Start-ups in the Middle East and North Africa raised funds worth $659 million in the first half of the year, which is up 35% from the same timeframe in 2019, according to the Magnitt data platform.
The spike in investment in the first half is primarily attributed to a few startups raising significant and high-profile funding rounds prior to the COVID-19 outbreak, Magnitt’s H1 2020 MENA Venture Investment Report said.
Big investment rounds in the first six months of the year included $60 million for Dubai’s cloud kitchen company Kitopi, $40 million for Egyptian health technology start-up Vezeeta, $150 million for Dubai-based Emerging Markets Property Group (EMPG) and $36.5 million for Saudi Arabia’s food delivery app Jahez.
As a result of several later-stage investments, the UAE received the largest share of total funding, while Egypt still ranks first in the number of deals, accounting for 25% of the total in the Mena region.
Although funding for MENA start-ups increased, the number of deals in the first six months decreased by 8% year-on-year to 251 investments, with the largest drop reported in March and April.
“We are seeing a shift in investor appetite when it comes to start-up development stages,” Philip Bahoshy, Magnitt’s founder and chief executive, said.
“There are two key factors at play: First, the full impact of COVID-19 is likely to hit later in the year. Second, what we see is that more later-stage investments with larger round sizes have been taking place,” he said.
That illustrates “larger bets” are being made on more established companies, “which can provide them a longer runway to weather the challenging times ahead”, Mr. Bahoshy said.
The study highlighted the effect of the coronavirus crisis on investment in MENA start-ups. In addition to the preference for later-stage investment, other investors are preferring to fund sectors that have had a positive effect on the pandemic, including e-commerce, FinTech, and healthcare technology, among others.
About 27% of investors suggested that they had changed their attention to sectors that were ‘positively influenced’ by COVID-19, according to a separate report by Magnitt and France’s Insead Graduate School of Business.
Among the most successful investors, FinTech start-ups accounted for the largest share of investment deals in the first half of 2020. Real estate ranked first by total financing, as EMPG lists the Bayut real estate portal and ranks the classifieds platform dubizzle among its brands. The food and beverage market saw the largest leap in overall funding thanks to Kitopi’s $60 million fundraising campaign.
E-commerce accounted for 14% of all transactions, and distribution & transport accounted for 10%, with activities jumping in the second quarter.
Looking ahead, 75% of investors expect the MENA region to be moving towards an economic recession, according to the survey. The International Monetary Fund forecasts that the global economy will plunge into the worst recession this year since the Great Depression, with inflation dropping 4.9%.
Startups have a more negative outlook, with 24% anticipating the area to shift into depression, compared to just 6% of investors.
Nonetheless, most start-ups and investors expect the crisis to be over within nine months, with 61% of founders and 48% of investors expecting the crisis to be over by the first quarter of 2021.
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