Spring for startups

SOURCE: Global Finance


MENA startups are now a magnet for new funding.

The startup ecosystem in the Middle East and North Africa (MENA) is booming, with $704 million invested in a record 564 deals in 2019, an increase of 12% in funding over the prior year, according to a recent report by Magnitt, a research network based in the United Arab Emirates.

Five years ago, a Middle Eastern startup pipeline barely existed; today, it is gaining confidence and maturing. Magnitt reported that last year broke all records with 27 exits and an average deal size at $1.9 million, up 7% from 2018. The region also witnessed its first unicorn exit as US giant Uber bought rival car-hailing company Careem for $3.1 billion.

Not so coincidentally, Magnitt reported that the Middle East is starting to show up on the global tech map. Last year, over 200 institutions invested in MENA startups, up 33% from 2018. But as more companies reach later stages of the startup cycle, new funding needs arise, opening opportunities for mergers and acquisitions. According to Magnitt, in the MENA startup industry the fintech and e-commerce sectors are first and second, respectively, in number of deals, while delivery and transport lead in amount of funding, followed by real estate.

“As companies mature and grow, their ability to scale geographically remains key to their exit proposition,” says Philip Bahoshy, CEO of Magnitt. “While governments have become more open to startups entering, licensing and cost remain an issue.”

The region’s nascent fintech is attracting attention from international investors, including Western entrepreneurs, as well as from other startups in MENA setting up new business. One of the key reasons is demographics: Nearly half of the Middle East’s more than 411 million residents are under age 25 and tech-savvy.

“The MENA region’s startup ecosystem is ripe for growth. We see huge opportunities in almost every aspect of life,” says Hassan Haider, managing partner, MENA, at 500 Startups, a US venture capital fund that invested in 68 new companies in the region last year, making it the most active investor for the second year in a row.

The locus of startups within MENA is shifting, however. The UAE, which pioneered the practice several years ago and still attracted the most cash last year—60% of total funding—is starting to lose ground to other markets.

Egypt, rising fast, captured 25% of deals last year. Saudi Arabia is aiming to be a player. With a population of almost 35 million and high purchasing power, the kingdom is starting to open up, offering visas to nonreligious tourists, for example. Jordan plans to launch a brand-new fintech incubator in partnership with US-based Fintech Consortium.

Lebanon, with its strong banking sector and one of the world’s largest diasporas, used to be a front-runner in funding new business launches; but the country now faces an unprecedented liquidity crisis. Beirut’s ability to manage its balance sheet will go a long way to incentivize—or not—prospective startups.

Fintech was a standout among MENA startups in 2019, capturing the biggest number of deals for the second year in a row. Total funding of MENA-based fintech startups reached $80 million, an increase of 82% over 2018. The bulk of activity is in payments, money transfers and remittance providers; but more innovative technologies such as blockchain, cryptocurrencies and artificial intelligence are also gaining ground.

Last year marked a turning point for MENA fintechs, as three payment companies registered initial public offerings on international exchanges.

UAE-based Network International and Finablr chose to list abroad for better global exposure and ended up being the two biggest IPOs on the London Stock Exchange last year. Cairo-based Fawry listed 36% of capital of its outstanding shares on the Egyptian Exchange, where it was immediately oversubscribed. Founded in 2009, Fawry was acquired back in 2015 by a group of local and international banks.

While still nascent compared with other regions, all this activity has been noted by MENA governments, which are looking for ways to encourage it. Regulators are at the forefront, adapting laws, creating sandboxes and encouraging public-private partnerships.


Do you want more in-depth research on the MENA VC & startup ecosystem? Purchase our 2019 MENA Venture Investment Report HERE

 


Source: gfmag.com