Mind the Gap: A $20bn Growth Funding Gap (STV)

Summary

• Over the past five years, the MENA region funded more than 2,000 startups with over $9.0 billion in equity investments.p.2
• There are approximately 220 active startups in MENA that have secured Series A or later funding rounds.p.2
• Growth-stage tech ventures require 10 to 20 times more capital than early-stage startups, but offer a lower risk profile and shorter exit timeframe of 2-5 years.p.8
• The total growth-stage funding requirement in MENA is estimated at ~$25bn over the next five years.p.9
• With only an estimated $4.2bn in dry powder currently available for MENA growth-stage companies, the region faces a funding gap of $20bn+.p.14
• MENA startup funding dropped by 42% in H1 2023 compared to H1 2022, accompanied by a 55% decline in active investors.p.15

Key insights

1. Between 2018 and 2022, Series B and later rounds represented just 4% of total funding rounds in MENA but accounted for 49% of total capital deployed.p.5
2. Six portfolio companies of STV have grown their annual revenues from a few millions to over $100m each.p.6
3. The MENA region recorded 190 tech acquisitions between 2018 and 2022 along with 4 tech IPOs.p.7
4. MENA's average VC deployment as a percentage of GDP stands at 0.11%, compared to 0.2% to 1.0% in countries with well-developed VC markets.p.9
5. Producing an additional 40 unicorns in MENA would require $10.8bn in direct funding, translating to a $25bn total growth-stage requirement assuming a 40% success rate.p.11
6. STV and Impact46 are highlighted as the only two regional MENA growth-stage VCs managing large dedicated funds with check-writing capabilities over $300m fund sizes.p.13
7. International investor participation in MENA late-stage deals decreased from 50% in 2022 to 28% in H1 2023.p.15
8. All top 10 investors in MENA by deployed capital in H1 2023 were MENA-based, compared to only 4 out of 10 in 2022.p.15
9. Government initiatives and sovereign funds can bridge the growth funding gap by increasing capital allocations to funds of funds, growth VCs, and allowing pension fund participation.p.17