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ArabNet Launches Updated State of Digital Investments Report

ArabNet Team, May 07 2018

Last week at the Arabnet Summit, in collaboration with The Mohammed Bin Rashid Establishment for SME Development (Dubai SME), ArabNet launched the third edition of the “State of Digital Investments in MENA”. 

This edition of the Investment Report covers more than 199 funding institutions and 1091 deals that took place between 2013 and 2017, and actively analyzes year-on-year trends – from the distribution of investors by geography to the percentage of founders who are female.  .

Background Info: Global Investments in Tech Startups

Global Venture Financing Trends
Globally, 2017 witnessed a new investment high compared to the past ten years, where VCs have spent approximately $150 billion. The last time such high dollar amounts, hitting approximately $143 billion in capital, peaked was two years ago in 2015, during which the number of deals reached an overall high of 19,000. While the number of deals over the past three years has declined, the total dollars invested has remained relatively stable, indicating an increasing in the average size of funding rounds – a move towards larger deals.

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The Study: Scope and Methodology
This research report investigates the technology investment landscape in the Middle East and North Africa (MENA) region. The report findings are based on data collected from 52 investors and accelerators in the MENA region, specifically in the United Arab Emirates, Egypt, Lebanon, Jordan, Saudi Arabia, Morocco, Kuwait, Palestine, Algeria, Tunisia, and Bahrain.

The report also aggregates information from publicly available data such as those listed on Crunchbase, CB Insights, AngelList, and Eureeca among others. The report also collected new data from startups through surveys. ArabNet is grateful for the participation of all investors, as well as the input of HyperPay, Education Media Company, Progressive Generation Studios, and Susurrus in our survey. Finally, the report analyzes 1,091 regional investments.

All investments analyzed in the report are for equity-based investments only, and therefore institutions that provide grant / non-equity based funding have not been included in the analysis.

Investors in MENA

Number of Investors by Year
The number of tech investors in the MENA continues to grow steadily, with a compound annual growth rate of 31% for period between 2012 and 2017. The ecosystem witnesses around 40 new funds per year between in 2015 and 2016 and around 30 new funds in 2017/2018 YTD.  

Of these 30 new funding institutions, about one third are based in the UAE, while a quarter are based in Lebanon. In the period covered by this research (2013-2017), only seven funds are no longer active/operational. Highlighting the increased robustness of the report, the below graph demonstrates a 20% increase in funds covered since last year’s report. 

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Investors in MENA by Ticket Size

Percent Number of Investors by Ticket Size
The investor community is equally spread among early stage funds (47%) and growth funds (53%). This exemplifies the maturing nature of the MENA ecosystem. Accelerators are at the forefront and represent the largest portion of early stage investors with the launch of new programs.

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Investments in MENA and by MENA Investors by Geography

Number of Investments by Geography
Examining the number of deals per country over the last five years, the UAE (298) is approximately double the next set of countries. The next set countries with the highest number of deals include Egypt, Lebanon, Saudi Arabia, and Jordan with an overall average of 155 deals per country. While the UAE still has the largest number of deals in 2017, Kuwait, Tunisia, Egypt and Saudi Arabia all had higher growth rates year on year than the UAE.

Of the top markets, Lebanon and Tunisia exhibited the fastest rates of growth, both increasing their number of deals by more than 50%.  Oman and Qatar witnessed the biggest percent change from last year (1400% change and 200% change respectively), but over-amplified due to the minimal number of deals conducted in 2016 in both countries. Oman’s significant jump can be attributed to the efforts of the OTF.

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Investments in MENA by Year

Number and Value of Investments by Year
While the total number of deals 2013-2017 has grown at a cumulative annual growth rate (CAGR) of 17%, the total value has grown much faster, at a CAGR of 35%. This is a sign of a maturing ecosystem where the average value per deal has effectively doubled.

More recently, the number of deals between 2016 and 2017 increased somewhat, but the value in 2017 was significantly smaller. This decrease can be attributed to the fact that 2016 was dominated by two mega-rounds raised by Careem ($350 million) and Souq.com ($275 million) which drove total value up significantly.

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Investments in MENA by Geography

Markets Ranked by Number of Investments
As revealed in Figure 5, the gap in the number of deals per country is slowly diminishing. UAE, Lebanon, Egypt, Saudi Arabia, Jordan, and Tunisia hold the same ranking as in 2016, but are now much closer to each other in the number of deals, with only two deals separating Lebanon from the UAE.

The largest shifts have been Oman, which jumped up four spots, and Palestine, which dropped four; this could be largely due the direct impact of OTF’s investment deals combined with the inactivity of Palestinian accelerators / funds.

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Investments in MENA by Ticket Size

Percent Number of Investments by Ticket Size
The below chart illustrates the consistent distribution of deals by ticket size over the years (2014 is somewhat of an outlier). Later stage investments – at the VC and growth stage – display marginal growth over the past five years, increasing from 32% to 39% of all deals.

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Percent Value of Investments by Ticket Size
Total investment value in 2017 is driven by two growth-stage investments: Starzplay ($125 million) and Careem ($150 million).  While growth stage deals continue to capture the majority of dollars invested, they captured a smaller proportion of total capital than in most previous years (only 64% in 2017 versus more than 70% in 2013, 2014, and 2016). This is in contrast especially to 2016, which was defined by larger mega-rounds ($200 million plus) for Careem and Souq.com.

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Valley of Death

Number of Operating vs. Closed Funded Startups in MENA by Geography
UAE displays one of countries with a high number of inactive startups (26), but it is important to note that it also has the largest number of operational startups (272). Interestingly enough Oman is an exception revealing a lack of closed digital startups.

This could be attributed to its nascent ecosystem and the sudden influx of capital brought on by the OTF – almost all the investments in Oman took place in 2017. Saudi Arabia and Egypt exhibit the highest number of closed startups, while Palestine has the highest proportion of closed startups (about 25%); this could be attributed to the shrinkage of capital (and venture activity) available in Palestine.

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Female Founders in Funded Startups

Number and Value of Investments by Teams with at least 1 Female Founder vs. Teams with no Female Founders
Examining the number of startup investments with at least one female founder versus teams without a female founder, the data highlights the fact that all male teams consistently captured the majority of deals. The number of deals for teams with at least one female founder have doubled from 2013-2017 (from 28 deals up to 53 deals).

In 2017, investments in teams with at least one female founder make up about one fifth of all deals. On the other hand, in 2017 the value of investments for teams with at least one female founder only account for 11% of all dollars invested. This is indicative of female founders active in mainly early-stage businesses with a very few of the startups with female founders raising big-ticket deals.  

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Corporate Investors in MENA

Number of Investors vs. Corporate Investors by Year
The corporate investor trend continues to grow in the MENA region where many companies are vying for a share of the startup ecosystem. Corporate investment initiatives (standalone funds or opportunistic investments) contribute to 18% of all investors.

New corporate investors are mainly concentrated in the UAE and Egypt. In Egypt the latest corporate investors include Glint Consulting and EdVentures (Nahdet Misr Publishing Group). The UAE’s latest corporate investor includes GINCO Investments.

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Download the in-depth report here

 

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