MENA startup ecosystem reshaped: What's the “new normal” post-COVID-19?
2020 was surely a year of uncertainty that reflected on the investment scenery throughout the year. The pandemic brought in several challenges and opportunities for MENA-based founders - with the shift of investors' focus towards later-stage deals, the slowdown of acceleration programs, and an increased interest in positively-impacted industries such as E-Commerce, Healthcare, and Food & Beverage.
To get a comprehensive overview of the 2020 changes, read MAGNiTT’s 2021 MENA Venture Investment Report.
The following four points sum up the key findings of the report, allowing for a clear comprehension of the impact of the COVID-19 pandemic on the MENA startup ecosystem.
1. The impact from COVID-19 hit the ecosystem in July 2020: H2’ 20 saw a 34% decrease in deal flow and a 58% decrease in total VC funding, compared to H1 ‘20.
While 50 transactions were carried out in the first 6 months of 2020, the latter 6 months saw an average of only 33 deals (-34%). On a quarterly basis, although Q3’ 20 performance in terms of funding was better than that of Q3’19 (+24%), the deals dropped significantly YoY (-44%).
2. The early-stage deal flow saw a 20% drop YoY in the number of funding rounds, creating a risk of disruption in the startup funnel for next years to come.
The 2021 MENA Venture Investment Report revealed a significant decrease in deals smaller than $100K in 2020 that stood at a 5-year record low proportion of 27% of all deals. The startup ecosystem could thus face the risk of pipeline reduction in the startup funnel in the upcoming years.
3. Accelerator offline programs were hugely disrupted by COVID-19, which translated into a drop in accelerator-backed funding rounds of 42% year over year.
Thanks to various acceleration programs deployed across MENA, the region saw a constant growth in the proportion of accelerated deals between 2016 and 2020. This trend was reversed in 2020, with acceleration programs in Egypt (-34%) and KSA (-16%) suffering the most. However, Oman, Jordan, and United Arab Emirates, continued to successfully manage the impact of the pandemic on their accelerator activity with both online and offline programs which led to the increased share of accelerator deals. This illustrates that the pandemic did not have a common impact on all countries across MENA.
4. In terms of growing industries, 2020 clearly refocused investors’ interest in positively-impacted sectors, such as E-Commerce, Healthcare, Food & Beverage, or FinTech.
Since 2016, the MENA startup ecosystem was going through a process of diversification of industry preferences: if the majority of the venture capital invested in 2016 went to E-Commerce (39%) and Transport (37%) ventures, in 2020 we saw a more balanced capital allocation across top 10 industries. The 2020 pandemic only intensified this trend, with clear winners being startups in Healthcare, Fintech, Food & Beverage, and E-commerce, which accounted for almost half of all funding (49%) altogether.
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