On strong ground
Despite several macroeconomic factors such as rising inflation and the effects of the Covid-19 pandemic challenging economies around the world in recent times, venture capital (VC) has managed to navigate the tide diligently.
“Venture capital continued to attract capital on the back of a decade of strong performance,” states the McKinsey Global Private Markets Review 2022. Venture capital has outperformed other PE (private equity) sub-asset classes in eight out of the last ten vintage years (2009-2018), it added.
“Global assets under management (AUM) increased by 38 per cent between the second quarters of 2020 and 2021, reaching an all-time high of $6.3tn. VC was the fastest growing strategy within PE, in terms of assets under management,” the report noted.
CLOSER TO HOME
Regionally, the sub-asset class performed impressively as well. In the first half of the year, the UAE’s VC ecosystem accrued 47 per cent of its FY 2021 funding, equalling $699m, a MAGNiTT report, sponsored by Emirates Development Bank (EDB) revealed. VC investments in Saudi Arabia, the largest GCC economy, reached $584m in H1 2022, rising 245 per cent compared to the first six months of 2021. Egypt roped in $307m in VC investments in the first half of the year, while Bahrain recorded $116m. Over H1 2022, the UAE recorded the highest number of transactions with 85 deals. Meanwhile, Saudi Arabia ranked as the second-most transacting VC market in the Middle East and North Africa region in terms of number of deals (79), rising 36 per cent year-on-year. Egypt and Bahrain recorded 78 and 10 deals, respectively. In the UAE, fintech was the top industry during H1 2022 in terms of the number of deals, equalling 28, and by funding, raising $234m, the MAGNiTT report added.
A plethora of initiatives have been undertaken in recent months to continue the momentum. In April this year, Dubai announced a fund for startups with a capital of approximately Dhs370m, aimed at creating an integrated funding system. In June, Bahrain’s Al Waha Fund of Funds, a government-led initiative said that it had invested in LionBird III, an $85m digital health-focused fund to assist regional startups access the US healthcare market. The Saudi Venture Capital Company also announced an investment in Saudi-based Sadu Capital’s fund earlier this year to nurture high-growth startups in the kingdom and the MENA region.
GOING AHEAD
Despite a new set of global challenges this year, the VC space – based on its historical performance - may look to continue its winning streak. As the McKinsey report puts it: “The demand for VC investments has been increasing in recent years, leading VC-focused firms to inject significant capital into early-stage companies.” With investors harbouring a risk appetite and leaning towards change, this sub-asset class seems poised to leverage opportunities for further growth.
“Saudi Arabia ranked as the second-most transacting VC market in the Middle East and North Africa region in terms of number of deals (79), rising 36 per cent year-on-year”