Debt and fintech dominate Mena startup funding

Unsplash/Priscilla du Preez

• Dramatic rise in funding deals in May after April slump
• 14 UAE startups raised $422m, leading the region
• Health and wellness businesses on the rise

Fintech and debt financing were the dominant themes in Mena startup funding in May, as experts predicted continued growth for the remainder of the year.

In May, $445 million was invested in 39 startups in the Middle East and North Africa, up from only $7 million and 11 deals in April.

The data was compiled by Wamda, the largest early-stage investment fund in the Middle East.

In dollar value, the UAE led the way with $422 million raised across 14 deals.

A $350 million debt round by buy-now-pay-later operator Tabby accounted for the lion’s share of the funding for the month.

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Ryaan Sharif, general manager for the UAE at Flat6Labs, said debt financing offers startup founders an alternative source of funding.

Debt financing may mean founders are left at the mercy of rising interest rates and repaying the loans, but this is outweighed by the fact they do not have to give up equity in their business. 

He added that debt financing was becoming more popular because startup valuations have been correcting downwards in recent months.

Flat6Labs, which is headquartered in Cairo, manages assets worth $135 million for 25 Mena-based institutions.

“As the startup ecosystem in the GCC and other regions mature, venture debt continues to gain popularity,” Sharif said.

However, other industry analysts were more sceptical.

London Business School

Luisa Alemany, an associate professor at London Business School (LBS), said the Tabby deal was “a one-off.” It is too soon to conclude this was going to turn into a growing trend in the region, she added.

LBS launched the Middle East LBS Business Angels Forum in Dubai earlier this month. It offers 100 regional startups the chance to pitch to investors and win six places on the funding program. 

The Wamda data showed fintech continued to dominate, accounting for 92 percent of investments.

Alemany said she had seen increased activity across a number of other sectors as well, notably healthcare and wellness.

Seed and pre-seed funding has continued to prove popular.

Bianca Gracias, managing partner at Crimson Legal in Abu Dhabi, said this showed that there was still a strong appetite for supporting new early-stage ideas, despite the global tightening of funds.

For the remainder of the year, LBS’s Alemany said she was “very optimistic” as there is a high number of quality investors still active in the Mena region.

“Governments in most countries in the region see the value of developing the entrepreneurial ecosystem and are very supportive," Alemany added.

Kamal Youssefi, president of the Hashgraph Association, a Swiss non-profit organisation focused on supporting startups around the world, echoed these sentiments.

Youssefi, who is in the process of launching a $100 million fund in the UAE, in partnership with the Abu Dhabi Global Market, told AGBI the dip in Mena startup funding earlier in the year was nothing to be concerned about and "occasional trepidation from investors in a speculative space is normal".

While global macroeconomic conditions will continue to have a significant impact on the outlook for funding in the Mena region, Youssefi said he believed "the region will fare better than other economies in the coming months".