2021 can be described as the year of startups par excellence, as it was an exceptional year for startups at all levels. Despite all the difficulties and challenges related to the spread of the Corona virus epidemic, what startups in the Middle East and North Africa achieved in 2021 did not achieve in all previous years!

In this article, we will take a comprehensive look at the state of startups in the region, and tell you everything you need to know about the state of startups in the Middle East and North Africa in 2021.

First: the development of investments in start-ups

During more than a decade, the business environment for emerging companies has developed in the Arab region, especially in the Gulf Cooperation Council countries, specifically the United Arab Emirates and Saudi Arabia, which have worked to develop the business environment to incubate entrepreneurship through a wide range of incubators and accelerators of the business sector and the governmental sector. Egypt has also witnessed a remarkable development in the business environment. The development in the Arab entrepreneurship ecosystem is reflected in improving the legislative and legal environment and in launching a large number of startup incubators, including Flat6Labs, Falak and Injaz Egypt.

The development in the business environment for startups in the region has translated into a huge increase in the number and size of investment deals in startups, as the total volume of deals for start-ups increased by more than 1280% between 2013 and 2021, and with a growth rate of 312% compared to 2020, which witnessed a slowdown in the growth rate due to the direct repercussions of the spread of the Corona epidemic.

In terms of the number of investment deals in startups, it also increased significantly between 2013 and 2021, and while the number of deals for startups in 2013 did not exceed 148 deals, in 2021 it amounted to 561 deals. The following figure shows the development of investment in companies in the region between 2013 and 2021 in terms of the volume and number of investment deals.

As shown in the figure, the volume of investments in 2021 alone is equivalent to the volume of investments in emerging companies in the region during the period 2017 and 2020 combined. This indicates the significant development that occurred in 2021.

Second: Startups in the Middle East and North Africa for 2021

The following chart shows the volume of deals for startups during 2021 and their growth on a monthly basis. The figure shows the upward curve of investment in startups throughout the past year. The quarterly growth of the volume of deals for startups reached 48%, 32% and 104%, respectively, while the growth rate for the last quarter of the same year decreased by 74%. This decline can be explained by the exceptional rise in the third quarter of the year, specifically in July, when the total volume of deals reached more than 632 million dollars. As for the semi-annual growth level, it reached about 91%. In general, the data before us heralds new levels of investment in start-up companies. The number of startup deals in the second half of 2021 also increased by 28% compared to the first half. This rise is accompanied by a growth in the average size of one deal, which rose from about $3.7 million in the first half to more than $5.6 million in the second half.

Third: Distribution startups financing by country for 2021

The Emirati startups continued to dominate the scene in terms of startup financing, as Emirati companies accounted for about 52% of the total investments received by emerging companies during 2021, followed by the Saudi startups, which came in second place with 24% of the total investments, then Egypt with 15%, and in fourth place, came Jordan with 4% of the total investments. Despite the continued dominance of the UAE in the forefront, and then Saudi Arabia and Egypt, in terms of investments in startups in the Arab region, this year witnessed the entry of new countries to the list, which was limited to 7 to 9 countries at best in the past. The list expanded to include 15 Arab countries , the most recent of which was Sudan, which ranked last on the list. In terms of absolute figures, new regions showed remarkable growth, specifically the Maghreb region, the Levant countries, specifically Jordan and Palestine, in addition to Iraq, which is witnessing a growth in the volume and number of deals for startups.

Fourth: Distribution of the number of startup deals by country 2021

In contrast to the distribution of the volume of investments by countries, which shows a strong concentration on the UAE, the distribution of the number of startup deals shows less concentration on the UAE, which despite issuing the largest number of startup financing deals, about 72% of the deals are distributed to emerging companies from outside the UAE, most notably Egypt, which came in the second place with 25% followed by Saudi Arabia with 24%, then Jordan with 7%, Morocco with 4%, and Tunisia and Bahrain with 3% each.

Fifth: The annual average of the volume of deals for startups by countries for the year 2021

The size and number of startups deals is reflected in the average size of a single deal, and while it is a good indicator of the development of investments in startups, it must take into account the anomaly value that may mislead the reader, as we can see from the graph that the highest rate of average one deal size is for Algerian startups at $15 million per deal. However, this number hides the significant decrease in the number of deals for startups in Algeria, which was limited to only two deals! While the average size of one deal in the UAE can be considered more reflective of the development and growth of the volume of investment in emerging companies, in which the size of one deal amounted to more than 8.8 million dollars. The same applies to the case of Saudi startups, whose average transaction size is about $4.8 million.

Sixth: Distribution of startup investments by sector for 2021

2021 was a distinguished year in terms of distributing the investments of emerging companies by sector. The food technology sector appeared for the first time to top the list of investments distribution, with 26% of the total investments, followed by the financial technology sector with 21%, a sector that has witnessed steady growth since the year 2019, while the e-commerce sector ranked third with 16%, this sector is experiencing a relative decline, as we have indicated on more than one occasion. The decline of the e-commerce sector is due to the state of saturation that the main Arab markets have reached, although this does not mean that this sector has completely disappeared. E-commerce in the Arab region still needs more expansion and development, but competition in this sector has become more difficult with the rise of many companies that occupied large sectors of the market, and finally the entry of the e-commerce giant Amazon to the most important Arab markets (Saudi Arabia and the UAE) and last year it entered the Egyptian market.

Seventh: Distribution of the number of startup deals by sector for 2021

In contrast to the distribution of the volume of deals of emerging companies that focus on food technology, the distribution of the number of deals for emerging companies was less concentrated among the main sectors on the one hand, and on the other hand, the large number of sectors in which startups succeeded in obtaining financing rounds are, most notably the agricultural technology sector, artificial intelligence, environmentally friendly technology, and other sectors. This distribution indicates the existence of promising opportunities for emerging companies that are active in areas far from the main sectors that have always reaped the largest share of funding, and perhaps the most evidence of this is the decline of the e-commerce sector in favor of the financial technology sector in the past two years, and the displacement of the food technology sector by the technology sector, which took the lead in 2021. So it will not be surprising that companies operating in different sectors are competing for funding this year.

Eighth: Investment stages for start-up companies during 2021

Investment deals in start-up companies in 2021 focused on the initial funding stage (1), with more than 32%, and in the pre-incorporation stage by about 15%, an increase of 2% over the first half of the same year, while the stage of “accelerated growth companies” came in the third place with 15%, and fourthly, financing of category “A” with approximately 9%, while the pre-financing stage of category “A” (2) accounted for about 7%.

Ninth: Distribution of investments by startup companies for 2021 by gender

The share of funding received by startups founded by females is still small compared to the companies founded by males, as the share of funding received by companies founded by females to the total funded startups did not exceed 1.2%. The year 2021 made significant progress, as a number of distinguished financing deals for women-led companies emerged, perhaps the most important of which were the iMile and BitOasis deals, through which the two companies raised $40 million and $30 million, respectively. It is worth noting that the UAE ranked first in terms of the volume of funding and the number of deals of women-led startups, as Emirati startups received investments worth $187 million through 46 deals. Saudi Arabia ranked second, where startups founded by a team of men and women succeeded in raising about $14 million through 9 deals. Egypt came in third place, with total investments of nearly $12 million through 20 deals.

Explanatory notes:

• Initial financing or financing coming from family and friends, is one of the ways of offering securities, where some parties related to the new startup invest an amount that enables the startup to start its business and continue in the market, until it reaches the stage of being able to finance itself or being able to creating value that makes the startup attractive for investors to invest in. It should be noted that seed funding may be a form of crowdfunding.

• Series A Financing, also known as A Round Financing. It is the first round of financing offered to a startup company in which venture capitalists participate, and it comes after the seed round stage. This is usually done when outside investors are given ownership of the company for the first time. This financing is usually provided in the form of preferred shares, and may include anti-reduction provisions in case of more financing being provided, or in the form of common shares or preferred shares in the future.

Sources:

- Press releases issued by start-up companies.

- Wamda Foundation.