2019 was a blockbuster year for startups in the Middle East and North Africa with a total funding of $3.8 billion, headlined by Careem, which sold to Uber for $3.1 billion, according to a new report.
Even if you exclude the Careem deal, which was the region’s first “unicorn”, the startup funding market grew by a healthy 13 percent in 2019 to 704 million and is set to double that growth rate in 2020. Unicorns are startups that have a valuation of more than $1 billion.
“All of these records point towards a maturing ecosystem,” says Philip Bahoshy, founder and CEO of MAGNiTT, a startup data platform.
The region saw strong growth across the board including the number of startup investments, investors, exits and investment amounts, according to MAGNiTT. The region saw 564 investments, up 31 percent compared to 2018.
“I think overall it’s been a very good year. Post-Careem’s acquisition by Uber you've seen a number of people starting to look seriously about the region, and maybe that wasn't the case of this before,” said Waleed AlBanawi, founder and executive chairman of JISR Venture Partners.
Exits, a term referring to when early investors and founders make a return on a startup by selling or going public, were also up at record levels with 27 taking place in MENA in 2019.
“With exits at an all-time-high, including MENA’s first unicorn exit, the region’s founders, investors, and governments are seeing the returns on their efforts in the tech venture space,” Bahoshy said.
The UAE maintained its dominance as the largest market for total funding with the country being the recipient to 60 percent of all funding. However, Egypt for the first time accounted for the largest proportion of deals in the region, with a 25 percent share, while Saudi Arabia was the fastest growing country for number of deals and amount of funding.
“Both countries benefit from large populations, while Saudi Arabia specifically enjoys high internet and mobile penetration,” Bahoshy said.
International investors are increasingly interested in the MENA region, and 2019 saw the highest number of international investors making investments in its startups. The majority of these came from the US, Europe, South-east Asia and China, MAGNiTT said, with Asian and South East Asian investors specifically mentioned as increasing their interest.
“We believe this originates from several factors, including lower valuations in the MENA region compared to their market. MENA acting as a springboard towards Africa and similar characteristics of the MENA region compared to South-East Asia, which they can relate to and work with based on their experience. Investors and startups from those regions see the MENA region as a logical expansion as they look to grow to achieve higher valuations,” said Bahoshy.
For budding entrepreneurs looking to start their own business, transport rated as the number one sector for funding, followed by fintech, and then IT solutions.
MAGNiTT expects more than $1 billion to be invested in MENA-based startups in 2020, with another likely record year for number of exits. The effect of the Careem exit will also play a role in increasing acquisitions of MENA startups by international investors looking to capitalize on Middle Eastern market opportunities.
This is not to say that the startup ecosystem does not face challenges, however.
“I worry about the ability to raise money so 2020 is going to be the year differentiating the men from the boys, ones that are mature will probably get attraction by international players or regional private equity” said AlBanawi.
Bahoshy said many startups in the region had addressed inefficiencies in infrastructure systems, but fintech was facing challenges.
“The region has continued to see success in fields where startups solve large, identifiable infrastructure pain points. Historically, this has come through transport and logistics, which also includes e-commerce platforms. As such, fintech remains ripe for disruption across the MENA region, but not without regulatory challenges,” said Bahoshy.
AlBanawi echoed Bahoshy’s comments, and said, “Clearly fintech is exciting, but I think regulation has to be a bit more aggressive and allow fintech companies to really take it to the next stage.”