What you Should Know About the Venture Capital Market in the Middle East

In the shadow of a global VC slowdown in 2023, the Middle East region stood out, clocking in a $1,880 million across 530 deals in the first half of the year alone. This shows that the region is home to a robust startup ecosystem, and it is ready to nurture startups even when the rest of the world takes a backstep.

What market VC funds invest in in the Middle East

The Middle East is home to dynamic markets and a robust ecosystem of accelerators and venture funds. They support projects across various sectors to propel the region forward. Let's explore a few of the key industries that VC funds favor for investment in the Middle East:

• Fintech: Fintech is historically the most invested sector in the region. In 2023, it retained the lion's share of venture capital investments, with $2.3 billion across 112 deals. An interesting fact: almost 51% of this investment was funneled into two startups as part of headline breaking mega-deals: Tabby and Tamara — both are projects that provide deferred payments.

• Foodtech: The food and beverage sector, which includes foodtech, ranks second, though it's quite a distance behind fintech. Yet, the support for projects in this industry is incredibly strong. Government initiatives, such as the Food Tech Valley in the UAE, aim to enhance local food security. They encourage startups focused on vertical farming and advanced agricultural technologies, making them appealing to VC investors. In 2023, food tech startups in the Middle East region attracted $222 million in funding.
  

• E-commerce: E-commerce is another significant beneficiary of VC funding, with people in the region increasingly embracing online shopping. The online loyalty programs of e-commerce projects are rapidly evolving and digitizing. This market is expected to grow at an annual rate of 7% between 2023 and 2027, reaching a market size of $169 billion by 2027. In 2023, the sector attracted $195 million in funding.

• Transport and Logistics: The growth of the foodtech and e-commerce markets, along with others such as construction, naturally impacts the logistics sector. All of these areas depend on streamlined supply chains, a field that's being actively developed across all major economies in the Middle East. As a result, the logistics sector in the region attracted $99.4 million in investment through 31 separate deals in 2023.
  

• Cryptocurrency and metaverses: MENA houses the sixth-largest crypto economy worldwide — it received about $389.8 billion in on-chain value between July 2022 and June 2023. Countries such as the UAE, Saudi Arabia, and Qatar are leading the way in innovation in areas like blockchain regulation, and AR and VR technologies. Startups focusing on these technologies receive support from both established and new VC funds. For instance, the $1 billion Venom Ventures Fund (VVF) by Venom Foundation.

Government support

Why is support for startups this strong in the Middle East region? The UAE and Saudi Arabia are at the forefront in the Middle East, driving economic diversification efforts. They've set ambitious goals for economic diversity, sustainability, and modernization to reach by 2030.

Countries in the Middle East, like the UAE and Saudi Arabia, recognize the importance of the venture capital sector. They launched government-led initiatives that promote venture capital growth in the region.

For instance, Abu Dhabi's Hub-71 is a key part of the $13.6 billion Ghadan 21 accelerator program, designed to boost business in the city. It receives support from Abu Dhabi's sovereign wealth fund Mubadala, Softbank Vision Fund, and Microsoft. Dubai has launched similar projects, such as Dtec in the Dubai Silicon Oasis, a tech-centric free zone, and DIFC Fintech Hive, focusing on financial technology.

Free Zones like the DIFC provide tax-free environments and foster communities of entrepreneurs working on innovative projects. The Dubai Future District is a prime example. Within this district, which counts the DIFC as one of its main financial areas, startups enjoy comprehensive support. This includes assistance with licensing, visas, legal matters, funding, and housing.

Venture capital deals in the Middle East: 2023 statistics

Let's review the performance of venture capital funds in the region for 2023 and take a look at the figures.

Startups in the region raised a total of $4 billion in 2023. Let's break down this figure month by month.

The year kicked off strongly with venture capital (VC) activity, seeing $766 million invested in January. However, this momentum slowed, hitting its lowest point in April. Following this dip, investment gradually picked up again, with July seeing $41 million, August $98 million, and September $109 million in investments. The year ended on a high note, with a significant increase to $811 million in November and peaking at $1 billion in December.

This growth was propelled by a series of mega-deals (investments over $100 million) across the region.

The three biggest mega-deals in the Middle East were:

• Tamara, a fintech capital raising $340 million in series C

• MNT-Halan, a super app that raised $260 million in series D

• And another fintech startup Tabby, which raised $200 million in series D. 

Conclusion

The strategies of VC funds evolved significantly in 2023. Alongside the eye-catching mega-deals, there was a shift towards investments in earlier stages, such as pre-seed and seed series, with less emphasis on later-stage funding.

This shift creates a prime opportunity for launching new ideas in the Middle East region, where there has seldom been a better time to find support for your business.

Are you developing an innovative project in fintech, foodtech, e-commerce, logistics, or crypto? Start your Dubai journey with a detailed guide that will provide you with all the necessary information to register your company in the UAE — the ideal springboard for startups.