Capijal | Jalouqa Capital Consultancy LTD.

MAGNiTT released the second instalment of the Investor Ranking Report, focusing exclusively on the MENA-based startups in H1 2023. According to the report, Investor participation during the first half of the year dropped significantly, decreasing by 55 percent compared to the same period of the previous year. The average number of deals per investor has increased by 15 percent, suggesting that investors participating are more active than in 2022 despite headwinds.

VC firms contributed the lion’s share (55 percent) of total investors in the MENA region in H1 ‘23, marginally up by 4 percent vs H1 ‘22. This is higher than their share of 41 percent aggregated over the past ten years. The number of investors participating in $20M+ rounds declined by 76 percent from 76 investors in H1 ‘22 to just 18 in H1 ‘23. Within these, the number of international investors retreated from 50 percent in H1 ‘22 to 28 percent in H1 ‘23, contributing only 5 active investors in H1 ‘23.

“While notable, the 55 percent decline is somewhat expected given the interplay between several factors,” pointed out Ryaan Sharif, General Manager – UAE at Flat6Labs. “Most important to consider among these is the large amounts of funding that MENA start-ups attracted in recent years. In 2022, Wamda estimated this figure to be US$4 billion, a rise of 24 percent over 2021, which itself was a strong year, with MAGNiTT reporting that in just the first half of that year.

Philip Bahoshy, CEO, MAGNiTT, noticed an interesting shift in late-stage rounds, which were once dominated by international investors, and are now being led by regional investors. The number of investors participating in the MENA VC ecosystem fell by 55 percent, from 353 investors in H1 ‘22 to 159 in H1 ‘23. This is likely driven by tight market liquidity, cautious investor sentiment, and weak global macroeconomics, observed Bahoshy.

The contribution of the top ten investors by capital deployed to MENA increased by 2.4X from 26 percent in H1 ‘22 to 62 percent in H1 ‘23. The top ten investors were all MENA-based. The biggest international investor ranked 13th, $12M away from the tenth largest MENA investor ($27M).

UAE's Chimera Capital and Egypt's Flat6Labs lead by established capital deployed and number of deals respectively, while USA's Venom Ventures and Saudi-based AlJazira Capital lead the way by late-stage and early-stage capital deployment respectively.

Flat6Labs’ Sharif added that MENA startups had attracted more than US$1.2bn, a 64 percent year-on-year growth. “Such momentum is hard to sustain, and it naturally follows that market cycles will turn, and growth will dip. Moreover, with global economic uncertainties continuing to prevail, investors have understandably adopted a more cautious approach. They are following meticulous evaluation processes and moving towards reducing risk and enhancing long-term investment viability. This is evidenced in the shift towards late-stage rounds.”

Sharif also pointed out that this change in investor outlook underscores a discernible trend within the venture capital landscape. Rather than prioritizing rapid expansion and cash-intensive strategies, investors seem increasingly inclined to support startups that demonstrate a clear roadmap to profitability and sustainable growth. This evolving investor preference could be a driving force behind the observed changes in investment behaviours.

Flat6Labs’ Sharif concluded, “All this said, the emergence of robust regional players and MENA-based top investors highlights the region's growing self-reliance and attractiveness. Looking ahead therefore, I believe that as economies regain stability and confidence improves, there's potential for a reversal of this trend in the latter half of the year.”

Source: Sme10x