A reality check looms for Middle East's tech startups
Al-Monitor Pro Members
Samuel Wendel
Senior Market Research Analyst, Al-Monitor
Nov. 9, 2022
After years of promising growth, MENA’s startups appear set to experience a course correction amid a broader global investment slowdown. Regional venture investment totals sagged notably in Q3 and are likely to continue falling against a backdrop of economic headwinds. Crucially, red flags are flying in Egypt as key startups struggle — most notably Capiter, a B2B e-commerce platform now embroiled in scandal after burning through $33 million in funding in barely a year. It’s a sign that regional startups need to prioritize profitability and fundamentals over aggressive growth as operating conditions worsen. Still, startups in Saudi Arabia and the United Arab Emirates are enjoying significant support, and the sector has matured enough across MENA that it should avoid a catastrophic collapse.
- Q3 of 2022 saw MENA startups raise $512 million in venture funding, a 40% drop from Q2 and the lowest amount raised since Q1 of 2021, according to Dubai startup data firm MAGNiTT.
- This comes after regional startups raised a record total of $1.8 billion during the first half of 2022, up 46% compared to the same period in 2021, again according to MAGNiTT. After venture funding surged to a record high of $2.6 billion in MENA in 2021, this year could also bring a new high; however, investments have fallen each quarter and dismal Q3 results point to a lackluster finish to the year.
- This pullback slightly lags investment trends seen globally, as venture funding began slowing dramatically worldwide in Q2, falling 26% quarter-over-quarter to total $120 billion, according to US startup data firm Crunchbase.
- Egypt in particular is showing signs of vulnerability. Alongside the news that Capiter was unraveling, which broke in September, key tech firms have been slashing jobs and cutting costs in Egypt. That includes transit company Swvl, one of MENA’s most celebrated startups.
- This comes as venture funding in Egypt for Q3 dropped 43% quarter-on-quarter, with the total raised standing at $81 million. For comparison, in Q3 of 2021, Egyptian startups raised $276 million, according to MAGNiTT.
- Dubai-headquartered Swvl, originally launched in Cairo in 2017, is experiencing this pullback very publicly: The startup debuted on Nasdaq via a SPAC in early 2022 only to see its shares plunge from $9.95 to about $0.43 recently.
- There are bright spots. Venture funding in Saudi Arabia increased 93% year-on-year to reach $818 million across the first three quarters of 2022, reports MAGNiTT. Meanwhile, Saudi state entities earlier this year announced billions in investments in the metaverse, blockchains and other futuristic technology.
- New funds also continue to arrive. In October, Cairo’s Algebra Ventures announced it had raised $100 million for a new fund, while Dubai telecom giant e& (formerly Etisalat Group) also announced a new $250 million venture fund.
- Significant funding rounds are still coming together too. In November, the on-demand services platform Yassir, originally launched in Algeria in 2017, announced it raised $150 million. In Egypt, fintech platform MoneyFellows also announced a $31 million round in late October.
