Dubai key as 30% of UK’s VC investors target Mena in 2023

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• Investors see Dubai as hub with large international community
• Sectors of interest include e-commerce and B2B solutions
• Desire to increase VC allocations for early-stage investments

Nearly one in three UK-based investors plan to look towards the Middle East and North Africa for venture capital deals next year, according to new research.

The region is the third most popular destination for planned investments during 2023 by UK decision makers who invest in venture capital, after their home market and North America.

Research from Digital Horizon, a next generation venture capital firm headquartered in London, showed that 56 percent of UK investors plan to increase their VC allocation in 2023, with one-in-five saying the rise will be significant. 

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Despite the current state of the market, against the background of plummeting valuations and ongoing political and economic uncertainty, the research suggests that optimism in the future of the startup scene and appetite for venture capital investing both remain strong.

Over a third (35 percent) of respondents plan to invest in the UK next year – second only to North America (44 percent), described as a vote of confidence for the UK despite the economic and political volatility it has endured in 2022. 

About 30 percent said they are eyeing 2023 investment opportunities in the Mena region while 28 percent chose Latin America, 27 percent picked Europe and 23 percent said they will invest in Asia. Another 14 percent plan to invest in Israel.

Alan Vaksman, founder and managing partner at Digital Horizon, told AGBI: “Within the Mena region, Dubai is a hub with a large international community and huge growth potential, so it’s encouraging to see investors realise its potential. 

“There are particularly exciting developments happening in the sectors of e-commerce, payments, crypto infrastructure, trade finance and B2B solutions. Dubai is poised to become a leading global financial centre in its own right, with potential to create a venture capital ecosystem.”

He added: “To achieve this it’s important that this ecosystem of founders and funds is guided by a long-term vision and capital commitments. It is key that appropriate incentives are in place for all the parties involved.”

According to the survey of 250 UK-based investment decision makers, three-in-five (62 percent) said they are going to increase their average VC investment cheque size next year. 

When describing how their portfolio is going to be structured, 54 percent of respondents said it would be mostly early-stage. 

After a year marked by economic and political uncertainty, the survey also uncovered the relative impact of macro events on respondents’ investment strategies, with rising interest rates and inflation, changes in tech companies’ valuations and weak growth forecasts listed among the top concerns.

When asked about the factors that have the greatest impact on the attractiveness of the venture industry, a lack of transparency in valuations came out on top, followed by low asset liquidity and fees and commissions.

Vaksman added: “Against the backdrop of tumbling tech valuations, political upheaval, and an impending recession, it’s incredibly encouraging to see that institutional investors retain a strong appetite for venture capital.

“As we enter 2023, there is a clear desire among limited partners (LPs) to increase VC allocations and a demonstrated preference for early-stage investments, with the majority stating they envisage their portfolio being mostly early-stage next year.

“While the UK has faced an exceptionally challenging year, economically and politically, there’s a strong sense that optimism in the region remains.

“What’s clear is that LPs are adjusting their approach – eyeing new and emerging investment funds and managers, and considering more investments through special purpose vehicles, direct investments and secondaries.”

The survey coincides with an announcement by Hub71, Abu Dhabi’s global tech ecosystem, that it has onboarded startups to its community that have raised $1 billion in venture capital collectively since its launch in 2019.

The milestone was achieved in a year which has seen Hub71 welcome 53 high growth technology companies.

Nine startups onboarded by Hub71 this year have raised more than $10 million in funding each and $156.7 million collectively. 

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Badr Al-Olama, acting CEO of Hub71, said: “A true sign of a quality startup is a founder’s proven ability to raise capital from high profile investors.

“As the startups we’ve onboarded at Hub71 have raised $1 billion collectively, our community is increasingly accelerating deal flow and reinforcing Abu Dhabi’s stature as a top investment destination for startups at all stages. 

“We are setting the tone for 2023 and remain committed to helping our founders create global impact from our ecosystem.”

Data compiled by Wamda, the largest early-stage investment fund in the Middle East, found that funding for Mena startups in October amounted to $646 million across 69 deals, pushing the total for the first 10 months of this year to around $3 billion spread across 551 deals. 

In October the UAE was the dominant market, raising $460 million across 24 deals, followed by Egypt with $113 million raised across 18 deals, while Saudi Arabian startups raised $70 million across 12 deals.

Bhaskar Dasgupta, non-executive director at Apex Group Boards, told AGBI earlier this month that the three most important markets in the Gulf are Dubai, Abu Dhabi, and Saudi Arabia.

Dubai and Abu Dhabi developed their startup and venture capital ecosystems first and have benefitted from having an advanced startup ecosystem, boasting the right mix of regulation, incubators, data protection, active companies, talent, education and more.

Dasgupta said Saudi Arabia’s biggest advantage is that it is a very large market.