Dubai: Venture capital investments in the Middle East and North Africa (Mena) region made significant gains last year and are evolving as a popular asset class among regional investors.
The industry reported 175 investments worth $127 million (Dh466.3 million) and raised $172 million in 2016. There were a number of significant transactions last year for venture capital backed businesses. Careem, the UAE headquartered regional provider of transportation solutions, followed its $60 million fund raise in 2015 with a $350 million round in 2016, but the new fundraising was categorised as a PE investment given the profile of investors.
“There seems to be a true grass roots entrepreneurial movement that has not only benefitted from governmental support in some countries, but also attract increasing amounts of venture capital. I firmly believe that this development will make the investment sector more active and vibrant, provides better diversification for investors and ultimately will create exciting new companies in the region,” said Dr Helmut Schuehsler, CEO of specialist Private Equity firm TVM Capital Healthcare Partners.
Industry observers say the macro-economic environment offers support for the industry. Global trends in ecommerce, developments in Fintech and other disruptive technologies including the move towards a more cashless economy are combining to drive entrepreneurship. While the region has lagged developed economies in this regard there is a growing recognition that these segments offer a major opportunity for entrepreneurs and investors.
There are clear indications of acceleration of venture capital and early stage investing in the region. Notable regional venture capital successes such as Souq.com and Careem have raised the profile of the industry and the number of disclosed investments increased by 44 per cent to 175.
The promotion of the venture capital industry has become increasingly prominent, with numbers of incubators and accelerators increasing, alongside a developing legislative framework .
“We expect this trend to continue as the asset class attracts ever greater interest from both within and outside the region. Significantly, this in part reflects a government led emphasis, notably in the UAE and KSA, to reduce reliance on the oil and gas sector and foster the development of entrepreneurialism and SMEs,” said Sam Surrey, principal director, financial advisory, Deloitte.
The UAE once again saw the highest levels of VC activity in the region last year, with overall investment destinations similar to those seen in 2015. The UAE, Lebanon and to a lesser extent, KSA are emerging as the major hubs for venture capital activity in the region. “VC is increasingly being recognised as an asset class by regional investors, especially in the UAE and Lebanon. Regulation of the industry and more people applying for licence to operate VC funds is a sign that the industry is maturing in the region,” said Walid Hanna, founding partner and chief executive officer, Middle East Venture Partners
Technology-driven businesses form the major focus for venture capital investors. This trend is consistent with previous years and is further emphasised when considering that other sector investments often have a critical technology component.
Fund raising levels in regional VC industry declined from 2015, in part reflecting overall short term investor outlook on the region. However, given the levels of VC investment activity and positive sentiment regarding the asset class industry players expect a reversal of this from the second half of this year.