Saudi leads Funding, UAE Dominates Deals: MAGniTT Report

The Middle East and North Africa (MENA) region has long been an area of interest for investors looking to tap into its burgeoning startup ecosystem.

As the global economy continues to evolve, the venture capital landscape in MENA has experienced its share of ups and downs.

The latest data from MAGNiTT, a venture capital data platform for emerging markets, reveals intriguing insights into the state of MENA's venture funding in Q3 2023 and its implications for the region's economic landscape.

MENA venture funding in Q3 2023 has showcased a remarkable resurgence. A total of $250 million was raised across 78 deals, marking a staggering 32% increase compared to the previous quarter. This uptick in funding levels is a welcome signal, signifying renewed confidence among investors. However, what's even more interesting is that the number of deals remained relatively flat, hinting at a shifting investment focus

Saudi Arabia, often hailed as a regional powerhouse, retained its position as the top funding destination during the first nine months of 2023. The kingdom saw an impressive $536 million raised, marking a robust 172% quarter-on-quarter incline. Saudi Arabia's performance exemplifies its commitment to fostering a thriving startup ecosystem.

Meanwhile, the United Arab Emirates (UAE) held its ground as the leader in deal activity. The UAE's impressive feat included recording a remarkable 93 transactions in the same period, showcasing its dominance in the MENA startup landscape.

When comparing investment activities across the region, Saudi Arabia stands out with a remarkable 172% quarter-on-quarter increase in deployed capital. The UAE follows closely with a 55% rise in investments.

Despite its lower capital inflow, Morocco records a 27% year-over-year increase in the number of transactions. In contrast, Egypt experiences a sharp decline, with a 70% reduction in transaction numbers compared to the previous year

One of the most intriguing highlights of the report is the revival of early-stage investments. Investments of less than $1 million, often considered the lifeblood of startups, have experienced an 8-percentage point increase compared to FY 2022.

This shift signifies that investors are once again showing a keen interest in nurturing fledgling businesses. Early-stage investments were once the cornerstone of MENA's startup ecosystem, and their resurgence is a promising sign for the region's entrepreneurial spirit.

One of the intriguing aspects highlighted in the MAGNiTT report is the transformation within MENA's startup sectors. Despite FinTech and E-commerce maintaining their top positions, a noticeable trend has emerged. The top five

industries collectively saw a 50% drop in the total number of deals compared to the same period in 2022. This shift suggests that investors may be diversifying their portfolios and exploring new sectors in the quest for promising opportunities.

Early-stage SEED rounds in the MENA region have experienced a substantial 28% rise in average valuations in 2023 year-to-date. This growth in valuations is unique among the various stages of investment and aligns with global trends, reflecting investors' reduced risk perception in early-stage ventures.

However, despite the buoyant Q3, the cumulative figures for the first three quarters of 2023 paint a somewhat different picture. The MENA region's venture landscape raised a total of $1.4 billion during this period. While this number is significant, it represents a 44% year-over-year retreat from 9M in 2022.

This decline aligns with global trends, as worldwide venture funding experienced a 42% year-over-year decline. This dip may be indicative of the challenges posed by economic uncertainty and the ever-changing dynamics of the global market.

Philip Bahoshy, CEO at MAGNiTT, remains cautiously optimistic, noting that the Q3 upswing should be considered against the backdrop of a record low figure in Q2, harking back to 2019.

He highlights the flatness of investment activity, particularly in the early-stage sector. However, multiple fund announcements and investments in startups are positive signs for the region's future. The remainder of 2023, especially Q4, will serve as a barometer for the robustness of MENA's venture capital landscape in 2024.

The report also delves into the global and MENA outlook for Q4 2023. Globally, the spectre of higher interest rates and uncertainty looms. Meanwhile, MENA faces unique geopolitical tensions and economic challenges.

The report anticipates a resurgence of MEGA deals, crucial contributors to the venture landscape, after two subdued quarters. New funds have also emerged, emphasizing the region's appeal, but the key will be the speed at which these investments materialize

As the MENA region navigates the ever-shifting landscape of venture capital, these trends and insights offer valuable guidance for both investors and startups seeking to make their mark in this dynamic ecosystem.