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Look at the fall in startup investment. Now take a closer look…

No-context numbers don't tell the whole story on Mena startups. Here are some reasons to be hopeful

Triska Hamid
By Triska Hamid
When financing is harder to find, startup founders are forced to be even more creative Unsplash/Getty Images
When financing is harder to find, startup founders are forced to be even more creative

Numbers can tell all sorts of stories. Even when the data is void of bias, how it is presented makes a big difference.

The amount of money invested in Middle East startups can be used to support varying narratives. Where some simply see a downturn, others might highlight a resilient ecosystem. A snapshot in time, presented without context, can give the market hope or cast doubt on its progress. 

Mena-based startups raised $882 million in the first half of this year, research by Wamda reveals. This is just over half of the $1.6 billion that was raised in the same period in 2023.

But closer inspection of the data reveals a more promising outlook than the raw figures seem to show. 

Debt financing played a big role last year. As investors became more cautious, debt was offered as a safer alternative. In the first half of 2023, $644 million of the total raised by startups was through debt financing. This year, debt financing amounts to just $153 million.

If debt is excluded, the year-on-year fall in equity-based investment is around 24 percent, which paints a far less dramatic picture​ of decline. 

In fact, there is good reason to remain hopeful for the remainder of 2024. Last year, the war in Ukraine, inflation and the rise in interest rates prompted investor hesitancy.

This year, the conflict in Gaza and fears of regional escalation have added to investors’ worries. Yet startups, particularly in the early stages, have maintained a steady momentum and continue to attract similar levels of investment as previous years. 

What we are seeing is more of a recalibration from the highs recorded in 2021 and 2022, when the Covid pandemic underscored the importance of digitisation and innovation in business. 

The downwards shift so far this year suggests the market is going through a natural consolidation period, rather than facing a collapse. When funding becomes scarce, it forces startups to adopt a survival strategy. Most of the time, this way of operating and thinking leads to success.

Conversely, when there is too much funding available, it can hamper innovation or lead to inefficiencies. 

This consolidation is also evident in the types of startups that are being funded. Fintech has long been a soft spot for the region’s investors – and funding trebled in July this year.

Other sectors are gaining ground, however. Property technology and software startups attracted the highest investment levels in the six months to June.

The growth in business-to-business startups also suggests the sector is maturing. 

So far this year, there has been a healthy level of acquisitions, with the larger, better funded startups acquiring their counterparts in new markets, a natural progression towards a mature market and one that opens up a much-needed exit route for entrepreneurs in the region. 

With the launch of several new funds this year, we can expect to see investment activity rebound in the latter half of 2024. It may not beat the amount recorded last year, but it can match it. 

Triska Hamid is a writer focusing on technology and startups in the Middle East and an angel investor 

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