Investors and founders tell us that they are optimistic about MENA’s investment and startup landscape, in spite of a slowdown in funding. They note that initiatives and directives issued in the UAE are improving the enabling environment in the region - albeit ramping up competition for startups and funds. Investors stress that the region's pivotal location and the opening up of the Saudi market will continue to drive growth for startups and investors.
Recent reports by Wamda and MAGNiTT reported that funding dropped in the first half of 2023 when compared to H1 2022, with both deals and funding seeing a decline. MAGNiTT reported that, with the exception of a few megadeals, investors are increasingly turning to smaller investments, indicating a shift to early-stage investment – once the cornerstone of MENA’s startup ecosystem.
In an emailed interview, MAGNiTT CEO, Philip Bahoshy, tells us that he remains cautiously optimistic about 2024, noting that multiple fund announcements are positive signs for the region. He adds that, although H1 saw a drop in investment, there was an uptick in investments in the UAE and Saudi Arabia in Q3 of this year, adding that Q4 2023 will likely serve as a barometer for the robustness of MENA's venture capital landscape in 2024.
For Investors, Opportunity Lies Ahead
At a conversation at a HeadStart event at In5 Dubai, Fadi Amoudi, the founder of iQ Robotics, tells us that Dubai's business landscape has transformed over the years. He notes that recent policies and initiatives to facilitate the entry of foreign businesses to the market, coupled with support for second-generation family businesses, indicate that Dubai is an attractive market for investment.
The UAE government has recently introduced initiatives and policies to make it easier to set up businesses, one of the most notable being a 2020 law removing sponsorship requirements for most business categories for foreign business owners in Dubai and Abu Dhabi.
For family businesses - which continue to drive the local economy, accounting for up to 90% of private companies and contributing almost 40% to the Emirates GDP - it recently introduced the Dubai Family Business Management Program, which supports second-generation Dubai-based family businesses.
As the UAE’s business environment evolves, it faces stiff competition. Amoudi explains that newcomers often find it challenging to break into markets that have long been dominated by established companies – particularly in the consumer internet innovation sector. “Like many other regions, setting up a business in Dubai requires effort and determination. The city's strategic location offers access to lucrative markets in the Middle East and Europe, making it attractive for entrepreneurs,” he says.
At a discussion at HeadStart, Wamda chairman Fadi Ghandour said that the region as a whole has significant growth potential. He pointed to global fintechs’ interest in Saudi Arabia’s burgeoning e-commerce sector as having “the potential to create a critical mass and stimulate motivation.”
Founders Compete For A Spot
Founders too see potential for the startup industry in the UAE and the GCC – although they note that it comes with challenges. As the enabling environment makes it easier to set up shop in the UAE, for example, the competition for funds and space in the market makes it increasingly important for startups to create value.
“Securing funding in Dubai has become more stringent, with investors seeking a compelling value proposition. Entrepreneurs must develop a robust business model and be ready to accept funding when offered,” the founder of an early-stage B2B software-as-a-service (Saas) startup who preferred to remain unnamed tells us.
He explains that entrepreneurs should be prepared for longer decision cycles when dealing with clients in the region, adding that building trust and having patience is key to staying in business.
A founder of an early-stage fintech startup told us that innovation increases the chances of securing investment. “While Dubai's government actively supports startups, securing funding relies heavily on the quality and potential of the product or service. Innovative offerings greatly increase the chances of securing investments.”
Both founders emphasized the significance of realistic expectations, strong financial planning, and the creation of value through unique selling points.