UAE Continues to Lead Tech Investment

Industry experts expect further growth in the UAE’s ecosystem in both deals and funding

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The $1 million-$5 million round size in Mena has steadily risen, tripling from 15 per cent in 2020 to 45 per cent in first half of 2024.

By Muzaffar Rizvi

Published: Thu 12 Sep 2024, 10:10 AM

Last updated: Thu 12 Sep 2024, 10:14 AM

The UAE’s start-up ecosystem demonstrated resilience by achieving an 11 per cent year-on-year (YoY) increase in deal flow during the first half of 2024 and standing out as one of the few markets in the region to see YoY growth in deals, latest data shows.

In its latest report, the leading venture capital data platform for Emerging Venture Markets (EVMs), MAGNiTT said the emirate closed 83 transactions during the January-June 2024 period and retained its third position after Singapore (120) and Turkiye (86), reflecting a 27 per cent and 45 per cent decline, respectively.

Saudi Arabia (63), climbed two slots to fourth position and Indonesia (44) stood firm at fifth rank with three per cent and 35 per cent YoY decline, respectively. Among the top five nations, the UAE is the only country, which recorded double-digit growth in deal flow during the first half of 2024.

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Farah el Nahlawi, Research Team Lead at MAGNiTT, said first quarter was a relatively slow quarter in terms of funding, reporting the lowest quarter for the UAE since third quarter of 2019, however, activity picked up in the second quarter of 2024, with funding at 2X its first-quarter level despite the occurrence of two Eids and Ramadan.

“While the second quarter saw a drop in deals compared to the first quarter, the UAE was seeing larger deal sizes. Looking into second half of 2024, fourth quarter has historically been the best-performing quarter for the UAE across the past years, given that, and if the quarter-on-quarter increases in third quarter and fourth quarter of last year get replicated during the second half, this year, we expect further growth in the UAE’s ecosystem in both deals and funding,” El Nahlawi told BTR.

Farah el Nahlawi, Research Team Lead at MAGNiTT, said first quarter was a relatively slow quarter in terms of funding.

To a question which sectors are likely to attract investment, she said fintech, real estate, construction and infrastructure have gained momentum during the first half of 2024.

“While similar to the Middle East and North Africa (Mena) region, fintech continues to be favourable in the UAE, data reveals that the country is seeing activity in smaller industries the likes of enterprise software, food and beverages. First half also saw an interesting activity in industries like real estate and construction and infrastructure, which upleveled by at least four ranks each and made it to the top five in funding,” she said.

Saudis, UAE lead

In terms of value, Saudi Arabia (second) and the UAE (fifth) climbed one position by attracting $412 million and $225 million funding during the first half. Both the nations experienced seven per cent and 19 per cent decline in funding.

With $1.324 billion funding Singapore retained its first position while Thailand ($372 million) and Indonesia ($263 million) secured third and fourth positions, respectively. All top five nations experienced YoY decline in funding during the first half.

Fintech stood out as the leading sector, securing $1.097 billion in funding across 128 deals.

Emerging Venture Markets (EVMs), which include the Middle East, Africa, Pakistan, Turkiye and Southeast Asia, experienced a 34 per cent YoY drop in both total funding and deals, with exits falling by 52 per cent. The reduction in funding is primarily due to a slowdown in mega-rounds (>$100 million), a factor which is witnessed both globally and across emerging markets, as investors shift their focus back to early-stage opportunities.

Popular sectors

Fintech stood out as the leading sector, securing $1.097 billion in funding across 128 deals while Singapore led the region, capturing 38 per cent of the total funding ($3.469 billion) through 120 deals. With 47 per cent decline in funding to $601 million, e-commerce/retail secured second position while IT Solutions climbed two positions to third rank with 41 per cent YoY growth in funding to $321 million.

With 148 per cent increase in funding to $223 million, gaming jumped eight positions to secure fourth rank and manufacturing moved 15 slots to fifth with $204 million funding during the first half.

Mena region experienced a notable contraction in first half of 2024, with total funding dropping by 34 per cent to $768 million, and deal count decreasing by 18 per cent to 211 deals. Despite the decline, the number of investors increased by 33 per cent 262, indicating sustained interest in the region.

Investor focus

The lack of late-stage investment, which often constitutes the majority of mega-rounds, meant that overall funding levels suffered, but more activity was observed in the early stages. The first six months of the year highlighted continued investor focus on SEED and Pre-Series A deals.

The $1 million-$5 million round size in Mena has steadily risen, tripling from 15 per cent in 2020 to 45 per cent in first half of 2024. Startup valuations in early stages have also corrected, reflecting market adjustments after peak growth in 2023, and have returned to their pre-pandemic levels.

This sentiment was reflected in the type of investor participation in the region. Despite the overall contraction in funding levels, the number of investors in regional startups surged by 30 per cent. This underscores the strong and sustained interest in the Mena startup ecosystem, driven by both regional and international investors.

Philip Bahoshy, CEO of MAGNiTT, said international interest in the region remains strong, with government support and new fund announcements expected to drive positive growth in second half of 2024 and early 2025.

Additionally, there has been a rise, about 130 per cent, in the number of funds announcing their launches in the region, including Golden Gate Ventures, Shorooq Partners, Investcorp Bahrain, and ADQ.

"While the report reflects the global trend of declining venture investments, it also highlights some positive signals indicating that the Mena region is at an inflection point in venture capital activity. Our data suggests that this growth will continue, albeit at a moderate pace, in the coming quarters,” said Philip Bahoshy, CEO of MAGNiTT.

He said valuation adjustments to more moderate levels have made early-stage investments more attractive than in recent years.

“International interest in the region remains strong, with government support and new fund announcements expected to drive positive growth in second half of 2024 and early 2025," he said.

Major challenges

El Nahlawi said the UAE saw a 19 per cent year-on-year decline in total funding during the first half of 2024 compared to Mena's steeper 34 per cent drop, indicating a more resilient funding environment in the UAE.

“The number of deals in the UAE increased by 11 per cent from first half of 2023, while Mena experienced an 18 per cent decline. The UAE was also the only country across the top five by deals in Mena to report growth in the number of deals amidst the declines,” she said.

“It is true that the region is seeing competition between top-ranking markets as the gap between Saudi Arabia and the UAE narrowed from what it was five years ago, but the UAE retains its position across the top-performing geographies and surpasses Mena averages in deal and funding growth,” she added.

As the UAE leads in terms of deal flow during the first half with an 11 per cent increase in transactions, El Nahlawi said the emirate is expected to retain its growth momentum in second half of the year.

“So far this year, first half of 2024 has already surpassed its first half of 2023 levels and remained in range of its average quarterly performance seen in the past eight quarters in terms of deal flow, which third quarter is sometimes impacted by a summer slowdown in the region, fourth quarter comes with a flurry of events that support deal announcements and activity, so building on previous years’ activity and data, if the UAE continues within the same averages, deal activity could retain its growth momentum in second half of 2024,” El Nahlawi said.

— muzaffarrizvi@khaleejtimes.com

Muzaffar Rizvi

Published: Thu 12 Sep 2024, 10:10 AM

Last updated: Thu 12 Sep 2024, 10:14 AM

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