MENA in Focus Part 1- with MEVP

Investment trends, entrepreneurial maturity, and the lookout for the most anticipated industries across MENA and EVMs. A two-part series with MEVP Managing Partner Rabih Khoury


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With the release of our much-anticipated State of Startup Funding- Emerging Venture Markets 2022 report available for free, we take the time to reflect upon MENA and its promising entrepreneurial hubs. Only a few weeks into 2022, MENA records its first Mega Deal of the year by MENA-based Cryptocurrency trading platform Rain. This latest investment in itself could be a microcosm of the VC trajectories observed in MENA over the years. 

Investor interest in 2021 seemed to gravitate towards later-stage deals, where funding rounds of $10M+ observed a 3%PP growth YoY,  to set a new record-high 10%  share of total transactions closed in MENA in 2021. This was also reflected in the record-high number of Mega Deals (3) closed in one year in this Emerging Venture Market. UAE-based Cloud Kitchen network Kitopi, Egypt-based crediting solutions provider Halan, and KSA-based cloud communication software provider Unifonic rose to the challenge and secured their $100M+ Mega Rounds. In doing so, these later-stage startups did not only drive the 132% YoY funding growth in 2021 but also showed investor confidence in the Tech and Digital landscapes of the region. 

As we also release our MENA 2022 Venture Investment Report detailing the VC trends and top-performing industries we notice the remarkable growth of industries of digitization. While MENA-based FinTech startups raised 17% of all capital deployed across the region, the FinTech and E-commerce spaces together accounted for a third of all deals closed over 2021. These critical shifts in VC dynamics are reflective of emerging trends in the market which could be key to the growth of ecosystem coming in 2022. In this 2-part series, we invite Rabih Khoury, Managing Partner of MEVP to shed light on some rising trends in MENA and Emerging Venture Markets. 


 


This year the MENAPT region saw innovations across a multitude of factors, new themes and leaders are emerging across the globe with significant participation from the region. While our 2021 Newsletter will be published in the first quarter of 2022, we are happy to share some fundamental themes that are a direct result of the commitment, creativity, flexibility, tenacity, and perseverance of all the different stakeholders contributing to our ecosystem over the past year. Here are just a few of our thoughts about the last 12 months to which we have all dedicated ourselves:

Highlights on the Region's Entrepreneurial Prowess and Emerging Ventures

Startup founders are becoming more tech and business savvy. They are more focused on high growth while few are focused on balancing high growth with healthy unit economics, but this is and will continue to improve. 

The number of return local founders is increasing. Reflecting a promising reverse brain-drain trend in the region, more entrepreneurs are returning from abroad to build local ventures in their hometowns. Added to that, we’re observing the rise of serial entrepreneurs building Tech-focused startups like Tabby, Tamara, and Lyve Global. We’re also observing more Ex-founders & executives joining forces to create new ventures, with Dastgyr in Pakistan and Cartona in Egypt as one example of Ex-Careem executives building on their vetted expertise. This is reflecting well on the general business acumen of the entrepreneurial ecosystem. 

Startups are becoming more aggressive in their pursuit of talent. That has been reflected in the willingness of startups to back their talent search with focused budgets, where startup compensation is rising to attract high-caliber talent, and ventures opening offices in geographies like Cairo, Dubai, London, and Pakistan in search of them. This being said, and perhaps inspired by the reverse-quarantine effect, it is evident that startups are now thinking and hiring globally rather than being restricted to local talent pools. 

Startup Ecosystems are maturing. There are plenty of signs that show the synergy between VC and startups and evident maturity across sectors and geographies.  Firstly, deal sizes are becoming bigger: what used to be a typical Series A round size in the past, is now becoming a seed or even pre-seed amount, and this is driven also by the higher amount of capital available in the region. This is reflected in Seed rounds regularly exceeding $5M and Series A exceeding $15M. We’re also observing Venture debt growth, especially in FinTech and B2B plays. With new startups emerging at a much faster pace, several sectors are also becoming more crowded which will push for more consolidation in the next couple of years.

Regional Players Emerging, International Corporates Engaging. In the past couple of years, startups were focused on local expansions, now with the increased maturity, more companies (in some sectors more than others, ex: e-commerce Vs. fintech) are becoming multi-country plays, which is a healthy indicator for the growth and scalability potential within and beyond the region. Large corporates (especially telcos and banks) are partnering up and investing in startups, which signals a higher growth potential for the ecosystem, reaching more clients (whether B2B or B2C) at potential better unit economics. 
 


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MENA VC Dynamic and Investment Trends

The MENA ecosystem is growing with a recent increase in exits through SPACs with Anghami and SWVL, IPOs with Jahez in Saudi, and Fawry in Egypt, acquisitions (more than doubling last year) including TreasuryXpress, Eventtus, FilKhedma, Hawaya, iKconNovimed, and more. This sends positive signals globally, encouraging international investors to invest heavily in the region, therefore availing more capital and expertise that will push the founders and their companies forward in the coming few years. Regulatory authorities across the region are becoming more proactive and progressive which is directly creating new opportunities and making new sectors flourish, such as the fintech sector that has been suffering from being in the grey area a few years ago.

As global and regional investors gear up and back larger stakes in the region, Smart money is becoming of crucial importance. While local startups mature, they require VCs that have strong regional and global investors and business partner networks to help them scale.

 

More global VC funding is flowing in the region, existing regional VCs are solidifying their presence, and new regional and local VCs are emerging at a much faster pace than before. Thus, deals are becoming more competitive with the founders looking for investors that have/do the following:
  • Transparency, clear communication, and rapid process (while maintaining appropriate diligence)
  • Provide support even before the deal is closed. This gives the founders a real sense of the value and proactivity of the investor.
  • Strong connections (especially governmental/regulatory connections, business networks, investors/LPs, etc.)
  • Strong portfolio, which reflects the investor’s thesis in action and creates an attractive point for startups as they see the value of potential synergies. 

The two-part series continues next week with a focus on the most-anticipated sectors coming out of the region and an in-depth exploration of VC ecosystems across geographies in MENA. In the meantime, download and access our free Startup Funding- Emerging Venture Markets 2022 to keep up with the changing tides!


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