VC Horizon: 8 predictions for MENA 2022
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Tomorrow marks the release of our 2021 EVM Venture Investment Report, detailing the phenomenal VC growth in MENA, Africa, Pakistan, and Turkey. At this point, it is no surprise that Emerging Venture Markets have witnessed an exceptional year in 2021. As we take this week to dive into the 3.5x YoY growth in funding across geographies, we’re starting off with a deep-rooted perspective on the MENA VC ecosystem by Global Ventures.
Building off on their steady portfolio in 2021, backing anticipated deals across EVMs including in FinTech Tabby, Paymob, Sympl, and Tarabut Gateway, in HealthTech including Yodawy and Valeo, in F&B including MUNCH:ON and elmenus, and even sustainable agriculture with Red Sea Farms Global Ventures has built keen foresight for future trends. We invite General Partner Basil Moftah to detail a promising future for MENA emerging on the horizon:
It is time to put a bow on what has been an extraordinary year for the venture capital industry in MENA. Between fundraising and deal-making, our region’s ecosystem was in relative hyperdrive this year. Total venture funding broke the $2Bn mark. Signals of a maturing market were loud and clear. The number of international investors that deployed capital in our markets reached an all-time high, up 11% from 2020. While early-stage transactions have historically amassed the lion’s share of venture dollars in MENA, this trend is slowly reversing. Whether Kitopi’s $160M, Unifonic’s $125M, or Halan’s $120M, 2021 saw some momentous mega-rounds. In another sign of maturity, transactions are diversifying in nature and sophistication. M&A is ramping up, venture debt is increasingly characterizing investor sentiment and SPACs made a strong debut.
The momentum going into 2022 is promising to make the upcoming year memorable as well. Investment opportunities in digital innovation will continue to expand in 2022, further solidifying the region’s position in the global technology stage. By the end of next year, I project we will be talking about eight major events.
Another billion. 2022 will be the year the region hits $3Bn in total funding. Driven by increasing investor confidence and diversifying risk appetites in a post-pandemic world, MENA will witness another record-breaking year in venture.
A new lead in the funding race. While the UAE has been consistently topping the market in terms of dollar value of funding, 2022 will see a new contender take the lead: Egypt. Just as the region celebrated Egypt’s 2020 funding record of $190M, Egyptian startups raised a whopping $109M across 40 deals in the first half of 2021 and have been continuing on this upward trajectory ever since. The country has been recording a cumulative annual growth rate of 100%. For context, 31% is the CAGR for the entirety of the MENA region.
M&A to take off. As founders and investors realize the challenge with building scalable businesses in an environment with limited funds, fierce competition and high barriers to entry, inorganic growth through mergers and acquisitions will become the road more traveled for companies looking to achieve sustainable, long-term scale.
Venture debt to gain popularity. 71% of investors and start-ups have already considered Venture Debt as an alternative financing mechanism. As understandings of venture debt expand and entrepreneurs seek “cheaper” sources of capital, we will see increasing transactions of this type.
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MENA will usher the decentralized era. Web 3.0 businesses will skyrocket and crypto will take center stage. Globally, Web 3 is already reshaping art, commerce, and technology; displacing intermediaries; and putting people more directly in control of their destinies. Globally, venture capitalists have already invested more than $27Bn in crypto and related projects this year. That is more than the last 10 years combined. Investor appetite for crypto and Web 3 businesses will trickle down to the region over the course of the year.
Open banking will come home. The region is opening its eyes to the fact that all successful financial ecosystems share one commonality: strong and numerous connectivities between financial institutions and FinTechs. While Saudi Arabia and Bahrain have pioneered the region’s movement toward open banking, other countries will follow suit, especially as digitization continues at an accelerated pace. The use cases will be limited, however, with payments likely to be the most common application of open banking.
Companies to go public on the Saudi stock exchange. From looser disclosure requirements to easier listing rules, the Kingdom is offering attractive incentives for SMEs to list on Nomu, resulting in more liquidity for local startups and entrepreneurs across multiple countries. This would also make the region an attractive destination for other emerging market tech standouts. An early indicative sign of this trend taking emerged with the first IPO in Saudi Arabia which was announced by Tech startup Jahez this month.
MENA will be home to 4 (or more) new unicorns, most of which will be bred in the GCC. Historically, investors had the tendency to deploy capital into start-ups up to the Series B or C level and were reluctant with larger amounts beyond the Series C. With the pandemic, investors sought to minimize risk, which led to more capital deployed in later-stage deals. This paradigm shift is creating a tech and investment climate that is ripe for the emergence of new startup unicorns.
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