2022 was another strong year for the region’s startup ecosystem. Forbes reports that MENA’s 50 most-funded startups raised around $3.2 billion in 2022, up 6.7 percent from 2021. The UAE led the pack, with 18 startups that represented 30.1 percent of the total funding. Saudi Arabia was a close second, representing 29.6 percent spread across 12 firms.
UAE-based agri-tech solutions firm Pure Harvest Smart Farms alone raised $387 million. As can be expected, fintech continued to dominate with 21 companies receiving $1.3 billion between them. The UAE’s Tabby and Saudi Arabia’s Tamara were the top fintech names, raising $275 million and $216 million, respectively.
The UAE has become an entrepreneur’s haven with the UAE leadership committed to continually making it the most futuristic, world-class interconnected infrastructure with access to a diverse, multi-talented talent pool with mechanisms to funding available across the UAE. Abu Dhabi, in particular, has established itself as a global hub for entrepreneurship. Each change by authorities and regulators reflects the times and seeks to shield new businesses from regional and global externalities.
The tech industry, as we know, has undergone many changes of late and can see many more on the horizon – hybrid work and rampant platform adoption being two examples of the former and the Metaverse being an example of the latter. And let us not forget that the tech industry is not immune to the prevailing economic headwinds that have knocked so many other businesses off course.
As we head into 2023, here are the top trends we predict will have a significant impact on the MENA region’s entrepreneurial ecosystem.
1. Capital crunch
Given the economic outlook, startups will feel inclined to raise capital and better manage their spending. That entails having their costs sync with an accurate growth projection. Resilient founders will need to understand the extent of their runway to optimise their budgets and cut costs on new hires and marketing spending unless it’s vital for growth. Founders will focus more on building sticky products that their users need by going back to the core, concentrating more on the tech, and enhancing the customer’s experience.
2. Finance in focus
On the other side of the credit crunch is the investor. What is going through their mind? While some bulls remain, the uncertainty of recent years is bound to have brought out the bearish side in most. In 2023, we can expect closer scrutiny of valuations. This will be a time for founders to show investors more than just an inflated valuation – to craft a compelling narrative that encourages reinvestment without compromising founders’ ownership in their companies.
There is no doubt that unit economics are one of the most influential factors that investors look at when making investment decisions. This year, founders will have to demonstrate the viability of their business model and how they will generate profits from it. They will need to zoom in on their customer acquisition costs, lifetime value, churn, and retention rates. Investors will favour companies with favourable unit economics early on and seek startups that clearly understand their metrics and the reasoning behind their numbers.
Although it may be difficult for early-stage entrepreneurs to achieve this goal, they can create accurate projections of their potential metrics by conducting market research and analysing their competitors to provide investors with an understanding of their potential.
3. Sustainability will take centre stage
In 2023, the UAE will host the 28th Conference on Climate Change (COP28). Global attention will be focused on the country, its leaders, and its companies. It is expected that startups in the sustainability space will receive a great deal of attention, and companies with a strong environmental story will attract funding from venture capital firms and venture capital funds that have a net-zero agenda of their own. Environmental sustainability is becoming increasingly critical for governments, consumers, and employees.
Increasingly, laws and regulations related to sustainability are being enacted in many regions. VCs will become more interested in investing in sustainable startups to meet this demand and potentially tap into new markets and opportunities. It is also possible for startups that do not follow any sustainable standards to change by understanding their environmental impact, setting clear objectives, and implementing sustainable practices to positively impact the environment.
4. Less hype, more industry impact
Well-funded startups can fail. Case in point: FTX. Expect 2023 to be the year investors recoil from hype and focus more on industries that can drive real impact. The crypto world that gave a welcoming home to FTX is not the only FOMO-encumbered segment. Distorted market signals can be found everywhere. Investors are now likely to laser in on industries rather than individual hero tales. Fintech is a proven prospect, but others that have done well in the face of regional economic jitters are healthcare, agritech, real estate, and edtech.
5. Relocation of international startups
We often talk of the business-friendly environment in the UAE, and changes in legislation continue to ease the journey for startups. Because of this, the UAE is becoming more and more attractive as a location for global and regional HQs. ADGM has established clear regulations that support companies with expanding their companies to the UAE.
In addition, ADRO was established to assist new residents in relocating and integrating into the UAE’s culture and society. They currently provide smart services for golden visa applications that is becoming extremely attractive to founders.
Investors have an opportunity to guide foreign-owned businesses through setting up shop in Abu Dhabi and taking advantage of local freedoms, thus enriching the national business climate, and paving the way for local B2B firms to benefit from more customers.
Optimistic outlook
The mentorship of startups in the UAE is unparalleled. Support functions here steer business leaders towards the right trends, the right contacts, and the right programmes. It is important for founders to be equipped with the right preparation and mindset to anticipate any changes. However, there is every reason to believe that 2023 will be another year of growth and success.
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