Analysis: Changing start-up landscape in the MENA region
MAGNiTT’s investment report concluded 2018 to be a successful year for start-ups, with total start-up funding in the MENA region up by 31% from 2017. This figure is excluding the $200 million Careem funding — the highlight of the year that came just before its end. 2018 also saw a record number of 366 deals take place, amounting to a total investment of $893 million across the region, marking its potential and growth rate. The market also shows a continued appetite for start-ups in the region, with the total number of deals remaining healthy, reaching a record high, up 3% compared to 2017. Another sign of MENA’s ever-maturing ecosystem is an increase in the region’s average deal size, up 26% year-on-year.
Philip Bahoshy, Founder and CEO of MAGNiTT, indicates “this is an extremely positive signal. 2018 saw more international investors enter the foray than before, new accelerator programmes created the region, multiple government initiatives spurring innovation and established regional Venture Capital firms closing out new funds to deploy further capital.” Another key highlight Bahoshy notes is “as startups mature and grow, 2018 has seen more later stage investment deals at Series B and beyond than ever before and we expect this trend to continue into 2019 as startups scale to get closer to exits.”
As predicted, UAE maintained its dominant position in the start-up sphere with its multiple government support schemes, corporate venture interest as well as growing appetite for start-ups with the launch of its sandbox environment and more free-zones for businesses. As such, the nation remained the most active start-up ecosystem with 30% of all deals taking place in the country, accounting for 70% of the total funding in the region.
The UAE was closely followed by Egypt, that saw 22% of total deals, up 7% from 2017. The up-and-coming nation now has the fastest growing start-up ecosystem. It made its mark and gained much popularity in the market with the exponential growth of Swvl and many other ride-hailing apps that are giving serious competition to international players such as Uber. At the third position came Lebanon, with 10% of total deals, down by 4% compared to 2017.
Until recently, generalised e-commerce platforms were leading the start-up sphere in the MENA region, evident with the successful launch of Souq, now acquired by Amazon. However, the landscape is changing with a number of specialised e-commerce startups, such as Mumzworld and Eyewa gaining ground by catering to their niche.
Analysis also showed that for the first time, FinTech took over e-commerce as the most active industry by number of deals, accounting for 12% of all deals in 2018. Notable deals include the $18m in Aqeed, $8m in Wahed Invest and $4.5m in Expensya. The year also saw the major exit of TPay in Egypt, which brought about the first Dragon Startup, a startup whose exit pays back the full fund size of a VC.
E-commerce, however, still remains prevalent, accounting for 11% of all deals, followed by transport and delivery, which was the third most popular industry in terms total deals in 2018, accounting for 10%. Amir Farha, Managing Partner at BECO Capital and one of the investors in Wahed Invest, comments on the FinTech landscape in MENA, “Regulators are taking a more forward-looking approach to FinTech startups and are promoting their own initiatives to foster entrepreneurship. I believe Careem did a great job in helping regulators understand the impact startups can have on their market, which has likely assisted in getting the wider authorities to view startups differently”.
The MENA region saw 156 institutions invest in home-grown start-ups, with 30% from outside the region and 47% who had not previously invested in the region. This marks a 5% increase in the number of institutions and Angel Groups investing in the MENA-based startups from the previous year. While 500 Startups remained the most active investment house, 2018 also noted the entrance of major international investment firms, with Gobi Partners investing in HolidayME and General Atlantic in Property Finder.
Corporate Venture Capital continued to grow as well. Majid Al Futtaim, a key investor in Fetchr, continued their venture expansion with an investment in Wadi.com and acquisition in BEAM Wallet, while the Chalhoub Group launched their first accelerator program for the region.
The top 10 deals in 2018 account for 65% of total investment amount, up by 2%. The year saw 14 regional startup exits, 4 of which were by international acquirer, marking a 5% decrease. Commenting on the result of the research, Bahoshy noted “these insights are positive news for the whole startup ecosystem in the MENA region. Founders continue to see increased interest from investors for this space, investors are seeing startups mature and see returns through increased M&A activity and exits, whilst governments see the fruits of their initiatives to further strengthen the ecosystem.”
Building on the successes of the last year, 2019 is expected to be a positive and profitable one for the industry – there are predictions of higher startup exit rates by Wamda Group’s Executive Chairman, Fadi Ghandour. Overall, the startup ecosystem in the MENA region has attracted many local and foreign investments and is continually attracting new investors to the region. Seeing the increasing support initiatives by local governments to ease the setting-up, launch and testing phases for entrepreneurs with exciting business ideas, the MENA region might just be the new start-up hub of the emerging markets.