Q1 2023 MENA Industry Venture Investment Brief

The Q1 2023 MENA Industry Venture Investment Brief examines the impact of the ongoing global economic challenges on the performance of three of MENA’s top ranking industries.

The first quarter of this year has witnessed a significant upheaval in the global financial sector, and high inflation rates have made it impossible for an economic soft-landing scenario to materialize. Although the Federal Reserve's actions of continuously amplifying interest rates, which were followed by some Central Banks in the region, may have caused inflation to retreat, underlying price pressures remain sticky.

The MENA VC ecosystem experienced a sluggish start in 2023, with funding declining by 13% YoY, and deals plummeting by 55%. The macroeconomic environment continued to drive up the cost of capital, leading to a more conservative investment approach, which further cooled down the market. This trend was reflected in MENA's top industries, including FinTech, Transport & Logistics, and E-Commerce/Retail, which witnessed yearly declines in transactions and funding, except for the impact of the MEGA deals closed for FinTech and E-Commerce/Retail. Unfortunately, the Transport & Logistics industry suffered the most during the first quarter of this year. Given the challenging market environment, investors remain vigilant and cautious while making investment decisions and this is reflected clearly in both deal flow and funding evolution.

FinTech in the MENA region grew remarkably over the past years. The five-year CAGR of capital deployed in 2022 reported 77% highlighting the rapid expansion of the industry in the region. The focus on enhancing and automating several financial services, including Payment Solutions, Neobanking, Lending, and Capital Market Services, has contributed to the industry's success. It is true that FinTech in MENA performed similar to the region overall, as capital deployed in the industry edged down by 9% YoY in Q1 and deals retreated to less than half their Q1 2022 levels. The decline in funding for rounds less than $100M by an annual 64% is a significant concern, especially considering that these rounds make up the majority of FinTech deals in the region. Overall, while the Q1 results may not be as promising as previous quarters, it is essential to consider the broader economic context in the region and the impact of the ongoing global economic disturbances. The FinTech industry has shown resilience in the face of challenging circumstances and continues to be a realm of interest for investors in the region.

It is interesting to note the continued growth of E-commerce/Retail in the MENA region, driven by the increasing number of internet users and the rise of mobile access. The COVID-19 pandemic also played a significant role in accelerating the adoption of online shopping, as people looked for safer and more convenient ways to purchase goods and services. However, despite the impressive growth of the sector, challenges affecting the VC ecosystem have impacted investment and the growth of E-commerce/Retail in the region. The two MEGA deals that closed in Q1 2023 for a total of $289M are certainly of added value to the sector, but it is important to consider the broader context of the industry's funding landscape. Ignoring these MEGA deals, the non-MEGA deal funding level in Q1 2023 was the lowest since Q3 2020. This suggests that while there were still some significant deals, overall investment activity in the E-commerce/Retail sector in the MENA region has slowed down. The decrease in capital deployed in less than $100M deals by 82% YoY in Q1 2023 indicates that investors may be more cautious or selective in their investment decisions. The fact that the number of deals fell by 68% YoY to their lowest level since Q4 2018 further underscores this trend.

The fact that Q1 2023 was the lowest funded quarter for T&L since Q3 2019 (or Q3 2022 if we remove the impact of the MEGA deal in that quarter) suggests that the ongoing financial vulnerability had a more significant impact on the industry compared to the pandemic era and its consequences. Overall, while Q1 2023 was a challenging quarter for the Transport & Logistics sector in the MENA region. The fact that out of 11 deals closed for T&L in Q1 2023, seven were of round size $0M-$1M, indicates a risk-averse nature of investment in the industry. This trend may reflect a cautious approach by investors who are wary of the ongoing economic pressures and uncertainties.

What’s In The Brief?

This brief provides a comprehensive overview and a deep dive into the evolution of MENA’s industries (FinTech, E-Commerce/Retail, and Transport & Logistics) and includes the following: 5-year analysis of each industry’s venture funding evolution, an 8-quarter analysis of each industry’s venture funding evolution, the top 5 sub- industries for each of the three industries in MENA, the top 10 industries by deals in MENA, the top 10 industries by funding in MENA

Who is it for?

Whether you’re a private investor, a VC, an investment company, a CVC, or working in corporate, this report gives an overview of the ecosystem and caters to a diverse audience including any curious minds who want to use the yearly, quarterly and monthly charts in this report to track investment activity.

You can also see in which country and industry the investment activity focused in terms of deals and capital deployed, allowing you to leverage insights and make wise choices.

The report can also be used by consultants looking to identify technology innovation trends and who will find it valuable to look at the evolution of M&A activity and concentration of acquirers/acquired startups.

Last but not least, government entities searching for investment opportunities will also find valuable information to make informed decisions.

Where is this information from?

The report was 100% created using data from MAGNiTT. MAGNiTT is the leading VC verified data platform and offers a comprehensive directory of technology innovation trends. Our unique SaaS solution includes investment directories listing startup venture funding across the Middle East, Africa, Pakistan, and Turkey, and now Singapore. By using MAGNiTT, you will also get access to market sizing tools to visualize investment growth and trends across various industries, geographies, and stages, as well as comparison tools for benchmarking geographies, industries, and investor performance. Furthermore, MAGNiTT offers exit comparisons by examining mergers and acquisitions.

Learn more about MAGNiTT's Data Methodology.

*This report aggregates and analyses tech startup investments in 17 countries in the Middle East and North Africa - listed alphabetically: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia (KSA), Syria, Tunisia, United Arab Emirates (UAE), and Yemen.

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