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There is a funding winter in the Middle East. So how are founders raising capital?

In 2022 alone, 47% of startup failures were due to a lack of financing

There is a funding winter in the Middle East. So how are founders raising capital?
[Source photo: Anvita Gupta/Fast Company Middle East]

From rising interest rates to geopolitical uncertainty, market instability, and inflation, raising capital has been more difficult for business owners than before.

In 2022 alone, 47% of startup failures were due to a lack of financing, according to a study looking at data from CB Insights. Running out of cash was behind 44% of failures.

Like global venture capital trends, the Middle East is also experiencing a slowdown.

In the MENA region, Philip Bahoshy, founder and CEO of data platform Magnitt, says, “From our data, we can point out Q2 2023 as being the lowest quarter for funding since Q4 2020 and the lowest quarter since Q4 2018, when it comes to deals closed.”

He adds, “July seems to feel particularly bad because the month captured only 50 deals in the MEAPT region. The lowest ever since November 2018. So data suggest a slowdown when it comes to deals and funding, but our historical data indicates that Q3 in MENA has always seen an average of 44% retreat in funding for the past four years.”

Medea Nocentini, Senior Partner, Global Ventures, has also noticed a similar pattern. “In the first half of 2023, startups worldwide raised $144 billion – a 51% decline from the $293 billion invested in the first half of 2022. This downward trend reflected across MENA, with the first half of 2023 being the lowest performing half-year since the year of the pandemic.”

Magnitt’s H1 2023 MENA Venture Investment Summary highlighted that mega-financing deals were significant in the venture financing ecosystem, accounting for almost 80% of the total funding in the region.

Magnitt’s data indicated that one of the biggest mega-financing deals in the first half of the year was on Egypt-based MNT-Halan – in February, the fintech raised $400 million in equity and debt financing from local and global investors. The round includes $260 million in equity financing, part of which was provided by Abu Dhabi-based Chimera Investments, and $140 million through two securitized bond issuances.

Talking about raising funds in the current venture capital climate, co-founder and CEO Mounir Nakhla says, “If you can offer investors a strong return on their investment, funding raises are less dictated by market cycles.”

He explains that it’s all about delivering on their strategy while “creating value through high ROEs” for their investors. “Investors recognize our historical achievements on the financial and business sides and are (or have become) comfortable with our ambitious plans both in and outside of Egypt.”

On whether the startup had any caution in raising funds during an uncertain time, Nakhla says, “The shift in investor sentiment plays to our advantage since we have always been focused on profitability coupled with strong growth in Egypt, evidenced by double-digit month-on-month growth in users and throughput, +25% market share, and the potential to take that growth to the wider region.”

For Gary Blowers, co-founder and CEO of LVL Wellbeing, a UAE-based corporate wellbeing platform startup, seeing how market conditions got increasingly challenging, it was clear the obstacle of raising funds would be a challenge. Blowers calls their strategy simple: “Believe in what we do, do it well, and be as resilient as humanly possible to get the business through an extremely challenging market.”

“It was less about re-positioning the business and more about how we adapted our internal communication to ensure the whole team was as clear as possible about the progress of the funding round,” says Blowers.

During this time, Blowers and the leadership team learned the significance of being open, transparent, honest, and direct as much as possible when providing updates. “Oftentimes, the updates were that progress hadn’t been made as hoped, but we learned that sharing those updates were still meaningful and valuable to our team.”

“In the end (after many pitches and multiple due diligence processes), we connected to the right investors, and the process started to flow.” The biggest issue that they had to try to mitigate was the amount of time required to complete the due diligence and legal process, thus, time not spent on growing the business, Blower says. “This is something that we expected, but did not expect to spend so much time away from the business, which inevitably impacts certain growth metrics, but that’s something we had to learn to accept and build into our future plans.”

At the same time, the startup’s market fit was at a distinct advantage. “We found ourselves at the cross-section of a growing market (workplace well-being) and a developing market (future of work). COVID-19 had a hugely positive impact on our business model in the early days of the pandemic, and as workplace practices evolved, we could continue to adapt to how our clients and members worked to serve them best. Maintaining this relevance in the corporate space seemed attractive to investors.”

This strategy seems to have worked. In August, the startup closed its Series A funding round of $10 million, led by MG Wellness Holding, a wellness-focused subsidiary of the Abu Dhabi-based investment holding company Multiple Group.


More than ever, during uncertain times, Nocentini states that focusing on their unit economics and demonstrating a clear path to profitability is essential. “Investors are looking for sound, resilient, and robust business models, not a growth-at-all-cost model. When exponential growth supersedes profitability, the impact of economic slowdowns is larger. The opposite is also true: when founders focus on profitability first and scale second, it is easier to manage revenue and cash flow fluctuations.”

She advises founders to consider the strength of the value proposition, the durability, the uniqueness of the competitive edge, and the robustness of the business model. “Founders can mistakenly focus on ‘thin’ value – sales, scale, quality, and quick profits – while thinking about ‘thick’ value or creating value that benefits a range of stakeholders flexibly and in mutually beneficial ways is more useful. Thick value is more sustainable, providing a longer-term view of business-building.”

Other measures that Nocentini suggests include preserving cash and extending the runway, and looking into alternative funding options such as government grants, crowdfunding, strategic financing, or revenue-based financing. It might be worth looking into structuring funding rounds with flexible terms that can also adapt to changing market conditions, says Nocentini.

“Be realistic with valuation expectations,” she adds. “Valuations may not be as high as during a bull market, so it is important to be realistic and flexible with valuation expectations. Focus on value and negotiate to align with market sentiment.”


The funding freeze has definitely shifted the way some founders perceive financial planning for the next months ahead.

This is certainly true for Blowers, “The biggest lesson from this financing round is the impact of macro-economic factors on not only your plans but what you can execute. “

Using previous data is a factor that Blowers and his team want to incorporate, “We now have a valuable data set from our Series A round to apply to our future financing requirements, and we have built those scenarios into our modeling for the next 12-24 months.”

That said, Blowers said the team is excited to grow their team, build their product and enter new markets. “Having been successful in raising capital in one of the toughest markets in recent times, we can now confidently move forward with our growth plans, which in the end, will be one of the biggest influencers on our future finances.”

The key is for founders to be ambitious and audacious while, most importantly, being cost-conscious, especially during the ongoing environment, Bahoshy points out. “Be brave in setting goals, but be humble in listening to others, especially customers.”

“At the end of the day, you are building your product for your customers. Keep going back to your customers to understand their needs and wants, and keep building exactly that. Focus on unit economics and driving traction around revenue metrics so that when you do come to fundraise, you have the numbers to support,” Bahoshy notes.


With a looming period of uncertainty in the MENA ecosystem, Bahoshy says, “We are bullish on the Middle East startup ecosystem in the long run. There has never been more interest in innovation and technology than we see now.”

“And most importantly, we anticipate seeing increased investor interest in MENA’s startup ecosystem, from global markets and particularly, Southeast Asia in the coming period,” he adds. “We expect to see a pickup in the VC activity of the region during Q4 2023 given the return of the event season and engagement with investors,” he adds.

While there is a period of uncertainty in the region, Nocentini notes there are several reasons to be optimistic. Besides the MENA region’s influx of international investors from Southeast Asia and US VCs, coupled with the region’s experimentation with innovative tech, the region has a distinct advantage as an emerging market. “[In MENA], entrepreneurs are aware that existential threat could surface anytime, from anywhere, and act as though it is always imminent. The scarcity of capital means that founders have to use it most efficiently, ultimately making growth achievable with less capital than what may be necessary for their counterparts in more developed markets.

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