ArabNet Launches Updated State of Digital Investments Report!

Lynn Bizri, May 17 2017

Today at the Arabnet Summit, in collaboration with The Mohammed Bin Rashid Establishment for SME Development (Dubai SME), we are excited to share with you the launch of the second edition of the “State of Digital Investments in MENA”, and this brief overview of the comprehensive analysis of investors and investments in technology startups in the MENA. 

This edition of the Investment Report covers more than 150 funding institutions and 760 transactions that took place between 2013 and 2016, 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 STARTUPS

Global Venture Financing Trends

While 2016 saw a substantial total venture capital investment of $127.4 billion globally, worldwide venture capital activity declined by 24%, closing in on just 13,665 deals. The value of investments appears relatively good in comparison to previous years - amounting nearly double the total global VC investment seen in 2013 with only a 10% decrease in value of investments year-on-year, yet the major decline in the number of deals indicates that 2016 was a complicated year for venture capital investment.

The outlook for 2017 remains positive however with the announcement of new and expanded funds, including a $1.5 billion VR fund from HTC and a new AI-focused effort at Microsoft. 

Intro Chart - RD Investment Report

The Study: Scope and Methodology 

This research report investigates the technology investment landscape in the Middle East and North Africa (MENA) region. The first chapter examines the investor community overall and in specific by market, year, and ticket size. The second chapter examines MENA investments by market, number of deals, ticket size, and business model. The third chapter examines the lifecycle of startups. The fourth chapter is dedicated to gender distribution among founders. Finally, the last chapter analyzes investments made by corporate venture funds by year and across markets. The aim of the report is to provide a holistic perspective on the startup ecosystem in the region by identifying trends and market challenges. 

The report findings are based on data collected from 75 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.

INVESTORS IN MENA

Number of Investors by Year

Charts-01 - RD Investment Report

The number of tech investors in MENA has been growing exponentially, jumping to about 30 new funds per year in the past two years (2015-2016). Of the 30 funding institutions founded in 2016, 40% of these funds are based out of the UAE; meanwhile, 6 funds have closed down in the period covered by the research.

Percent Number of Investors by Geography

Charts-02 - RD Investment Report

The UAE is home to about one third of all investors. Saudi Arabia and Lebanon combined account for one third all investors, and all other countries together make up the remaining one third of the investor community. Investor community share of the top three markets (UAE, Lebanon, and Saudi Arabia) has grown from 55% to 64% of investors during 2013 to 2016.

INVESTORS IN MENA BY TICKET SIZE

Percent Number of Investors by Ticket Size

Charts-03 - RD Investment Report

Approximately half of the investor community are early stage investors. Venture capital funds represent the single largest group of investors accounting for one third (31%) of the community.

INVESTMENTS IN MENA

Investments in MENA and by MENA Investors by Geography

Number of Investments by Geography

Charts-04 - RD Investment Report

The UAE (234) is far ahead when it comes to the number of deals per country over the past four years, with a number of deals double that of Jordan, Egypt, Lebanon, and Saudi. Jordan, Egypt, Lebanon, and Saudi Arabia all hover between 100 to 120 deals - half the number of the UAE. 

Investments in MENA by Year

Number and Value of Investments by Year

Charts-05 - RD Investment Report

The total number of investments per year in MENA hovers between 200 and 220 deals each year since 2014. Total dollars invested in the MENA witnessed a 70% jump in value in 2016 explained by the two mega-rounds raised by Careem and Souq.com.  

Investments in MENA by Geography

Percent Value of Investments in the Top 5 Countries

Charts-06 - RD Investment Report

UAE is capturing a larger share of total dollars driven by the fact that growth stage companies are increasingly Dubai-based.In 2016 90% of all dollars invested in the MENA went into the UAE with the Careem and Souq.com investments alone representing 78% of all dollars invested. 

Investments in MENA by Ticket Size

Percent Number of Investments by Ticket Size

Charts-07 - RD Investment Report

Research shows that over the years, the distribution deals by ticket size are quite consistent (with 2014 being somewhat of an outlier). The majority of deals have remained in the early stage, representing around two third of deals in the past four years. 

Percent Value of Investments by Ticket Size 

Charts-08 - RD Investment Report

Although early stage deals are the biggest contributors to the number of deals conducted, they naturally contribute the least to the value of investments by ticket size. 2016 was a record year for growth stage deals, which captured 84% of all dollars invested.

VALLEY OF DEATH

Number of Operating Vs. Closed Funded Startups in MENA by Geography

Charts-11 - RD Investment Report

Only 15% of all MENA startups funded in the past 4 years have shuttered. This low failure rate could be due to government initiatives to inject money/support into the ecosystem and the culture of fear of failure, with startups staying open even with poor performance traction and ability to scale. 

FEMALE FOUNDERS IN FUNDED STARTUPS

Gender Distribution Among Founders

Charts-12 - RD Investment Report

Females represented 13% of all founders in the 2015 data. 2016 data demonstrates that female representation is 14% - roughly 1 in 6 - of all founders / co-founders of investor-backed businesses in MENA.  

Gender Distribution Among Founders by Year 

Charts-13 - RD Investment Report

Gender distribution among startup founders has been relatively stable between 2013-2015, ranging from 10% to 15%. In 2016-funded companies, the rate of female founders was much higher, reaching 26%.

CORPORATE INVESTORS IN MENA

Number of Investors Vs. Corporate Investors by Year

Charts-14 - RD Investment Report

In 2016, corporate investors represent 18% of the surveyed investors.The main bulk of new corporate investors are located in the UAE and Lebanon. 

Percent Number of Corporate Investors by Geography

Charts-15 - RD Investment Report

More than half (62%) of the region’s corporate investors are GCC-based, with UAE topping the list at 44% followed by Saudi Arabia at 18%.Compared to last year’s data, lebanon has quickly caught up and is now standing at 18% similar to Saudi Arabia – driven by direct bank investments into startups, supported by Circular 331

MENA digital startups are attracting increasing global and regional attention, with more governments pushing for innovation, an increase in the number of startups, and an increase in investor appetite. This summary of the research report provides just a brief overview of  the MENA equity-based investments in the digital space in the past four years. 

Download the in-depth report here

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