BEIRUT: Lebanon continues to stand among the top attractors of startup investors in the region, coming second on investment into SMEs compared to the UAE, where a key factor driving inward investment is the already existing base of growth-stage companies and corporate investors.
Although the UAE has consistently outranked all MENA countries in the number of investment over the past four years, Lebanon has risen steadily in the ranks, mainly driven by Banque Du Liban’s Circular 331 initiative that opened up hundreds of millions of dollars in funding for startups.
“The UAE and Lebanon appear to be consistently the top two markets in both number and value of deals… thus the UAE is home to about one-third of all investors; Saudi Arabia and Lebanon combined account for another third, and all other countries together make up the remaining third of the investor pie,” The report said.
However, when examining how the total dollars invested in the MENA region in 2016, it is notable to point out that 90 percent of investments were targeted toward the UAE because of the large investment rounds raised by Careem and Souq.com. With transportation app Careem receiving a combined total of $350 million by Saudi Telecom Company and Japanese e-commerce firm Rakuten, while e-commerce platform Souq.com’s was acquired for $275 million by online marketplace behemoth Amazon.com.
Both acquisition rounds collectively represented 78 percent of all dollars invested alone, which leaves the UAE receiving only a net 12 percent for the remainder of its startup sector, in comparison to Lebanon’s six percent.
As a region, the digital startups of the MENA are attracting increasing global and regional attention, with more governments pushing for innovation, an increase in the number of startups, and an increase in investor appetite, the report noted.
As countries in the region compete to be the premier destination for tech entrepreneurs, the UAE continues to build a robust investor community, capturing a slightly increasing share of the overall investor market. While Lebanon has also attracted a rapidly growing proportion of the investor community – with the share of the top three markets (UAE, KSA, and Lebanon) making them flush with cash.
The report also highlighted that the number of tech investor in MENA has been growing exponentially, with the ecosystem adding (on average) around 10 new funds per year between 2009-2012, accelerating to about 20 new funds per year in 2013-2014, and then jumping to about 30 new funds per year in the past two years (2015-2016).
“The investor community continues to be heavily concentrated in a few countries, with the rest of the investors being scattered, a few each, across other markets. Lebanon has an exceptionally high number of funds for such a small country, driven by BDL’s initiative,” the report said.
While approximately half of the investor community is early stage investors; accelerators make up a quarter, and seed funds and angel networks split the other quarter roughly equally. At the same time, venture capital funds represent the single largest group of investors, and account for one-third of the community, the report added.
Although the corporate investment trend is not something new in the region, the trend truly started picking up in 2012. Companies across sectors are launching investment initiatives, either through standalone funds or opportunistic investments.
In Lebanon, the latest corporate investors include banks (Al-Mawarid Bank and Société Générale de Banque au Liban - SGBL); which was also encouraged by Circular 331, which supports investments by banks not only into VC funds but also into startups directly.
“The majority of Lebanon’s corporate investors became active in 2016; whereas Saudi Arabia did not see new corporate investors becoming active" this same year, the report said highlighting that both Lebanon and KSA were tied in the number of corporate investors, with the UAE leading the charge.
The examination of the past four years worth of deals points to transactional business models (e-commerce platforms) for startups receiving the largest number of investments with a total share of 38 percent, while media and software as a service (SaaS) encompassing a combined 50 percent of all deals; noting that these three business models comprise 82 percent of all deals regionally over a four year time.
Interestingly, the study reports a major influx in funds is being allocated for lifestyle and entertainment digital products and services, with lifestyle earning 21 percent of investments, followed with 12 percent into entertainment; which reveals a high appetite from investors toward products such as these.
“While interest is high for startups in big industry verticals like healthcare and education, those sectors do not yet represent a significant proportion of investment deals – but this is expected to change in the coming years,” the report added.
In terms of women in the entrepreneurial workforce, Lebanon was amongst the top three countries in the region that have the highest proportion of women founders, standing at 19 percent, coming second to Jordan’s 22 percent and Palestine coming in third with 17 percent.
“Gender distribution among startup founders has been relatively stable over the years ranging from ten to 15 percent; however, the pattern was broken in 2016 where female founders in tech startups rose to 26 percent, demonstrating that the ecosystem is doing a better job attracting and supporting women founders,” the report highlighted.
Nonetheless, the value of investments appears relatively good in comparison to previous years, amounting to nearly double the total global VC investment is seen in 2013 and only a 10 percent decrease in value of investments year-on-year, the major decline in the number of deals indicates a more complicated year for venture capital investment.
The outlook for 2017 remains positive, however, with the announcement of new and expanded funds, including a $1.5 billion VR fund from HTC and a new AI focused effort at Microsoft.
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