criteria, which is often why they come first in a startup ecosystem evolution.
2. A shift within industries
Once logistic, transport and e-commerce industries develop, other industries see a rise in number of startups and investments. Often, these industries are slightly more advanced and technically challenging than the previous ones, which is why FinTech is a great contender.
FinTech also addresses a problem for a large market, however, it simply takes time for a startup ecosystem to get to this point. Hence, the rise of FinTech as an industry indicates that the ecosystem is maturing and startups and investors are looking for the next large problem to tackle.
That does not mean that there have been no developments in the e-commerce market, in fact, on the contrary, after the rise of some of the most well-known ‘pure play’ e-commerce platforms like Souq.com and noon, there has been a rise of niche e-commerce players in the market. Namshi, The Luxury Closet and Mumzworld, are some of the successful niche players, all of which offer products for a particular target audience, unlike Souq.com and noon, which aim to offer a wide variety of products for many consumers. This evolution of the e-commerce market is again a sign of the maturing startup ecosystem, as the ‘pure play’ e-commerce market is getting saturated and entrepreneurs are seeking to solve problems in a narrower market. According to a recent study by consulting firm Bain & Company, the ‘pure play’ companies still control over 90% in the e-commerce market in MENA, indicating that the niche platforms still have plenty of opportunity to grow.
3. International interest in the MENA startup ecosystem
Lastly, but certainly not least, is the increased interest in the startup ecosystem space by investors, governments, corporates and other entities. Not only local entities, but international investors and corporates look to grow their presence in the Middle East due to its favourable demographics. They are looking to invest or acquire local startups, thereby acknowledging the quality of the startups that were found and grown in the region.
Global names like TechStars, StartupBootcamp, Plug and Play and 500 Startups have all set up in the region. According to MAGNiTT, 30% of all investors that invested in MENA-based startups in 2018 were from non-MENA countries, indicating a robust foreign appetite for the region’s startups.
One of the most well-known cases of international interest is e-commerce giant Amazon’s acquisition of Dubai-based Souq.com for $580 million in 2017, a landmark acquisition. There have been many more such instances, and they will continue to arise. For example, recently there have been rumours surrounding Uber’s potential acquisition of local unicorn Careem for a reported $3 billion, which again underlines foreign interest in the region.
All these trends point to an emerging and maturing startup ecosystem in the MENA region. With industries continuously evolving, local government support increasing and foreign interest growing, the region is set to grow and strengthen its economic and startup ecosystem.
2018 saw UAE still leading the region with the largest number of deals and funding received by startups. However, as per the rate of increase in deals year-on-year, Egypt is the fastest growing. Judging by the break-neck speed and the relative size of the market compared to other international markets, the MENA startup ecosystem certainly has a bright future ahead of itself.
