Does the secret to life, lie in falling seven times and getting up eight, as the novelist Paulo Coelho said? Maybe it’s true! But there are reasons why startups in the Middle East and North Africa (MENA) are struggling to achieve their dreams, despite increased activity in recent years.
Every startup founder is looking for an investor, dreaming of new horizons, sometimes unaware of the challenges. Upon examining and exploring the success stories associated with companies, we find strong models like Careem, which raised $1 billion in funding, Paymob, which earned investors’ approval with more than $100 million, and Majorel from Morocco, which was acquired by Teleperformance for $1.3 billion. So, what prevents other ventures from finding their way to the path of abundant funding and success?
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Let’s start by explaining, how funding impacts a startup?
According to a 2023 report by Magnitt, a platform specializing in entrepreneurship market research, funding is a key motivator for growth and expansion. Another platform, Wamda, specializing in supporting startups, revealed that the funding for startups in the Middle East reached about $880 million during the first half of 2024, a decline of 45% year-over-year.
Indeed, startups need funding for development, research, and marketing, to achieve higher valuations than their non-funded counterparts, which results in a higher survival rate in the market compared to other companies, overcoming economic downturns, creating more job opportunities, and thus significantly impacting the local or global economy.
Based on the above, some countries have realized the need to support startups. For example, the UAE’s share of new companies in the entrepreneurship world in the Middle East and North Africa increased from 43% to 51%, representing half of the new companies, as reported by Clearworld, a research platform, in their latest 2024 report.
In any case, all companies in the financial and business sectors know that funding changes the course of events and creates new momentum and prosperity, especially when it comes to progress and competition.
Who Are the Funding Leaders in MENA to Guide Your Path?
The MENA region has seen increased startup activity, attracting significant investments from regional and global investors. Some of the most famous names in investing in these companies include:
Venture Capital Funds:
- Wamda Capital: A leading venture capital firm in the MENA region focusing on tech startups.
- Flat6Labs: A regional accelerator network with branches throughout the MENA region, providing seed funding and mentorship to startups.
- BECO Capital: Specializes in tech investments in the MENA region.
Family Offices:
- Al Tayyar Group: A prominent Saudi family office with significant investments in technology and real estate.
- Al Rajhi Ventures: The investment arm of Al Rajhi Group, one of the largest banks in Saudi Arabia.
- Mubadala Investment Company: A sovereign wealth fund from Abu Dhabi investing in a wide range of sectors, such as technology and healthcare.
Venture Capital Firms:
- 500 Startups: A global venture capital firm with a strong presence in the MENA region, investing in early-stage startups.
- Kleiner Perkins: Focuses on investments in technology and healthcare sectors and has a global presence in the region.
- Accel: Supports many startups in the MENA region.
Regarding the investment amounts of these companies, there is no exact number, as many deals stayed undisclosed… maybe it’s our curse as Arabs. However, companies like Wamda Capital, Flat6Labs, and BECO Capital have played significant roles in the investment landscape for these companies.
Of course, the funding side is influenced by many factors, such as geopolitical events, economic conditions, and regulatory changes that strongly affect this activity.
Talking About Funding, There Are Also Government Funds in Many Countries!
Saudi Arabia:
- Monsha’at: A government agency dedicated to supporting SMEs, providing various funding programs and initiatives.
- National Development Fund (NDF): A government fund providing funding for strategic projects and initiatives, such as those related to entrepreneurship and innovation.
United Arab Emirates:
- Dubai SME: A government agency that supports SMEs by offering funding options, mentoring, and market access.
- Abu Dhabi Investment Office (ADIO): A government entity investing in strategic projects and initiatives related to entrepreneurship and innovation.
Egypt:
- National Investment Bank: A government-owned bank providing funding to various sectors, such as SMEs and startups.
- Small and Medium Enterprise Development Agency (SMEDA): A government agency supporting SMEs in Egypt, offering funding options, training, and technical assistance.
Why startups are experiencing lean days & eventually close down?
The narrative on this topic, dear startup founder, cannot proceed without discussing the lack of investors, the reality of limited trust, or perhaps the lack of specialists in investment, which limits a startup owner’s chances of finding the right person.
Looking at experiences like GreenTech or TechOasis in their early days, they had the opportunity to pass by many investors to secure ample funding, but things did not go well.
The second reason, is the conservative investment culture. In some of our Arab countries or North Africa, there is a fear of risk and a strong preference for well-established industries or those that are essential to people, such as food, clothing, or transportation. As a result, entrepreneurs’ efforts to convince investors of their ideas often go in vain.
Moreover that the regulatory challenges, legal complexities, and bureaucracy, which then drive investors away from risking significant capital, favoring sitting within the familiar office walls.
Did you also know that there is a lack of opportunities for mergers and acquisitions to the extent that it prevents substantial investment returns, which discourages investors from investing in startups in the region?
Yes! A Clearworld study this year confirmed that 70% of startups in the Middle East and North Africa are in the pre-funding stage!
Let’s also mention the reason for intellectual property protection. Some companies may weaken their path to protecting their ideas or creating ample job opportunities. In North Africa, for example, there are complex labor laws that create a barrier between the company and employees, preventing the workforce from being managed as efficiently as desired.
Navigating the legal landscape is not easy, and there’s no need to mention the legal complexities in the Middle East and North Africa, as the popular saying goes, “Courts have long ropes.”
And what if the investor’s door is closed? Are there other doors?
Of course, there are crowdfunding platforms, which involve raising money from several people online or contacting a group of investors, such as Souqalmal or MenaFund, which offer equity funding opportunities, or the global investment platform Ethis, which provides funding for companies with social or environmental impact.
Angel Investors:
The angel investment scene is still in its early stages, but it is one of the more mature investment markets. There are many prominent figures who have made significant contributions to this system, such as:
- Prince Khaled bin Alwaleed: A prominent Saudi angel investor and philanthropist who has invested in many startups across the region.
- Faisal Ibrahim: A Saudi entrepreneur and investor who has supported many startups, particularly in the tech sector.
- Abdullah Al Ghurair: A prominent Emirati businessman who has invested in several startups, particularly in education and technology.
- Mohamed Alabbar: Founder of Emaar Properties, a leading real estate development company in Dubai, who has also invested in numerous startups.
- Karim Helmy: An Egyptian businessman and investor who has supported many companies, particularly in technology and healthcare.
- Hala El Saadani: An Egyptian entrepreneur and investor who has invested in many companies, particularly those in education and social impact.
Sectors That Attract Investment in MENA?
As mentioned, dear startup founder, there is increased investment activity in the region, driven by economic factors, technological advances, and government initiatives. There are sectors that attract investment, where you can establish startups in these sectors:
- Logistics: The rapid growth of e-commerce has driven demand for efficient logistics solutions, such as warehousing, transportation, and delivery.
- E-Government services Many governments in the region invest heavily in digitalizing their administrative process and governement services
- EdTech: The large number of students in the region presents a significant opportunity for EdTech startups.
- Digital Payments: The adoption of digital payment solutions is increasing, creating opportunities for fintech startups.
- Telemedicine: Providing remote healthcare services at affordable prices.
- Financial Inclusion Solutions: There is a growing focus on financial inclusion, with initiatives to provide access to financial services for the population.
Do All Startup Ideas Make It to the Funding Stage?
No, Sir! We mentioned many challenges, didn’t we? But investors or crowdfunding platforms, when studying any project, carefully consider several factors.
Valuing startups in the MENA region depends on the potential for excellence and profitability, which is achieved through extensive studies of all company details.
Investors look first at experience and industry expertise, the ability to execute a business plan, leadership skills within the company, the vision of the founders, and their ability to inspire their team.
That’s not all. They also consider the team’s ability to work cohesively, creating a synergy that replaces weaknesses with strengths in the future.
Investors are also aware of market growth opportunities and competitive strength. Is the idea owner really capable of delivering something different and new, especially in a highly competitive market?
Let’s Dig Deeper! The company’s revenue model, the ability to continue generating more sustainable financial resources, the ability to attract customers, analyze financial statements, balance sheets, cash flow statements, and give strong consideration to the startup’s intellectual property portfolio.
This is in addition to the investor’s assessment of the chances of a larger company acquiring the startup and the possibility of an initial public offering (IPO).
All these factors attract investors to inject their money into a new company in the industry! But there are stronger keys to success, including study and patience in the entrepreneurial journey. So, do you have the patience, dear startup founder?
Among the Inspiring Entrepreneurial Models: The Story of the Inspiring Tunisian Entrepreneur, Yassine Anter, a Prominent Businessman in the Middle Eastern Tech Scene, Filled with Artificial Intelligence Skills.
Yassine Anter founded his startup InstaDeep, which succeeded in attracting significant investments and making a global impact in the industry. His journey began in Tunisia, developing his passion for AI, before moving to London to establish his company specializing in developing deep learning solutions for various industries.
InstaDeep’s Technology Applies to a Wide Range of Applications, such as self-driving vehicles, healthcare, and natural language processing. Anter’s leadership, commitment to innovation, and assembling a talented team enabled his company to expand globally, establishing offices in several countries and forming partnerships with other major companies in the industry.
Yassine Anter’s success has inspired many entrepreneurs in the Middle East to chase their dreams in this digital era we enjoy today.
It’s Not Just About the Founder’s Belief in Their Project; Some Countries Are Also Committed to Enriching the Startup Experience.
The Saudi and Emirati Experience !
A study tracking investment flows into startups in Saudi Arabia, titled “Venture Capital in the Middle East,” revealed an increase in investment activity in the Kingdom in recent years due to government initiatives aimed at diversifying the economy and enhancing business.
Investment deals in Saudi Arabia tend to focus heavily on tech, healthcare, and e-commerce sectors, considering them promising and aligned with the government’s economic diversification goals. This is in addition to extensive funding rounds that attract local and international investors. Saudi Arabia has launched initiatives like the Saudi Venture Capital Company (SVC) and the National Development Fund (NDF) to provide funding resources for startups.
As for the UAE’s experience in supporting more startups, no other country in the MENA region has reached the milestone of 1,000 projects after the UAE crossed this mark in 2019. With over 1,500 projects, the UAE remains the largest base for startups.
On the Contrary, Some Countries Have Limited Funding for New Idea Companies!
Perhaps I mentioned the fundamental reasons that limit funding for startups in the MENA region, but let’s learn from other experiences to understand the landscape well.
Yemen faces political instability, which creates challenges in attracting investors.
Similarly, Sudan faces economic and political difficulties that limit its funding capacity. In the same way, Syria struggles economically due to war, making it difficult for startups to secure adequate funding.
However, this has not stopped the aforementioned countries from attempting to implement initiatives to encourage entrepreneurship and attract investment.
Countries nurturing Startups – the Egyptian Entrepreneurship Ecosystem
Indeed, Egypt has strengthened its position in this field, providing a fertile environment for nurturing startups in recent years. The annual report by the research platform MAGNiTT, which highlighted the progress of startups in the MENA region, described Egypt as having one of the best ecosystems supporting these companies, with more venture capital being injected.
Global research company Startup Genome ranked Egypt among the top 10 startup ecosystems globally. This company’s report confirms Egypt’s ability to achieve significant growth in this sector.
One reason for this success is the government initiatives supporting these companies and the clear presence of relevant entities, such as the Information Technology Industry Development Agency (ITIDA), the Egyptian Private Equity Association (EVCA), and the creation of many tech centers that offer a suitable environment for entrepreneurs.
Let’s Mention the Entrepreneurial Journey of Ambitious Egyptian Entrepreneur Mohamed Aboul Naga; a driving force within the tech scene, not only in Egypt but across the Middle East and globally.
Aboul Naga managed to establish “Halan,” a company specializing in transportation and delivery, leveraging a tech approach that keeps up with the times, especially after the COVID-19 pandemic. His journey started with studying Electronics Engineering at the American University in Cairo and reached various positions due to continuous effort and ambition, such as business development at Fawry or becoming the regional director at Careem.
“Let’s build our project!” This was the phrase Aboul Naga sought to achieve through launching “Halan” with his co-founders, aiming to deliver orders to homes at affordable prices. As the company evolved, it opened new horizons for investment and savings opportunities for individuals.
The company’s success, of course, is due to its innovative and leadership approach and its focus on customer satisfaction. It became worthy at some point to fly outside the Egyptian nest and expand into Sudan and Ethiopia.
On the “Halan” platform, you can request delivery, pay bills, and buy what you need in installments. This is what Aboul Naga aimed for: serving a large audience segment. This is what motivated him to expand and launch into new stages of his project, and of course, leadership is what caught the attention of many investors, whether to encourage or take similar steps. Aboul Naga remained an inspiration for many startup founders to follow in his footsteps for success, excellence, and development in the administrative, leadership, and entrepreneurial sectors.
Speaking of Attempts to Support Startups in the MENA Region, We Shouldn’t Forget the Algerian Experience. Algeria has taken steps to enhance a supportive environment for startups, such as establishing a new legal framework that provides simplified management, reduced capital requirements, and easier governance for companies.
In addition to creating a favorable tax system that offers low tax rates and other tax incentives, specialized entities also support this sector, such as the Algerian Startup Fund (ASF), which provides equity investments to help secure the necessary capital to support these companies.
The government has also implemented grants and subsidies to support startups at different stages of their development and government-supported incubators and accelerators that offer networking opportunities, mentorship, and resources needed for startups to continue and thrive.
Algeria simplifies bureaucracy as much as possible to reduce barriers for new idea owners and promotes public-private partnerships to create a more sustainable environment. The government also prioritizes specific sectors for startup support, such as technology, renewable energy, and agriculture.
Have you heard about the Journey of Mohamed Karim? An Algerian Entrepreneur, whose passion for technology drove his entrepreneurial journey, creating a stir in the e-commerce sector by connecting Algerian consumers with local and international products. His creative spirit pushed his company forward, leveraging infrastructure constraints to create a new online shopping experience. The founder expanded internationally after a short period, thanks to careful planning and strategic partnerships, launching his platform in Africa and Europe.
Karim guided his platform to align with local preferences and regulations, and cultural awareness played a role in paying attention to project details, forming a successful regional presence.
His journey is a clear testimony to the spirit of initiative and innovation possibilities in developing countries, serving as inspiration for those wanting to establish startups and a strong example of perseverance.
Reflecting on the Efforts Some Countries Have Made to Improve the Conditions of Startups, I Noticed Developments in the Moroccan Experience, where the government provides grants to these companies and reduced taxes, in addition to establishing venture capital funds and offering education and training in the entrepreneurial field.
Morocco has established many global partnerships with other countries and organizations to promote entrepreneurship and attract foreign investments. But the journey to success is still far away !
What About other African Countries?
Dear founder, the Global Startup Ecosystem Index (GSEI), developed by StartupBlink, a research company, provided a comprehensive analysis of startups in the African continent in its latest annual report. The findings show the rapid growth pace of these companies, driven by technological progress, government support, and the ongoing spirit of entrepreneurship among business owners.
Startups on the continent have been active in several sectors, such as fintech, agriculture, healthcare, and e-commerce.
Cities like Nairobi, Lagos, and Cape Town have emerged as prominent hubs for startups in terms of attracting investment and talent.
At the government level, there are notable initiatives to drive the emerging economy by these companies, creating new job opportunities, leading to countries like South Africa and Nairobi being listed among the top global tech hubs.
As mentioned earlier, Egypt has made significant progress in supporting these companies, especially those specializing in the tech sector.
Despite Limited Funding and Regulatory Barriers in Africa, the Continent Remains Rich with a Promising Future in Entrepreneurship and Innovation, Not Just on the Continent Level but Globally.
Entrepreneurial Experiences Require Determination
Want more ? There are many entrepreneurial experiences of successful business owners throughout the ages, despite the funding and investment disparities in our Arab countries. From the UAE to Saudi Arabia, Morocco, Syria, Algeria, Egypt, Sudan, and African countries, investors and experienced professionals exist, but due to governing factors of funding for startups, these countries differ in their approach to supporting startups.
An investor is not a naive person seeking to lose their money in nothing; instead, they want to know the experience, education, and leadership the idea owner has to build a strong, ambitious, and, most importantly, sustainable project.
The lean days of funding for startups in the MENA region are just a temporary phenomenon. “Lean,” my friend, in Arabic means stinginess (a trait that is not permanent or consistent); this funding stinginess is due to several reasons that we mentioned today, whether reasons preventing funding within the country, reasons related to the company, reasons related to the investor, or perhaps reasons related to the idea to be implemented.
However, despite the lean funding, the primary factor for a startup’s failure remains the lack of perseverance. The entrepreneurial journey, just like it needs financial support, requires patience, determination, and holding onto the idea despite all challenges.
Do not forget the importance of studying the market thoroughly and relying on research, as specialized studies support all industries, and knowledge enhances personal and project development.
I believe when asking entrepreneurs about funding their startup, there is a lot of talk about the difficulties and failures encountered along the way, but the difference between one person and another lies in persistence and strong determination.
As Paulo Coelho said, the secret to life lies in falling seven times and getting up eight.
Discover the State of Funding in MENA – 2019 to 2023 : The white paper of this month is taking you through the ups and downs of MENA’s startup funding over the last 5 years. If you’re a startup founder, an investor or an ecosystem builder, this is your chance to learn from the past, spot the trends, and write your own success story.
Don’t miss out on knowing the history that could shape our future!
