The number of investments by venture capitalists in MENA-based startups dropped by double digits last year, yet the sector’s resilience remains high with the outlook for 2024 markedly more positive. That is according to a report from Tenet Consulting.
The report from the Dubai-headquartered consulting firm found that the total number of deals closed in MENA in 2023 ended the year at 654, down from 864 the year previous. 2023 and 2022 were however absolute highs for startups and scale-ups in MENA seeking funding, with record amounts of funds flowing into their coffers.
In a more subdued market, investors sought security in their investments, winding down more risky pre-seed and early stage funding, and instead placing more focus on late stage funding with more established players.
The slowdown in venture capital investments was not unique to the MENA region, a similar trend was visible worldwide. Both the number of deals as well as the total value of deals dropped, said Tenet Consulting on the basis of Pitchbook data.
The Middle East provided however more resilient than other regions, in part due to the region’s robust economy, resilient labour market, and the fact that significant investments are done by government bodies, which are more immune to short-term shocks.
A brighter outlook
For 2024, Tenet Consulting said a rebound in transactions is expected, mainly due to brighter dealmaking fundamentals.
Lower interest rates is one those, said Alexey Bogdanov, Partner at Tenet Consulting. “The forecasted interest rate decline carries significant implications for valuation dynamics. Lower interest rates generally translate to cheaper borrowing costs, incentivizing businesses to pursue expansionary strategies such as mergers and acquisitions.”
The research forecast that startups based in Saudi Arabia and the United Arab Emirates will continue to take center stage in regional investments.
Earlier this year, Bain & Company released research that drew similar conclusions for the mid-cap and large-cap segments of the Middle East’s M&A market. An EY report casted a similar picture for the IPO market.
