Although venture capitalist investments in MENA-based startups fell by double digits last year, the sector remains resilient with prospects for 2024 looking significantly brighter, according to a report by Tenet Consulting.
The total number of deals closed in MENA in 2023 was 654, down from 864 the previous year, according to a report by the Dubai-based consulting firm. However, 2023 and 2022 were the absolute top years for MENA startups and scaleups seeking capital, with record amounts of money flowing into their coffers.
In a calmer market, investors sought safety in their investments and scaled back on riskier pre-seed and early stage fundraising, focusing instead on later stage fundraising from more established players.
The slowdown in venture capital investment was not unique to the MENA region, but was a trend seen across the world: Tenet Consulting, citing data from Pitchbook, said both the number of deals and total deal value declined.
However, the Middle East was rated more resilient than other regions due to the region’s strong economies, resilient labor markets, and the fact that heavy investment is being made by government institutions that are less susceptible to short-term shocks.
Bright prospects
Looking ahead to 2024, Tenet Consulting said it expects a recovery in dealmaking, mainly due to more positive deal fundamentals.
Alexei Bogdanov, partner at Tenet Consulting, says falling interest rates are one of them: “An expected fall in interest rates will have a significant impact on valuation trends. Lower interest rates generally translate into lower borrowing costs, which incentivizes companies to pursue expansion strategies such as mergers and acquisitions.”
The study predicts that startups based in Saudi Arabia and the UAE will continue to dominate regional investment.
Earlier this year, Bain & Company released a study that drew similar conclusions about the mid- and large-cap segments of the Middle East M&A market, and the EY report paints a similar picture for the IPO market.
