There might not be as much cash sloshing around the Mideast tech space as there was last year, but founders betting on fintech are still more likely to score VC capital than anyone else.
A new report by MAGNITT shows VC investors are pouring more $$ into fintech in the Middle East and less, much less, into other types of tech. And they’re only really looking for early-stage startups that aren’t caught up in any valuation hype.
Startups like FlapKlap and PayMob captured almost 40% of the $1.3 billion in VC funding raised in the first nine months of this year in the Middle East and North Africa.
Non-MEGA funding – basically any deal worth less than $100 million – for fintech also grew by 31% when stacked against the same period last year.
By comparison, e-commerce startups have struggled to find funding.
Why should you care?
The numbers show that starting up in fintech or even introducing a fintech element into your startup can pay off— especially when it comes to fundraising.
Khaled Talhouni, managing partner at Nuwa Capital, tells MONIIFY that fintech in the region is still not fully developed, which gives both founders and investors room to grow. Everything from lending to SME-focused corporate banking to access to capital markets is massively under-developed in MENA and is an opportunity.
The only thing to watch is the problem of too many startups trying to do basically the same thing. Talhouni says he expects to see some of the more established players with better models, funding, and even marketing swallowing up others. (Tabby’s acquisition of Tweeq anyone?)
Mo money, mo problems?
Fintech aside though, VCs are still being super-cautious. They’re choosing to invest less overall (funding dropped 13%) and putting their money into smaller deals to reduce risk.
SEED and Series A deals (i.e. when VC back founders early) together accounted for 61% of the region’s non-MEGA funding. On the other hand, MEGA deals slumped, accounting for only $288 million of the $1.3 billion of funding.
That entire amount came from just two deals, Egypt’s digital bank MNT-Halan got $157.5 million in its funding round in June, and Saudi Arabia’s B2B e-commerce site Salla raised $130 million in its pre-IPO round in March. So if you’re just starting out, not so bad. If you’re looking for growth capital, not so good.
Talhouni says there was still a lot of unease around the late-stage and growth-stage valuations.
These valuations finally look like they are getting corrected, but not fast enough, and definitely not like they have for early-stage funding.
“It is important for those valuations to come down,” he says. “Investors are interested to come in early and [to] avoid falling into a valuation trip.”
On the bright side, some of the region’s late-stage startups, who have made it across the funding hurdles might bring cheer to the local tech ecosystem.
Talhouni, who has led funding rounds for startups like Eyewa, Qashio, and EdfaPay, thinks we might see up to five potential regional tech IPOs in the next 12 months, most likely in Saudi Arabia.
