Between VC Lines: UAE, Egypt, and KSA in 3 years of deals

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It took extreme conditions and some of the toughest times in the 21st century to really bring out the business prowess of the startup ecosystem in Emerging Venture Markets. Three months into the second half of this year, we still observed major breakthroughs in VC spaces across MENAPT, in fact, by Q3 2021 each of these emerging geographies saw more funding in 2021 than the total amount raised in FY’2020. Turkey achieved the highest YoY growth in funding (718%) across all geographies and its highest quarter of funding since 2019. Pakistan observed an unprecedented investor activity where, by Q3’21, the number of active investors doubled YoY. However, major shifts in MENA recorded in our MENA Q3 2021 Venture Investment Report offered us a perfect moment to evaluate MENA’s top 3 Ecosystems. 

Over the past 3 years, Egypt, the UAE, and KSA have been leading the MENA startup scene in the volume of capital deployed and number of transactions closed yearly.  The third quarter of this year, however, pushed these VC ecosystems beyond their tipping points where, for the first time, Egypt ranks first as the most active geography by number of transactions, while KSA finally closes its deal gap with the UAE. 

In light of the 4-year consecutive growth in funding, and 3-year consecutive dip in number of deals closed across MENA, these shifts in ranking bring nuanced observations on the growth of these startup ecosystems. In 2021, both Egypt and the UAE recorded an IPO exit with UAE and Egypt-based Swvl, while KSA recorded its first Megadeal with Unifonic. This could be representative of the dynamic between these top 3 VC spaces as we dive further into 3 years of investment activity in Egypt, UAE, and KSA: 


 


Over the past three years, both Egypt and the UAE have been observing a gradual decline in number of deals closed, where by Q3 2021 deals had dropped by 30% and 41% respectively since 2019. KSA on the other hand was the only geography that witnessed a gradual incline, growing number of deals by 38%. This dynamic drove the deal gap between KSA and the UAE to shrink, where KSA-based startups closed 57% fewer rounds than their UAE counterparts in 2019, 36% fewer in 2020, and finally closed an equal 91 deals by Q3 2021. Driven by 20% more deals in Q3 2021 compared to the same time last year, however still fewer deals than FY’2020, Egypt was able to surpass both ecosystems to become the most active ecosystem in MENA. 
 

There have been several close proximities between the top 3 ecosystems with respect to capital deployed in local startups over the past 3 years. It is important to note, however, that the UAE has been ranking 1st in both volume of capital deployed and number of deals closed prior to the third quarter of 2021. To put things into perspective, while funding rounds in Egypt 2018 accounted for $84M and KSA accounted for $67M, UAE-based startups had already raised more than half a billion. 

Needless to say, the real head-to-head race in terms of overall funds raised was between Egypt and KSA. Between 2018 and 2019 investments almost doubled in both ecosystems, growing by 70% and 60% YoY respectively. The first critical moment for both geographies was recorded in 2020, where both KSA and Egypt raised the same amount- this came as a result of another 60% YoY capital growth in KSA yet only a 25% YoY growth in Egypt. After that, KSA surpassed Egypt in capital deployed in H1 2021 driven by a 64% YoY growth, only for Egypt to claim back its position by Q3 2021 driven by a 117% YoY growth.   

These shifts provide us ample avenues to explore if we examine the nature and drivers of these changes. For instance, Egypt had the highest proportion of Early-Stage deals (<$500K) amongst the 3 geographies, accounting for more than half of all deals closed by Q3 2021. It could be driven by market-specific investor trajectories, where investors preferred to back later-stage deals ($500K-$3M) across the UAE and KSA, accounting for 45% and 53% of total deals closed in Q3 2021 respectively. With three years still left of a stellar year, projecting the growth trajectory we’re headed for in 2022 is possible by scrutinizing the data at hand. 

Data sets used in the development of this research piece were from UAE Q3 2021 Venture Investment Report, KSA  Q3 2021 Venture Investment Report, Egypt  Q3 2021 Venture Investment Report, and MENA  Q3 2021 Venture Investment Report.  


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