Industry Insights

The Startup Ecosystem in MENA

Derek Watson
Derek Watson

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The Startup Ecosystem in MENA

The MENA region is home to a large number of young, aspiring entrepreneurs. The startup ecosystem is supported through extensive government programs, which is critical given how important SMEs are to the local economy. Sources: 2
What is apparent though is that the MENA startup ecosystem still has a long way to go in terms of access to finance. For example, in a recent survey, only 16 out of 810 startups – around 2%, managed to successfully raise capital from a VC firm. While receiving investment from corporates, angel investors and VCs is an essential part for entrepreneurs to grow and scale their startups, seeing funding as part of a comprehensive success package will unlock the full potential of entrepreneurship in the region. Sources: 3
Investors and governments in the MENA are firmly committed to deploying capital when they are able to access the right opportunity. A paradigm shift has been happening and a new wave of startups are emerging as Governments launch new programs and initiatives. Smart Dubai, together with the UAE Government, are committed to turning the UAE into a “new testing ground” for startups and entrepreneurs to develop and scale new technologies such as smart cities, smart grids, smart infrastructure and artificial intelligence. Sources: 2, 5
Other initiatives that historically only provided early-stage startups with finance, now also offer additional benefits such as office space and mentoring. Sources: 5 asked Samer Tarazi, founder and CEO of Redtroops: What do you think is the biggest challenge in investing in a startup in the Middle East and North Africa (MENA) region? “Unfortunately, most investors tend to follow rather than lead. Either by following another investor or by investing in an Arabic version of a business model that has succeeded abroad. If you are working on disruptive technology or trying to build something that has never been done in the Arab world, that mentality makes it very difficult to raise funds needed to keep the startup going.” Sources: 4
This was evidenced in the seed round of Careem, which was overlooked by many local investors due to the company valuation. Several VCs acted to correct that initial decision and were involved in the subsequent Series A raise. The Uber acquisition of Careem was a landmark deal and has created a domino effect in the area, proving that a successful exit is possible. This has resulted in new tech startups attracting more investors and more venture capital. Sources: 4, 0
The region’s newest thriving tech scene is in Saudi Arabia, backed by the many investment arms of the Public Investment Fund. As part of Vision2030, Saudi Arabia is working to reduce its diversify its economy away from O&G, developing public service sectors such as health, education, infrastructure, recreation, and tourism Sources: 6
As the GCC begins to reopen post COVID, the region will need to work closely with the Startup and SME ecosystem to ensure that it can adapt and continue to positively contribute to national economies. The biggest challenge will be the access to relevant investors and accelerating the deployment of capital into the market place.

Cited Sources 0 1 2 3 4 5 6

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