Record funding in 2017 for regional start-ups
The Middle East’s start-up ecosystem experienced a record year of funding in 2017 with US$560 million invested in 260 start-ups, Magnitt’s annual State of Mena Funding report revealed yesterday.
“We are continuing to see growth and maturity of the Mena start-up ecosystem,” said Philip Bahoshy, the founder of the online start-up community Magnitt, of the record year, in which more investment transactions were undertaken than any previous year. “We are seeing many of the existing venture capital firms [VCs] in the region deploy more capital from new funds into their portfolio companies as well as new investments.”
The $560m figure includes $150m invested in Careem last year by regional VCs including Kingdom Holding. Amazon’s acquisition of Souq.com last March is not included, as traditional M&A transactions are not included in Magnitt’s data.
“Careem and Souq are great examples for others to follow, however, given their success, their funding figures skew the underlying data and creates a misrepresentation of the growth of the ecosystem,” said Mr Bahoshy.
But 2017 was still a record funding year for the region even when Careem’s investments are not taken into account, with remaining investments up 65 per cent on 2016 levels. Mr Bahoshy says such growth can be attributed to the growing maturity of the region’s start-up ecosystem.
Magnitt’s Mena Founders report noted that 60 per cent of the top 200 funded start-ups in the region were founded between 2012 and 2015, and that it takes on average three, four and five years to raise Series A, B and C funding respectively.
“So the natural progression is that many of the successful start-ups founded during that period will continue to seek larger follow-on rounds as they mature,” said Mr Bahoshy.
Ventures in the UAE continue to secure the majority of funding activity, accounting for 70 per cent of investments last year, according to the report, something Mr Bahoshy attributes to the government’s focus on innovation in its strategic agenda as well as the high proportion of expats in consulting and banking roles who take the plunge into entrepreneurship.
Sanjay Narang, president of the Entrepreneurs’ Organisation, says three key factors drive the UAE’s dominance in the start-up sector. The first is the country’s tech-savvy and affluent customer base that has accepted e-commerce at a faster rate than surrounding countries, while the second is the increase in outsourcing options for last-mile delivery.
“This has enabled a larger pool of SMEs to sell and deliver online without the heavy capex investment,” said Mr Narang. The final factor, he said, is the UAE government’s support of SMEs through the provision of funding and incubators.
Saudi Arabia recorded the largest increase in deal transactions last year, up by 4 per cent on 2016.