Is MENAP’s budding start-up ecosystem ready to blossom?

For a region that boasts some of the world’s wealthiest, most active global investors, the Middle East, North Africa, and Pakistan (MENAP) region has historically had a relatively small, immature start-up ecosystem. Sovereign wealth funds (SWF) alone, for instance, manage some $3.3 trillion in assets, yet founders in the region have had difficulty attracting funding. Lately, however, there are some encouraging signs that this misalignment of capital supply and demand may be starting to dissipate, with the region’s entrepreneurial environment poised to come into its own.

Powerful forces are fueling this potential turnaround. MENAP’s more than 600-million-strong population is young, digitally savvy, and increasingly urban; they have embraced technology as consumers and innovators. At the same time, governments are assessing opportunities to modernize and diversify their economies in ways that could benefit the start-up ecosystem through national strategies and concerted regulatory efforts.

While challenges in the region remain, all stakeholders can play a part in overcoming them. This article aims to help them better understand those challenges, the untapped potential of the MENAP venture market, and what it will take for the region to become a genuinely global start-up ecosystem.

A growing but still risk-averse ecosystem

As a destination for institutional capital, MENAP remains a nascent frontier: public-market capitalizations are at 32 percent of GDP1 versus 98 percent globally, and VC investments are at 0.1 percent of GDP versus 0.8 percent globally.

In some respects, however, the venture landscape in MENAP has made great strides of late. Annual venture capital (VC) funding has grown five times since 2017, reaching $3.45 billion in 2022. Since 2019, eight start-ups have reached the valuation milestone of more than $1 billion, with the average time it takes to attain “unicorn” status shrinking from 12 years to around three years (Exhibit 1). The massive success of the first regional unicorn, Careem, helped build conviction among founders and investors, driving a wave of new start-up activity. Careem alums are behind more than 50 MENAP start-ups, which have collectively raised over $2.3 billion. MENAP is now home to some 15 venture builders, supporting more than 230 start-ups across the region.

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Moreover, the region has plenty of room to grow, considering the state of other emerging market hot spots. For instance, in Southeast Asia and Latin America, VC investments as a share of GDP are at 0.8 percent and 0.4 percent, respectively. With MENAP still at 0.1 percent, there is an implied potential of four to eight times growth over the coming years. The region has also shown relative resilience amid the recent global slowdown in venture activity. In the fourth quarter of 2022, MENAP funding remained at nine times first-quarter 2017 levels (peaking in the first quarter of 2022 at 13 times), while global VC funding slowed to roughly twice first-quarter 2017 levels, down from a peak of 5.7 times in the fourth quarter of 2021 (Exhibit 2).

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Despite that recent momentum, many VC investors are still playing it safe in the region. Investors are typically drawn to the “usual suspects”; the top ten start-ups account for 35 to 55 percent of funding each year, versus around 10 percent in the United States, and the same eight start-ups have multiple top ten appearances in the past five years.2 The concentration of capital is such that while funding grew 7 percent in 2022, the number of deals actually fell from 725 to 703 (Exhibit 3).

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Another sign of this reluctance to take more significant risks and embrace less proven innovators is the much-steadier growth in mid- and late-stage funding. From 2017 to 2021, the number of series B deals grew roughly 34 percent, and the average deal value rose 17 percent per year. By comparison, over the same period, the number of early-stage deals grew by just 7 percent annually, while the number of series A deals fell by 1 percent. For the region to become a source of true innovation (and not a fast follower or copycat), a more consistent pipeline of new start-ups and investors willing to support them is likely needed.

MENAP countries leading the way

While MENAP’s VC market is often regarded as a bloc, it is far from monolithic. In terms of venture investing environments, the region is home to three distinct categories of countries. The first, such as Qatar and Kuwait, is considered “capital rich,” owing to its relatively small populations and physical size yet significant, resource-driven GDPs. Others, most notably Egypt and Pakistan, are classified as “opportunity rich” because of their large and growing populations, particularly their young and increasingly digitally savvy population. Finally, there are also “hybrid” markets, such as the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA), endowed with plentiful capital, land, and population.

Still, despite that diversity, a relatively select group commands the attention of most investors. Four of the region’s 18 countries—UAE, KSA, Egypt, and Pakistan—have captured 90 percent of the funding since 2018. The UAE attracts the lion’s share, 34 percent, with KSA a close second at 29 percent. While all four markets enjoyed triple-digit growth between 2020 and 2021, KSA, Egypt, and Pakistan drove most of the growth from 2017 to 2020 (50 to 100 percent CAGRs); the UAE, by contrast, grew at just 4 percent CAGR over the same period.

Maturity also varies across countries. The UAE’s average deal size in 2021 was $7.7 million, while KSA’s was $6.8 million, almost double that of the 16 other major markets ($2.8 million to $4.4 million). A higher share of late-stage deals primarily drove their larger deal sizes. The funding patterns across countries also differ by business model. Activity in Pakistan and KSA is dominated by B2C and B2B, respectively, while investors in the UAE are focusing their bets on “ecosystem plays” with hybrid business models, such as online marketplaces, that connect suppliers and consumers (Exhibit 4). Egypt, for its part, is split relatively evenly between all three business models.

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Leading sectors now, but for how long?

From a sector perspective, 80 percent of funding since 2018 has been in food and beverage, fintech, transport and logistics, and e-commerce. This concentration is mirrored in each of the region’s four primary markets, although the top sector differs, reflecting different macroeconomic circumstances. Food and beverage, for instance, is a clear leader in the UAE, given its high-income, expat-dominated population. At the same time, fintech, which requires scale, does best in Egypt and KSA, given their larger populations (Exhibit 5).

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Many of the most prevalent sectors in MENAP, such as transport and e-commerce, tend to be “winner takes all,” and there is no dearth of competition for the region’s start-ups, especially with their lack of relative scale. Global players are increasingly penetrating the region, in some cases by acquiring local copycats, such as Amazon’s purchase of Souq. While such consolidation could present an attractive exit strategy for start-ups and investors, too many copycats may also limit the global, disruptive potential of regional start-ups.

As the market evolves, these same sectors will likely not maintain such a grip. Our research suggests it takes three to ten years for new or trendy VC target sectors to move from more mature global markets to emerging ones such as the MENAP region. An analysis of global VC capital-flow momentum and deal count over 2020 to 2021 reveals seven high-momentum themes that are nascent but have strong potential to take off over the next decade. They are agtech, cybersecurity, sustainability, VR and gaming, beauty and wellness, healthcare, and advanced materials and manufacturing, many of which are already generating interest and support from the public sector in MENAP countries.

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The different investors in the region

The region is host to four major archetypes of investors, and all are growing: regional VC funds, international investors, SWF and government-backed funds, and family offices:

  • Regional VC funds, especially those with scale, are less prominent in the region than global investors but play a key role in providing seed and early funding. These include “legacy” regional funds such as BECO Capital, Flat6Labs, Middle East Venture Capital, and Wamda Capital.
  • Foreign capital is starting to pour into the region, accounting for 43 percent of financing in MENAP last year and creating many new potential funding sources for local entrepreneurs.
  • Governments see the venture industry as a way to develop national strategic goals and are creating and backing VC arms. These SWFs tend to have a longer-term investment horizon and be more patient with their capital than traditional VCs, which can be a sizeable advantage for entrepreneurs. The UAE and KSA alone have allocated more than $11 billion and $5.7 billion, respectively, across 15 funds to deploy in MENAP and abroad. Abu Dhabi’s Mubadala Investment Company, for instance, includes a Disruptive Investments platform whose focus includes early-stage companies in the UAE, while the Dubai Future District Fund is using initial seed funding of $275 million to support local start-ups. Similarly, Sanabil, the private venture and growth arm of the KSA’s Public Investment Fund (PIF), commits to invest more than $3 billion annually, while Saudi Technology Ventures (STV), a venture arm of Saudi Telecommunications Company (STC), aims to expand the region’s digital and innovation ecosystem with its $800 million in capital.
  • Family offices and family-owned businesses (FOBs), which play a significant role in the region’s private-sector economies, are showing more interest in the start-up economy. These family-funded entities are opening incubators, venture builders or studios, and investment vehicles to deploy capital and embed themselves into the broader ecosystem. Family offices and FOBs increasingly see VC investments as a way to gain exposure to new sectors and geographies with relatively small ticket sizes and significant upside potential. For example, JIMCO, the global investment arm of the Jameel family, has plans to commit funding of more than $2.5 billion to three separate funds that invest in strategic assets, technology, and life sciences across the world. Like SWFs, family offices typically have a longer-term horizon with their capital to achieve their ends.

Standing out in a crowd

If the MENAP region is poised for breakout growth, investors may want to consider how best to position themselves to appeal to local entrepreneurs and get access to the most promising ventures. Each founder and start-up chooses investing partners based on more than just the numbers. In our research, four investor attributes, besides the ability to provide capital, stood out as particularly beneficial for the region:

  • Privileged insight. A local presence gives investors an ear to the ground in a relationship-driven region. Six of the top ten most active global funds already have either an office, a general partner, or a local partner in the area (for example, local family offices as anchor local partners).
  • Local expertise. The most appealing investors can help start-ups by giving them access to local customers, offering them the use of existing licenses (such as commercial or banking), exposing them to other portfolio companies, and helping them more easily navigate the regulatory environment.
  • A global network. The ability to provide expertise, talent, and additional capital from outside the region, as well as support international expansion, can be valuable for local start-ups, especially those with specific staffing and skills requirements or global potential.
  • An exit strategy: Given that IPOs account for only 2 percent of exits, investors that offer a viable exit path (through M&A or strategic sales, for example) could hold strong appeal to start-up founders (see sidebar, “Finding the exits”).

The role of policy makers

As in any emerging market, policy makers could play a key role in developing the MENAP VC ecosystem to compete globally. For example, more mature markets, such as Singapore and the United Kingdom, have roughly five times as many former chief technology officers in the workforce as the UAE, MENAP’s most mature market. National programs to attract and develop top-tier tech talent will likely be critical in growing the ecosystem; so is developing future founders by exposing workers to innovation grant opportunities, training for priority skills needed in start-ups, top-tier university programs, and events to connect the community. (Of course, the private sector also has a role to play in educating the workforce through leadership development programs, internal incubators, and professional training—encouraging them to pursue entrepreneurial feats alongside the company.) Policy makers can also help guide entrepreneurs by articulating core investment themes and identifying and incentivizing the major white spaces where innovation matters.

For local start-ups to become global disruptors, they would likely benefit from access to the entire region to test and enhance their offering while also driving innovation; such a broad and unified market is significantly more attractive than the individual countries that make up MENAP. Likewise, strong capital markets and greater liquidity are crucial to building these global disruptors. Coordinated regulatory changes could help unlock cross-border opportunities and deepen capital markets.


Despite being home to some of the world’s wealthiest, most active venture capital investors, the MENAP region historically has not been a hot spot for start-ups or a magnet for VC investment. But powerful trends, from growing, tech-savvy populations to more innovation-friendly policies, are shifting this dynamic. The MENAP venture space is growing and looking more promising, yet the next three to five years will be critical in creating a sustainable and robust start-up ecosystem that can reach its full potential.

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