New statistics reveal that the UAE innovation and startups ecosystem proved resilient by recording an 11 % year-on-year (YoY) deal flow growth rate in H1 2024. It remained among the few markets in the region that registered YoY growth in the number of deals, which has been the latest trend.
As of the latest MAGNiTT, a primary updated venture capital database for Emerging Venture Markets (EVMs), the emirates comprised 83 transactions between January and June 2024, retaining their third position after Singapure (120) and Turkiye (86), both of which represented a decline of 27 or 45%.
Uae Leads Tech Investment in 2024
The rest of the countries, like Saudi Arabia (63), ranked two places above to reach the fourth spot, while Indonesia (44) maintained its fifth position, registering three percent and thirty-five percent Year-on-Year degrowth, respectively. Of the top five countries, the UAE stands out again as the only nation to have experienced growth in deal flow during Q1 2024 at a steep double-digit growth rate.
MAGNiTT Research Team Lead Farah el Nahlawi states that the first quarter was relatively sluggish in terms of funding, recording the UAE’s major slump since quarter three of 2019. However, the level of funding increased in the second quarter of 2024, where financing was two times higher than in the first quarter despite the two Eids and Ramadan, pressures known to cause dips in funding.
According to BTR articles, “Despite a decline in the number of deals in the second quarter as compared to the first quarter, larger deal sizes were being recorded in the UAE and backing this case up with usual trends over the years. The last quarter of the year is referred to as the quarter that usually records the highest performance in the UAE.
Also, considering many factors, including the fact that the increases recorded in the third quarter and fourth quarter of last year are repeated during the second half of this year. Plus, there will be further UAE technology sector growth, in terms of both deals and funding,” El Nahlawi. In response to which sectors are expected to garner investment, she mentioned that fintech, real estate, building and construction, and infrastructure have elevated during the first half of 2024.
“Like the MENA (Middle East and North Africa) region, fintech continues to be attractive in the UAE; but… Looking at the year’s first half, we also witnessed fascinating trends in services such as real estate, construction and infrastructure. Each went up by at least four rankings, reaching the top five in terms of the amount of funding received,” she explained.
The UAE and Saudi Arabia are on top.
Diving into how much the countries in the survey raised in the first half of the year, Egypt (which has dynamic and rapid growth in the startup investment market) ranked second and attracted investments worth $412 million. The UAE improved to fifth position with $225 million attracted. Both countries saw a decrease in funding by seven and nineteen percentage points, respectively. Singapore still holds that position with 1.324 billion in funding. Thailand raised 372 million despite the changing funding dynamics during the first half.
The fintech sector emerged on top with a record funding of $1.097 billion across 128 deals. Year-on-year, overall funding and deals in the Emerging Venture Markets (the Middle East, Africa, Pakistan, Turkiye and Southeast Asia) were down by 34%. Exits were down even more by 52 per cent. The drop in funding is caused by the general downturn in the number of so-called mega-rounds (more than 100 million US dollars) in the overall and developing markets as the investors’ appetite has changed back to the early stage investing.
Popular Sectors For Tech Investment in the Middle East
Fintech emerged as the dominant sector with total funding of $1.097 billion spread over 128 deals. In the region, Singapore podium finished in first place as it managed to get 38% of the total funding $3.469 Billion through 120 deals. Informal e-commerce/retail funding also fell by 47% to $601 million, rank in the second position, whereas IT Solutions rank improved by two places to the third position thanks to a 41% YoY growth in funding to $321 million.
UAE leads tech investment
The fintech industry has demonstrated its prowess by recording the highest funding of $1.097 billion across 128 deals. In comparison to that, overall funding and deals within the scope of the Emerging Venture Markets (which include the Middle East, Africa, Pakistan, Turkiye and Southeast Asia) experienced a decline of 34% compared to the previous year. Exits also suffered a great deal of cutback, by 52%, in fact. The decrease in the number of funds available for deployment is attributed primarily to the marked decline in so-called mega-rounds (over 100 million US dollars) globally and in developing countries as the cash available has swung back towards early-stage focused investments.
Fintech remains the most funded, with all its funding summing up to $1.097 billion over 128 deals, while in this region, the third highest earning Singapore podium has the highest at 38% out of the total funding of $3.469 Billion in 120 deals. Informal e-commerce/retail funding also fell by 47% to $601 million, rank came in the second position, whereas IT Solutions rank improved by two places to the third position thanks to a 41% YoY growth in funding to $321 million.
Investors Point of view
Due to an absence of late-stage funding, which represents the bulk of mega-round funding, overall funding levels dipped, although more activity was recorded at the earlier stages. The first six months of the year highlighted continued investor focus on SEED and pre-Series A deals.
In the Mena region, there has been a consistent increase in the $1 million-$5 million round size, with the percentage tripling from 15 per cent in 2020 to 45 per cent in the first half of 2024. There has been a downward correction as concern for excessive overvaluation in cases of startup early-stage funding reached its peak in growth in 2023 and even reverted back to the levels there before the Covid-19 outbreak.
Similarly, investors’ participation in the respective region declined. While funding levels overall declined, the number of investors in regional startups increased by 30 percent. This shows that the Mena startup ecosystem still attracts above-threshold black interest from regional and global investors.
Speaking to the media, Philip Bahoshy, the CEO of the investment platform MAGNiTT, asserted that there is still a great deal of international interest in the region. He added that government backing and fresh fund setback announcements would spur positive growth in the entire region come the latter half of 2024 through 2025. There has also been a notable increase (130 percent) in the number of funds, such as Golden Gate Ventures, Shorooq Partners, Investcorp Bahrain, and ADQ, saying they will come into the region.
Philip Bahoshy noted that however much the report captures the decline in venture investments on a global scale, it also points out some of the positive signals which suggest that the Mena region is at an inflection point regarding Venture capital activities. Furthermore, Our data indicates that the quarter-on-quarter growth will persist, although at a moderate pace in the next few quarters,” said Philip Bahoshy, chief executive officer of MAGNiTT. In his view, adjustments in valuations to more conservative levels have rendered the prospects of early-stage investments more appealing than in the last few years.
“International attention in the region remains at an all-time high, and given the government backing and new fund launches expected during the second half of 2024 and early 2025, a positive uptrend is very likely,” he said.
Most Difficult Issues
El Nahlawi mentioned that total funding in the UAE was 19 percent lower in the first half of 2024 compared to the previous year. While this seems alarmingly steep for Mena, it is still much more resilient compared to the 34 percent dip in funding.
“Deal count in the UAE grew by 11 per cent compared to the first half of 2023, while Mena declined by 18 per cent. Additionally, the UAE was the only country in the top five for Mena by deals to report increases in deal numbers amid the declines,” she concluded.
“Certainly, it is important to note that there are wars among top markets in the region as the competition.e.’ between Saudi Arabia and the UAE has significantly reduced from the position it was in five years back, yet in all of the high-performing geographies, the UAE is positioned at the apex and beats Mena average in terms of deals and funding growth,” she explained.
El Nahlawi noted that an 11 percent growth in transactions made during the first semester placed the UAE at the top of the deal activity charts and predicted that the emirate would sustain this growth in the second half of the current year.
“Up until this moment within this year, in which we consider the first half of 2024, the deal activity surpassed the first half of 2023 both in absolute volumes and within the ranges of the previous eight quarters deal activity, the third quarter which is usually affected by regional summer lull in activities is also typically followed by a very busy fourth quarter of activities where many deals announcement and activities take place, therefore growing on previous years’ activity and data, should the UAE stays within the same averages, there is a possibility that the deal-making could still keep increasing within the last half of 2024”, El Nahlawi stated.
