Startups in the Middle East and North Africa (MENA) region secured record funding of more than $1 billion in 2020, although the capital was spread across fewer deals sealed mainly in the first half of the year, according to data platform Magnitt.
The amount raised was a 13 percent annual increase and was the first time that fundraising for MENA startups broke through the $1 billion barrier, Magnitt’s 2021 Emerging Venture Markets report showed. The capital was invested into 496 companies, which was 13 percent fewer than the previous year.
Startups raised most of the $1 billion in funding during the first six months of the year when they secured $725 million, a 29 percent increase from the $563 million secured in the first half of 2019.
The second half of 2020 was more muted, however, as the COVID-19 pandemic took its toll on the global economy. Startups raised $306 million during the period, down 13 percent from the second half of 2019. The capital was invested in 198 deals, which was a 35 percent decline from the same period in 2019.
“2020 was a rollercoaster year that highlighted the importance of leveraging data to make opportunities visible across borders,” Philip Bahoshy, chief executive of Magnitt, said. “COVID-19 rapidly accelerated the adoption of technology across emerging markets, creating larger markets and more opportunities to scale.”
The COVID-19 pandemic has plunged the global economy into a deep recession, affecting sectors from air transport, tourism, supply chains, manufacturing to shipping. On the other hand, businesses operating in key sectors such as healthcare and technology have seen an uptick in demand.
The pandemic has prompted investors to re-allocate capital away from early stage ventures to bigger-ticket seed and Series A investments ranging from $100,000 to $3 million, Magnitt said.
Backing for eCommerce and Fintech
Investors also opted to back industries such as eCommerce and FinTech, which saw increased demand during the pandemic and retained the two top spots by number of deals.
Together, eCommerce and FinTech garnered almost a quarter of all deals in 2020, according to Magnitt. Investment in healthcare startups more than tripled to $72 million during the pandemic.
Saudi leads the way
Within the region, the UAE, Egypt and Saudi Arabia accounted for 68 percent of total deals disclosed in 2020.
Startups in Saudi Arabia, the Arab world’s biggest economy, sealed 18 percent of the region’s deals and 15 percent of the total funding. The oil producer registered the highest increase in the number of deals, up 35 percent year-on-year, and funding flows to the kingdom’s start-ups rose by 55 percent.
The UAE, the Arab world’s second-biggest economy, received the largest share of funds raised and ranked first in terms of the number of deals, the report showed. Startups in the UAE attracted more than half of the total venture capital into the region and just over a quarter of the total MENA deals. Its total share of funding rose 5 percent to $579 million but its share of total deals dropped 17 percent.
Bahrain recorded the highest increase in funding, with capital flows to its startups tripling year-on-year to $20 million. Lebanon, which is facing the worst economic crisis in its history, saw the number of deals drop by 64 percent to 16, falling out of Magnitt’s Top 7 MENA country deal ranking in 2020.
Topping the five biggest funding rounds in MENA, UAE-based EMPG raised $150 million in its Series E round in April, followed by the UAE’s Kitopi with $60 million and Egypt’s healthcare startup Vezeeta with $40 million.
International investors and mega deals
Last year, a total of 243 investors participated in at least one funding round in MENA, with international funds accounting for 22 percent of all active investment institutions, Magnitt said. The number of international investors increased to 54 in 2020 from 51 a year earlier, while the number of active investors remained relatively stable, up 3 percent at 243.
The impact of the pandemic was highlighted during the third quarter of 2020, when MENA startups recorded 91 deals, the lowest in eight quarters. The fourth quarter showed signs of a recovery, with a 57 percent uptick in total funding.
Looking forward, Magnitt expects there will be no mega deals of more than $100 million across the MENA region in 2021. It also expects Saudi Arabia will surpass Egypt in terms of both the total number of investments and total capital deployed in venture funding this year.