Building Resilience: Consolidation and the Future of the MENA Startup Ecosystem

Previously: Exciting Investment Prospects: Tech Sectors Set to Shine in 2023

 

A time for consolidation

The last decade has seen tremendous growth in funding in the region, especially led by Dubai. However in 2022, valuations fell and investors switched focus and acquisitions increased. This trend is expected to continue in the short term, 2023 and 2024, as valuations are expected to continue to correct until they reach pre-pandemic levels. As Noor Sweid mentions, “M&A will also continue to serve as an alternative to raising funds in an illiquid market. This will consolidate the ecosystem overall and will result in a more robust and stronger market on the flipside of this downturn.”.

Post correction period and consolidation phase, a more robust and stronger market is expected at the end of this downturn cycle. As investors will prioritize their portfolio, they will continue to be relatively resistant to large-scale investments, therefore, later stage deals will be less likely. This addresses the later-stage funding gap noted throughout this report. Instead, investors expect to see an increase in seed stage to early Series A investments, especially in businesses that have strong unit economics and a clear path to profitability.

 

 

As Global Venture’s Noor puts it, “we expect the next five years to consolidate the ecosystem and for many start-ups to emerge stronger [and this] will also be supported by a focus on profitability and robust unit economics.” She continues to expect “continued interest from international investors in the region, the early days of which we are seeing today.” 

Dany Farha from BECO Capital also agrees. “We’re seeing continued interest from international investors, which indicates we’re on the right track,” he said. “In 2022, 3 out of the top 5 investors in the MENA ecosystem, from a capital deployed perspective, were from outside the region. Nevertheless, 2022 valuations suggest that competition for investors in growth stages is still low. The average MENA Series A valuation in 2022 was nearly 8% below that of U.S. rounds. However, the average MENA Series B valuation in 2022 was nearly 21% below that of US rounds [and] we need to see both local growth-stage funds and more international investors fill this funding gap.”

With the UAE issuing the D33 Agenda and focusing on diversifying its economy, the next decade looks very exciting for stakeholders who are already in this region, or are expected to make a move.

Related Report: The Middle East & North Africa’s M&A Landscape 2017-2022

To get the lay of the investor landscape across Dubai and MENA, and for insights provided by the investors backing the start-ups and scale-ups that are changing the face of entrepreneurship in the region, read the report by clicking here.

 

Related Articles:

• Expected Headwinds in Dubai’s Funding Landscape
• In Conversation with Dany Farha, Managing Partner of BECO Capital
• Dubai's Global Attractiveness: Perspectives from Venture Capitalists
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