Philip Bahoshy - Afrikan Heroes

New Report Shows Which Sectors Startup Investments Are Now Going To As Covid-19 Hits Startup Investments Globally

April 14, 2020

Philip Bahoshy, founder and CEO of MAGNiTT

Even though the Covid-19 pandemic started late in the first quarter of 2020, it is already beginning to have ripple effects on startup investments in the Middle East and Africa. A new report by the Middle East and North Africa (MENA)’s largest startup data platform MAGNiTT, shows investor appetite has increased in startups covering grocery delivery, healthcare, e-commerce and edtech (or online educational startups)

Here Is More You Need To Know

A survey of over 100 startup founders participating in Magnitt’s weekly webinar series saw 59 percent say their business had already been impacted by the crisis.
Some 48 percent said revenue generation was their major concern and 25 percent pointing to fundraising as the issue that keeps them up at night; while 41 percent anticipate lower-than-expected revenue growth rates in 2020, with 29 percent anticipating revenue below 2019 figures.

“Some VCs have already raised funds and are looking to deploy the capital in the next couple of months and a lower valuation is good for the ecosystem. The pool of funds may be smaller but VCs are looking to invest where they can as part of business continuity,” Philip Bahoshy, founder and CEO of MAGNiTT said.

He said that profitability will be challenged as people are not investing as they used to and “we may see a flattening in the number of deals this year and a decrease in the total value of investments”.

“It wouldn’t be surprising to see some startups and SMEs finding challenges in their operations and close down as a result,” he said.

“Fundraising activity is moving online as startups and investors are quickly adapting to the new normal and startups are increasingly looking for alternative ways to fundraise during the current crisis,” he said.

This graph shows a major decline in startup investments contributed by the Covid-19 pandemic

Startups In The MENA Region Saw A Decline Of 67% In Funding From January To March 2020

According to MAGNiTT, the number of investment deals in the startup space in the Middle East and North Africa (MENA) saw a steep drop of 67% year on year in March due to coronavirus outbreak, notwithstanding a 2% increase in year-on-year funding in the first quarter of the year.

“It is very challenging to know exactly how Covid-19 is going to be in the next couple of quarters,’’ Bahoshy said.

“We anticipate that investors will look into supporting their portfolio companies that may be challenged; there is going to be new opportunities that are going to arise out of the situation and investors that have cash are going to invest in opportunities; valuations are going to have a correction as people will not have high growth rates in this environment as they would have previously and this, in turn, is an investment opportunity for investors,” he added.

The report also says the number of investment deals in the first quarter of 2020 stood at 108, representing a major decline by 22% when compared to 138 deals recorded in 2019.
From the report, startups in the region raised $277m in the first quarter of this year compared to $271m a year ago with several startups raising large funding rounds in January and February, including Kitopi ($60M), Vezeeta ($40M), and SellAnyCar ($35M).

“Historical data highlights that investment rounds across Mena tend to take, on average, six months to come to fruition,” said Bahoshy.

“We will most likely not see the full impact of Covid-19 on the venture funding space yet for a few months. However, early indications have already shown a slowdown in funding announcements, as startups and investors re-evaluate their positions in this new environment.”

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Egypt Ranked Highest In MENA For Number of Startup Deals Sealed In 2019 — First Time Ever

January 7, 2020

Philip Bahoshy CEO and Founder at MAGNiTT

2019 was a huge year for Egypt ’s startup ecosystem. Latest report released by community and data platform for startups, MAGNiTT, on startup financing in the Middle East and North Africa (MENA) showed Egypt topping the whole of MENA in the number of startup financing deals concluded in 2019. In fact, Magnitt’s geographical breakdown of the 2019 data further shows Egypt ’s growing influence in the MENA region with the North African country’s startups contributing at least 25% (141 deals) of all 564 deals that the region recorded. Of the amount disclosed form these deals, 14% ($98.6 million) was raised by Egypt ‘s startups.

‘‘With the decade coming to an end, MENA-based startups are seeing more investment capital being deployed than ever before. 2019 marked another record year when tracking the number of investments, now up to 564, higher than any previous year… This is encouraging news, as startup founders grow in confidence to raise larger rounds than previously witnessed,’’ Philip Bahoshy CEO and Founder at MAGNiTT said.

Here Is All You Need To Know

2019 saw a record 564 startup investments take place across the MENA, amounting to $704M in total funding. This is an increase of 31% in number of deals and 12% in total funding compared to 2018, if you exclude previous funding in the now exited Careem & Souq.
2019 saw a record number of 564 deals concluded, totalling $704M in funding, with average investment size reaching $1.9m.

To put it into perspective: 2009 saw $15M of funding in 5 venture deals, which means that total funding has had a compound annual growth rate (CAGR) of 47%, whilst deals increased by a 60% CAGR over the last 10 years.
The United Arab Emirates maintains its dominance as the highest recipient of venture funding, but Egypt now surpasses all countries in MENA terms of number of startup deals for 2019. Saudi Arabia has seen the fastest growth year-over-year, as it drives towards Vision 2030.
Transport and logistics remain the highest recipient of venture funding, with key investments in TruKKer & Swvl to name a few. FinTech, however, remains the sector with the most investment deals.

2019 also saw more investment institutions — about 212 of them — invest in MENA-based startups than ever before. 500 Startups remains the most active investor by number of deals while Flat6Labs, with over 6 accelerator programs, remains the most active accelerator program for early-stage startups.

2019 was also the year for exits. A key sign for maturity of the ecosystem, 2019 marked more exits than any previous year, as well as the birth of MENA’s first unicorn in Careem and 2 IPO listings. To Michael Lahyani CEO and Founder, PropertyFinder, the primary reason for the acceleration in exits is that tech companies in the region are starting to have scale, becoming attractive for global strategic players. Secondly, the Gulf countries offer emerging market growth rates without the currency risk, as they’re mostly pegged to the Dollar. Finally, the average ticket size in the region has significantly increased in the last year, which allowed local players to make acquisitions.

Read also: Future Africa Initiative Targets 20 African Early Stage Startups With Its New $50,000 Fund

What Accounted For This Meteoric Rise

The report also noted the following as accounting for the growth in the number of deals and the corresponding increase in funding to the MENA startup ecosystem.

Government Support For Startup Ecosystem

The report noted that many governments in the region have been playing an active role in growing ecosystems conducive to entrepreneurs, including technical and financial support programs and policy reforms — there is a direct correlation between a business-friendly environment and increased entrepreneurial activity.

For instance, Ivo Detelinov Head of Private Equity Funds, RTF noted that Saudi Arabia has shifted up in the GCC and MENA ranking by both number of deals and total funding.

‘‘There are three main reasons,’’ he said. ‘‘ First, the realization of the importance of SME investment; second, the availability of risk capital, resulting in creation of new or larger VC funds and third, embracing entrepreneurship as a respectable career path. We expect the invested capital to increase very significantly in the next five years.’’

Egypt has also been experiencing a rise in startup investments within the MENA region in the last few years, particularly in 2019 driven by Egypt Vision 2030

Sharp Growth In Early Stage Funding

The report also noted that early-stage investments are the bedrock of any startup ecosystem. These investments are the top of the funnel, and cascade down over time into more deals at Series A and B. Hasan Haider Managing Partner MENA, 500 Startups believes that this trend will continue — most investments in the MENA region, by necessity, will be at the early stages. However, he expects an increase in later-stage deals as larger and laterstage funds are established in the MENA region.

Strong VC Presence

The report also highlighted that as the Venture Capital (VC) industry develops, a higher number of ventures will qualify for later-stage investments. The share of later-stage investments versus early-stage investments is still 80% in MENA, compared to 90% in Europe, 93% in the USA and 95% in China. Such benchmarks indicate that in MENA, a natural rebalance toward later-stage investments is possible as the VC industry will align to the mature market ratios.

According to Noor Sweid Managing Partner, Global Ventures, the establishment of new venture capital firms, as well as VCs launching follow-on funds, is a very positive step for the region — it increases the ability for regional funds to lead larger rounds as their portfolio companies grow, furthering self-reliance for the ecosystem. That said, the gap to global benchmarks of capital deployed into ventures is still significant, he said.

Dina El-Shenoufy Chief Investment Officer (CIO), Flat6Labs also noted that the rise in accelerators is a reflection of the increased maturity of entrepreneurs and startups, but also the concentration of funding in later stages, creating a bigger need for the steady pipeline of high-potential entrepreneurs coming out of the accelerators, making them essential for the growth of the whole industry.

‘‘Money Goes Where Opportunities Exist’’

According to Ahmed El Alfi Chairman, Sawari Ventures, money goes where opportunity exists. ‘‘In Egypt, we have seen an increase in deals — not only because we have more local capital investing, but we are also seeing capital inflows from investors in the GCC and elsewhere. Local entrepreneurs are becoming more mature and they are solving larger scale problems in the country and beyond.’’