A Look Ahead: VC Predictions for Mena in 2024

Is 2024 shaping up to outpace 2023 in funding, or are levels expected to remain unchanged? We lay down 8 predictions on investor trends in Mena for 2024

As we bid adieu to 2023, the burning question on every investor's mind is whether 2024 will signal a rebound in funding or a continued cautious approach. Our recently released year-end reports on Venture Capital Investments in Emerging Markets (EVMs) for 2023, benchmarking Africa, the Middle East, and for the first time Southeast Asia, provide some intriguing insights.

In 2023, EVMs witnessed a commendable $11.9 billion raised across 1.6 thousand deals. Notably, the Middle East and North Africa (Mena) secured $2.6 billion through 477 deals. However, against the backdrop of global economic challenges like inflation and oil production curbs, Mena experienced a 23 per cent year-on-year funding retreat and a 34 per cent year-on-year decline in closed transactions. Surprisingly, this region outperformed the global VC slowdown average of 42 per cent (as reported by CBInsights), showcasing resilience amid uncertain market conditions.

But based on last year’s data, what can we predict about the year ahead? Will this cautious investor sentiment be sustained?

In what has now become an annual tradition, we share a few predictions for the year ahead based on MAGNiTT's proprietary data and forecasting tools:

4 quarters of flat non-mega deal investment

Excess investment is a thing of the past. We anticipate the quarterly investment trends to remain flat across Mena throughout the year, excluding the mega deals. A potential uptick in fourth quarter of 2024 is plausible if the interest rates are finally cut in anticipation of a soft landing in the US, as hinted by Jerome Powell.

Why exclude mega deals? Because they skew the underlying picture of the Venture Market, with a concentration of these deals taking place historically in Saudi Arabia, the UAE, and Egypt. Point of reference, the top five investments in Mena in 2023 accounted for 43 per cent of all funding, whereas the average of the top five across EVMs was only 17 per cent.

Secondaries boom

Liquidity remains one of the biggest challenges for the Mena ecosystem. We can now say that the Mena region is effectively in its 10th year of evolution, dating back to the birth of many of the region's original VCs. However, the number of exits has been tampered with to date. Interesting stat for you: in the last five years we have recorded 3,073 investment rounds, raised by 2,829 startups across Mena. However, less than 7.5 per cent of them have exited.

Secondary offerings will provide much-needed liquidity to the market which has been a hot subject for government discussions along with the creation of private-sector tech platforms to support employees, founders, and investors alike.

The rise of Corporate Venture Capital

With corporates actively engaging in the Mena region, 2024 is anticipated to witness a surge in off-balance sheet investment mandates from large GCC corporations, particularly in the Financial Services sector. This shift may elevate their share from the historical average of 13 per cent to approximately 20 per cent.

A record year of exits

Despite challenges in 2023, predictions for a record year of exits gain stronger conviction in 2024. As the region eyes a potential Soft Landing and garners increased international interest, expect the start of an IPO window for local listings, particularly in KSA, and heightened consolidation driven by corporations and M&A activities.

Philip Bahoshy is Chief Executive Officer of MAGNiTT.