RIYADH: Saudi Arabia recorded a 35 per cent year-on-year increase in the number of investment deals in the tech start-up sector last year, according to a new industry report.
A study by data search platform Magnitt found that the Kingdom accounted for 18 per cent of the 496 investment deals across the Middle East and North Africa last year.
Saudi Arabia, the United Arab Emirates and Egypt were the largest markets, accounting for 68 percent of the total deals. However, while the UK saw the number of investment deals increase by over a third, the UAE and Egypt saw their volume decline by 17 per cent and 10 per cent, respectively.
When it comes to the monetary value of the deals, the UAE and Egypt still dominated overall, but Saudi Arabia recorded a 55 percent year-on-year increase to $ 152 million. By comparison, the value of deals in the UAE increased by 5 percent and Egyptian funds increased by 31 percent.
Nabeel Koshak, CEO at Saudi Venture Capital Company, said: Saudi Arabia is witnessing an increase in quality and quantity in the flow of new venture deals. I am enthusiastic about distinguished entrepreneurs who are creating fast and scalable start-ups. Despite the slowdown in COVID-19, Saudi Arabia saw a record increase in venture capital financing (55 percent) in 2020 compared to 2019.
Overall, across the Middle East and North Africa, 2020 saw a record of just over $ 1 billion invested in start-ups, a 13 percent year-on-year increase. This despite the fact that the volume of deals decreased by 13 percent during the same period.
The impact of the pandemic can be clearly seen in the data. In the first half of 2020, $ 725 million in funding was raised, an increase of 29 percent compared to $ 563 million in the first six months of 2019. In the second half of the year, $ 306 million was raised, a decrease of 35 percent compared to the last six months of 2019.
Philip Bahoshy, CEO and founder at Magnitt, said: Exactly one year ago when we published the annual Magnitts Enterprise 2019 report, I predicted that excluding war or natural disaster we would see $ 1 billion invested in MENA startups in 2020. We saw neither war nor natural disaster. Instead, a global pandemic changed the world.
It has been a difficult year for all of us in many ways and it is likely that the pandemic will continue to affect the global population as well as the macroeconomic forecast for our region during 2021, he added.
The report also identified a clear shift in capital allocation away from early stage enterprises.
Preliminary deal-size investments of less than $ 100,000 represented 47 percent of transactions in 2019, while in 2020 it fell to 27 percent. This revealed that last year investors were showing a preference for Serie A investments with bigger tickets, or deals between $ 100,000 and $ 3 million.
In terms of sector focus, the impact of COVID-19 can be clearly seen. Funding for food and beverage and healthcare start-ups tripled to $ 122 million and $ 72 million, respectively.
Courtney Powell, chief operating officer at 500 California-based Startups, said 2021 would be a turning point for entrepreneurship in the Middle East and North Africa.
It is the culmination of years of work by key stakeholders. The flow of deals is healthy and getting stronger every day, there is more capital available than ever, and there is a great hunger to see the region diversify away from the historical drivers of gross domestic product and become an economy knowledge leader.
In its forecasts for 2021, Magnitt has predicted that Saudi Arabia will surpass Egypt in total investment and total capital invested and become second only to the UAE in the rankings.
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