A high level look into MENA's 2020 venture space
According to MAGNiTT's 2021 MENA Venture Investment Report, the first in its series of comprehensive deep dives into the region's venture capital activity, the Middle East and North Africa's (MENA) startup ecosystem saw over $1BN invested across 496 deals in 2020, a 13% increase in total funding despite a 13% drop in deal activity, compared to 2019. What were the key drivers behind this outstanding performance?
1. More sizeable later stage investment rounds:
The VC investment record was mostly attributable to the top 5 funding rounds that accounted for 31% of all capital raised in 2020. Despite the setbacks of the COVID-19 pandemic, 2020 saw a few sizable investments with $35M+ tickets raised, starting with EMPG's $150M Series E led by OLX Group.
Moreover, according to the 2021 MENA Venture Investment Report, due to a 13% decrease in the number of deals, MENA's average ticket size grew by 35% and the median ticket size increased by 150% in 2020, indicating the shift towards more sizeable deals across the region.
2. More active investment firms, both in MENA and from abroad:
With a compound annual growth rate (CAGR) of 57%, the number of funding institutions that participated at least in one deal increased from just 96 in 2016 to 243 in 2020. This 5-year trend was not reversed during the pandemic, as the number of active investors grew by 3%, compared to 2019.
Although MENA-based investors have always accounted for more than 70% of the deal activity in the region, the number of international investors active in MENA also increased from just 27 entities in 2016 to 54 in 2020.
3. MENA's top 3 innovation hubs prove to be agile during COVID-19:
The United Arab Emirates (UAE), Egypt, and Saudi Arabia (KSA) have been the top 3 most active geographies in the region by deal and funding activity witnessing 129, 120, and 88 deals respectively in 2020. The three innovation hubs saw a surge in total funding raised in 2020 countries Saudi Arabia (KSA) was the only country that saw the highest YoY increase in deal and investment activity, (+35%) and (+55%), respectively, while the UAE and Egypt both saw declines in the number of investment deals but a surge in.
Moreover, Jordan and Oman saw an (+18%) and a (+23%) increase in deal activity YoY, mostly below the ($500K) threshold, as local and regional investors remained active within the geographies' startup ecosystems such as the Oman Tech Fund (OTF) which ranked the top funding institution in Oman through its subsidiaries Wadi Accelerator, Techween, and Jasoor. With $579M invested across 129 deals, the UAE saw an average ticket size of $5.1M and a median ticket size of $0.7M, 120% and 40% higher than those the region as a whole, respectively, indicating a larger share of later-stage deals in comparison to it's neighboring countries in the region last year.
"2021 will be the year of transition. Barring any unexpected catastrophes, individuals, businesses, and society can start to look forward to shaping their futures rather than just grinding through the present. The next normal is going to be different. It will not mean going back to the conditions that prevailed in 2019. Indeed, just as the terms “prewar” and “postwar” are commonly used to describe the 20th century, generations to come will likely discuss the pre-COVID-19 and post-COVID-19 eras." (Source: Mckinsey - Trends that will define 2021—and beyond).
Such a pandemic is very likely to continue impacting the macro-economic outlook of the region long into 2021, although vaccinations are underway and global economies are grinding for a more fast-paced recovery. As we look back at the year, startups, government institutes, and large corporations within the region have worked together to overcome the complications created by the pandemic, from financial assistance to startups that are struggling to startups helping out the communities that they operate in.
For a more comprehensive analysis and deep dive into the region's startup and venture capital activity in 2020, check out the recently launched 2021 MENA Venture Investment Report.
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