A Look Ahead: VC Predictions for Mena in 2024

Is 2024 shaping up to outpace 2023 in funding, or are levels expected to remain unchanged? We lay down 8 predictions on investor trends in Mena for 2024

As we bid adieu to 2023, the burning question on every investor's mind is whether 2024 will signal a rebound in funding or a continued cautious approach. Our recently released year-end reports on Venture Capital Investments in Emerging Markets (EVMs) for 2023, benchmarking Africa, the Middle East, and for the first time Southeast Asia, provide some intriguing insights.

In 2023, EVMs witnessed a commendable $11.9 billion raised across 1.6 thousand deals. Notably, the Middle East and North Africa (Mena) secured $2.6 billion through 477 deals. However, against the backdrop of global economic challenges like inflation and oil production curbs, Mena experienced a 23 per cent year-on-year funding retreat and a 34 per cent year-on-year decline in closed transactions. Surprisingly, this region outperformed the global VC slowdown average of 42 per cent (as reported by CBInsights), showcasing resilience amid uncertain market conditions.

But based on last year’s data, what can we predict about the year ahead? Will this cautious investor sentiment be sustained?

In what has now become an annual tradition, we share a few predictions for the year ahead based on MAGNiTT's proprietary data and forecasting tools:

4 quarters of flat non-mega deal investment

Excess investment is a thing of the past. We anticipate the quarterly investment trends to remain flat across Mena throughout the year, excluding the mega deals. A potential uptick in fourth quarter of 2024 is plausible if the interest rates are finally cut in anticipation of a soft landing in the US, as hinted by Jerome Powell.

Why exclude mega deals? Because they skew the underlying picture of the Venture Market, with a concentration of these deals taking place historically in Saudi Arabia, the UAE, and Egypt. Point of reference, the top five investments in Mena in 2023 accounted for 43 per cent of all funding, whereas the average of the top five across EVMs was only 17 per cent.

Secondaries boom

Liquidity remains one of the biggest challenges for the Mena ecosystem. We can now say that the Mena region is effectively in its 10th year of evolution, dating back to the birth of many of the region's original VCs. However, the number of exits has been tampered with to date. Interesting stat for you: in the last five years we have recorded 3,073 investment rounds, raised by 2,829 startups across Mena. However, less than 7.5 per cent of them have exited.

Secondary offerings will provide much-needed liquidity to the market which has been a hot subject for government discussions along with the creation of private-sector tech platforms to support employees, founders, and investors alike.

The rise of Corporate Venture Capital

With corporates actively engaging in the Mena region, 2024 is anticipated to witness a surge in off-balance sheet investment mandates from large GCC corporations, particularly in the Financial Services sector. This shift may elevate their share from the historical average of 13 per cent to approximately 20 per cent.

A record year of exits

Despite challenges in 2023, predictions for a record year of exits gain stronger conviction in 2024. As the region eyes a potential Soft Landing and garners increased international interest, expect the start of an IPO window for local listings, particularly in KSA, and heightened consolidation driven by corporations and M&A activities.

The continued rise of KSA

Saudi Arabia's growth trajectory remains uninterrupted, with five consecutive years of expansion. All indications from the government, investment appetite, and startup migration point towards continued growth as the leader in the region in the venture capital space, not only by funding but also by transactions. Having achieved this feat in 2024, it will be interesting to track KSA's growth when compared to more historically active Emerging Venture Markets considering Türkiye's lead in terms of transactions and Singapore’s lead by funding in our annual report.

Kickstart of serial entrepreneur

As mentioned the Mena region is reaching over a decade of existence. We have seen an acceleration of exits in the last five years, founders of which will likely be looking to set up new ventures. Last year also witnessed the challenge of many startups having to close shop. Founders of those may be inspired to start again. In the good old adage of "serial entrepreneurs make the best entrepreneurs", I anticipate 2024 to mark the rise of serial entrepreneurs raising funds from the Mena region as they move on from their first ventures to start new entities with their experience.

Less investors, more dry powder

While the number of institutions investing in Mena-based startups saw a decline in 2023, established VCs and CVCs are likely to hold more dry powder, compensating for the reduced number of new players.

Fintech dominance with sector diversification

Fintech is projected to maintain its prominence in VC investment, capitalising on a strong track record in 2023 (16 per cent year-on-year growth in 2023). However, watch for e-commerce/retail, healthcare, and EdTech gaining traction, diversifying the investment landscape. The swift rise of online shopping and the need for enhanced healthcare and education solutions garner investor attention in these domains.

As we navigate the dynamic VC landscape in 2024, MAGNiTT, with its seven-year journey as a regional venture capital ecosystem solution, stands ready to guide decision-making with accurate and transparent data. Remember, in the world of venture capital, foresight alone is not enough — adaptability is key. Let MAGNiTT be your compass as you navigate the exciting ventures of 2024.

Philip Bahoshy is Chief Executive Officer of MAGNiTT.

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