While the number of start-up investment deals in the Middle East and North Africa (MENA) decreased by 16 percent last year, and the overall number of new investors coming into the market has slowed, the United Arab Emirates continues to dominate as the core market and the failure rate for new start-ups continues to remain low, according to new research compiled by Arabnet.
The number of new deals in 2018 was 255, a year-on-year decrease of 16 percent. At the same time, the value of the deals rose slightly by 1 percent to $673,519,071 over the same period.
“In the past two years there has been a lull in the number of new funds launched - this could be attributed to the lack of clarity in terms of macro economic and political outlook,” the Arabnet report said.
While the UAE still dominates, with 45 new deals (compared to 65 in 2017), Oman and Bahrain saw a slight resurgence. The sultanate saw 22 new deals in 2018, compared to 16 in 2017, while Bahrain reported 17 deals in 2018, a massive rise compared to just 7 in the year before.
“The UAE hosts the largest proportion of all MENA investors (31 percent), while Saudi Arabia, Lebanon, and Egypt combined account for 40 percent. In recent years, Egypt’s investment scene has aggressively moved forward, driven by the private sector,” Arabnet said.
The report surveyed 242 technology investors across the MENA region, a growth rate of around 25 percent since 2012. 2015 and 2016 saw a surge in new investors, with 42 and 41 new entrants respectively. This has slowed in recent years, with just 16 new investors entering the sphere last year.
“Early stage funds represent around half (48 percent) of the investor community, whereas growth funds have witnessed a huge decrease (around 50 percent) since 2017. When looking deeper into early stage funds, we find that accelerators are at the forefront, representing the largest portion of investors in that ticket size,” the report found.
As the market develops and matures, one positive factor is the fact that 86 percent of start-ups founded in 2013 are still active and operating.
“Only 14 percent of all MENA start-ups funded in the past six years have shuttered,” Arabnet found. “This low failure rate is attributed to several factors: the continued proliferation of private- and public sector initiatives that support and fund start-ups; the reluctance of investors to discontinue support of portfolio companies; and the cultural stigma associated with failure.”
Further analysis of companies set up in 2013 found that out of the 127 start-ups that received investment, 40 percent went on to raise a second round of funding. Of those who got funding, 41 percent of those received a third injection, while 29 percent went on to win a fourth receipt of cash.
Of the companies funded, 25 percent did not survive, compared to 20 percent of those who received second round funding. Of those who went on to receive three or more rounds of funding, the failure rate was zero.
“This demonstrates that once a start-up has hit its stride and reached the growth stage, the chances of failure drop significantly. These companies may yet fail, but shall probably require 7 to 10 years of continued life cycle before reaching either exit or closure,” the report concluded.
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