In recent years, the Middle East and North Africa (MENA) region has seen a significant shift in venture capital (VC) funding dynamics and trends for late-stage technology startups. 

A report revealed that one of the most notable trends is the decline in participation from international investors.

According to the MENA Late-Stage Venture Funding Premium Report released by venture capital data platform MAGNiTT, the MENA region raised $643 million in late-stage funding during the year’s first six months. 

Only 13% of the total capital deployed in late-stage rounds in H1 ’23 came from international investors, signaling a shift in VC dynamics as regional investors led transactions and funding in late-stage rounds for the first time.

International investors dominated MENA’s late-stage VC landscape from 2019 to 2022, contributing about 57%, but their share has since plummeted, putting pressure on regional investors to step up.

Despite a 49% year-over-year decline in global late-stage funding, the 

The MENA region has seen a 20% annualized growth since 2018.

This growth has been driven by mega-deals ($100 million-plus deals), accounting for over 85% of total funding deployed in late-stage rounds in the first half of 2023. 

Some notable examples of mega-deals include the funding rounds raised by Egypt’s Halan and Saudi Arabia’s Nana and Floward.

However, late-stage funding in non-mega rounds has declined, reaching its lowest point since the second half of 2020. This suggests that a select few startups are driving the growth in MENA late-stage funding while the broader ecosystem faces some challenges.

“We are observing more regional investors stepping in to bridge the gap, with nine of the top 10 investors by transactions from 2019 to H1 2023 headquartered in MENA,” said Philip Bahoshy, the CEO of MAGNiTT.

“This is not to say that MENA has not been attracting global players into the region. We’ve seen an increased interest from international investors. However, this has been largely driven by GPs of global funds looking to raise capital from sovereign LPs locally,” added Bahoshy.

The report also finds that VC firms’ share of late-stage funding in MENA has fallen from 64% in 2019 to 41% this year, while investment companies and corporate VCs have increased their participation. 

MENA’s median late-stage deal size has steadily increased, reaching a record high in 2023 with a growth of 43% CAGR over the past 4.5 years. In contrast, the median deal size for global late-stage rounds has plummeted by 45% in 2023.

Startup valuations in MENA have also risen, with the average valuation from Series A to Series C rounds increasing by 23X between 2019 and 2022. 

However, the venture market in the region is still relatively young, with only 8% of all deals recorded between 2019 and 2022 being Series B or later rounds and only 1.3% of startups raising Series C funding.