The Mena region’s tech investment ecosystem took a step towards maturity in 2016 with US$870 million invested.
The breakout year increases the chances of SMEs across the region attracting funding and bolstering the region as a centre of innovation.
The $870m invested last year was an increase of 424 per cent since 2015 according to Magnitts’s Mena State of Start-ups report. The UAE accounted for half of regional tech investments over the past three years, taking the tech investment crown from Jordan, where there was a decrease in investments over the period.
Just two companies – Souq.com, the online market platform, which received $275m and Careem, the ride hailing app, which received $350m – represented a major chunk of the $870m figure. Stripping out Souq and Careem the two UAE based “unicorns” – a term for start-ups now valued at over $1 billion – there was still $232m invested in the country.
While venture capital, later stage investment, is experiencing exponential growth in the UAE, early stage investing, angel and seed investment, is still lagging because of the lack of high-profile exits from existing early investors.
“The UAE has cemented itself as the focus of attention for both regional and international capital,” said Philip Bahoshy, the founder of Magnitt, an engagement platform for Mena start-ups. He said there is still a gap between angel and seed capital that needs $250,000 to $500,000 and venture capital which enters at higher ticket costs.
“The region still needs to see some high-profile exits where investors see a return on their initial investment. That will provide an impetus for reinvestment and create an interest from many other investors. The level of funding last year will foster a bigger start-up community and create further international interest from both SMEs and investors.”
The region’s lack of incentive for early investing, such as angel and seed investors, is seen as a barrier to innovation and does not incentivise the risk. In the UK and the US, early stage investors are given tax breaks and exemptions for investing in nascent businesses to foster growth.
But the absence of income tax in the UAE discounts that as an option. Venture capitalists in the UAE believe the investment ecosystem, from angel to venture, is on the verge of an explosion in which it will grow five fold over the next two years.
“Across the value chain we will see exponential growth over the next two years,” said Dany Farha, the chief executive of Beco Capital, a UAE-based venture capital firm. He said he believes that angel investors have an excellent opportunity of investing early and exiting early with a significant return on capital.
“The Government wants to stimulate the angel investment arena and is exploring those avenues that will encourage the sector. However, the tech sector is a very attractive investment and it is cool now to be a tech investor. We are already seeing a burgeoning sector; when we see a significant exit with significant returns the growth will be exponential.”
ascott@thenational.ae
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