Saudi Arabia Becomes MENA’s Top Market for Venture Capital Funding with $1.38bn in 2023
Saudi Arabia has emerged as the leading market for venture capital (VC) funding in the Middle East and North Africa (MENA) region, attracting a staggering $1.38 billion in investments in 2023. This marks the first time that the Arab world’s biggest economy has claimed the top spot, showcasing its rapid ascension in the start-up ecosystem.
According to the Mena Venture Investment Summary for 2023 by start-up platform Magnitt, the Kingdom’s venture capital investments witnessed a remarkable year-on-year surge of 33%. This remarkable success can be attributed to four mega deals, each worth at least $100 million, focusing on the thriving financial technology (fintech) and e-commerce sectors.
In contrast, the United Arab Emirates (UAE), the former leader in MENA, experienced a significant decline in VC funding, recording a 45% annual drop to $691 million, as reported by Magnitt.
Despite this, the UAE remains the top destination in the region in terms of the number of deals, with 158 transactions recorded. However, this figure represents a 9% decline compared to the previous year. In comparison, Saudi Arabia recorded 125 deals, experiencing an annual decline of approximately 20%.
The fourth quarter of 2023 proved particularly impressive, closing the year as the best quarter ever. This achievement was partly fueled by the mega rounds secured by Saudi Arabia-based buy-now-pay-later platform Tabby and fintech start-up Tamara. Both companies achieved unicorn status, reaching a valuation of $1 billion or more.
Magnitt’s report underlines Saudi Arabia’s continuous growth trajectory, with the country experiencing five consecutive years of expansion. The government’s support for start-ups, the increasing investment appetite, and the migration of start-ups to the Kingdom all contribute to its position as the regional leader.
Start-ups are increasingly recognized as catalysts for digital adoption and economic growth. Both Saudi Arabia and the UAE are proactively developing their technology ecosystems, as they understand the profound impact of digital transformation on their economies.
To foster this ecosystem, government and private entities in both countries have implemented a range of initiatives. These include mentoring programs, market access facilitation, and opportunities to engage with global investors. Additionally, start-ups can leverage the robust technological infrastructure provided by the government and private companies.
Philip Bahoshy, CEO of Magnitt, highlighted the resilience of Saudi Arabia and the UAE in this rapidly evolving landscape. Saudi Arabia, with its strategic initiatives, and the UAE, with its emerging serial entrepreneurs and early-stage companies, continue to drive growth in the region.
Among the other MENA countries, Egypt maintained its position as the third-largest recipient of investments, attracting $378 million, albeit experiencing a 30% decrease. Morocco experienced significant growth, moving up four spots to become the fourth-largest recipient with nearly tripled funding at $81 million. Conversely, Bahrain slipped one spot to fifth place with a decline of 82% in investments, recording $44 million.
In terms of the number of deals, Egypt ranked third, witnessing a 59% decrease in transactions compared to the previous year. Morocco secured the fourth spot, experiencing a 3% decline with 28 deals. Meanwhile, Qatar, rounding out the top five, recorded a 42% decrease in transactions, with 26 deals.
An analysis by Magnitt revealed that more than three-quarters of the total capital infusion was concentrated in the top five industries. Fintech and e-commerce claimed the top spots in both funding and the number of deals, amounting to $1.28 billion and $502 million, respectively, with 101 and 60 deals in each sector. Healthcare, education technology, and IT solutions also garnered significant funding.
However, despite the success of these sectors, the report disclosed a collective decline of 40% in the top five sectors in 2023.
The surge in Saudi Arabia’s venture capital investments and its rise to becoming the MENA region’s leading market reflect the country’s resilience and commitment to diversifying its economy. By fostering a robust start-up ecosystem, Saudi Arabia is poised to play a pivotal role in shaping the region’s economy of the future.
