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UAE tech start-ups to enjoy better funding prospects in 2024

Venture capital market in the UAE is experiencing significant growth and development

Tech start-ups in the UAE are poised to experience a more conducive ecosystem with an expected surge in funding thanks to the country’s booming venture capital market which is projected to reach $1.1 billion in 2024.

Fuelled by proactive government initiatives and a thriving entrepreneurial ecosystem, the UAE, which ranks second in the Middle East region and 28th globally in the Global start-up Ecosystem Index, has been leading the Mena fundraising in January amid a VC winter, according to data provided by Lucidity Insights.

Analysts said that the venture capital market in the UAE is experiencing significant growth and development, driven by customer preferences for diversification and high returns, as well as the government's support for entrepreneurship and innovation. “A stable and diversified economy, as well as the young and dynamic population, provide a solid foundation for investment and support the development of start-ups and innovative businesses,” they argue.

In January, start-ups based in the MENAPT (Middle East, North Africa, Pakistan and Turkey) region secured a significant investment totalling $519.7 million, marking a 52 per cent decrease from the previous year's figures.

“This trend underscores the ongoing challenges within the venture capital landscape, signaling that the "VC winter" persists.

A substantial portion of this funding, amounting to $474.5 million and accounting for over 90 per cent of the total MENAPT investment value was concentrated in Israel and the UAE. Despite this, these countries represented less than half of the total number of deals, highlighting larger raises. Indeed, the five largest funding rounds, spanning various industries and funding stages, were also centred in these two countries,” analysts at Lucidity Insights observed.

fDi Insights report said Dubai has topped a ranking of the world’s fastest-growing VC ecosystems, in a sign the emirate has progressively become more popular among start-ups and funds amid an uncertain climate for the global technology sector.

Dubai’s VC ecosystem has been thriving on the back of its development as a financial centre, tourism hub, and popular place for businesses to domicile themselves in the Middle East region. According to the Dubai Chamber of Commerce, more than 90 per cent of all funds raised in the UAE since 2017 have been directed to start-ups based in Dubai.

Dubai has a VC ecosystem growth score of 72.8, according to PitchBook analysis of its proprietary data between the third quarter of 2017 and the second quarter of 2023. It was closely followed by Detroit in the US (72.5), Berlin (71.8), and Raleigh, the state capital of North Carolina in the US (71.3).

A report by Qatar Development Bank and VC data company MAGNiTT shows that the Mena region saw a 23 per cent drop in VC funding deployed in 2023, with Bahrain, Qatar, and the UAE seeing the steepest decreases.

A report by Qatar Development Bank and VC data company MAGNiTT released this week investigated venture investment trends in Qatar and the wider Middle East. In 2023, Mena deals dropped by 34 per cent compared with the same period the previous year.

According to Farah el Nahlawi, research team lead at MAGNiTT and author of the report, the overall sentiment across the VC ecosystem is likely impacted as the overall economic conditions remain volatile, interest rates at their highest in more than two decades leading to higher borrowing expenses and creating competition for venture capital investments as safer assets yield greater returns.

In the UAE, the early stage dominates the market with a projected market volume of $0.6 billion in 2024, Statista Market Forecast said.

Globally, the United States will lead in capital raised, generating $264.5 billion by 2024 while the UAE VC market “is experiencing a surge in funding for tech start-ups, fueled by government initiatives and an entrepreneurial ecosystem.”

VC market analysts said investors in the UAE are increasingly turning to venture capital as a means of diversifying their investment portfolios and seeking higher returns. The trend is driven by a growing awareness of the potential for high-growth start-ups to disrupt traditional industries and create significant value, they said.

Fund managers said the growth and development of the VC market in the UAE are underpinned by several macroeconomic factors including a stable and diversified economy underpinned by a strong focus on sectors such as tourism, real estate, and financial services. “This provides a solid foundation for investment and supports the growth of start-ups and innovative businesses. The UAE has a young and dynamic population, with a high level of digital literacy and a strong entrepreneurial spirit. This creates a fertile environment for the development of innovative start-ups and attracts both local and international investors,” they said.