How MENA startups are powering growth through inclusion

The startup ecosystem in the Middle East has undergone a remarkable transformation over the summer months, with varying funding amounts and a diverse number of deals.

Underscored by a substantial rise in total funding, which surged from approximately $453m in Q2 to around $766.3m in Q3 of 2024 – a staggering 69.2 per cent rise. The impressive growth not only highlights strong investor confidence but also reflects a thriving interest in diverse startup opportunities that are emerging across the region.

The increase in the number of deals, rising from 97 to 128, underscores that the ecosystem is not just resilient but thriving.

Startups in technology, healthcare ($4.25m), and fintech ($369.64m) are leading this evolution, demonstrating the crucial shift towards diversification necessary for sustainable growth. Fintech stands out as the most dynamic sector.

It has consistently attracted the highest levels of investment, with $369.64 million raised in Q3 alone. The growth is being driven by an increasing demand for financial technology solutions, fuelled by the widespread adoption of digital payments and innovative banking services.

With the entry of both local and global investors, MENA is rapidly becoming a magnet for capital, essential for early-stage companies aiming to scale their operations, innovate and hire skilled talent, and create new products and services. The trend not only benefits the startups themselves but also contributes to overall economic growth within the region.

However, despite these positive developments, startup exits in MENA are declining, dropping from 81 in 2022 to just 25 so far in 2024. This trend, especially pronounced in the UAE and Saudi Arabia, raises red flags for venture capitalists and limited partners regarding their return on investments.

Nevertheless, there is optimism for a rise in tech IPOs, particularly in Saudi Arabia, where more than 13 startups are expected to go public in the next two years. A list of 18 potential IPO candidates from Saudi Arabia and UAE primarily highlights fintech alongside other industries.

Current public options for these startups include Saudi Arabia, Kuwait, and the UAE. Saudi Arabia has witnessed two recent IPOs – Jahez and Rasan, while Kuwait has yet to see startup IPOs. Kuwait has not seen any startup IPOs so far, but Boursa Kuwait’s strong history is impressive.

Gender gap in the GCC startup ecosystem

A proposal for a unified GCC stock market has been made to enhance the entrepreneurial environment and boost regional exits. However, amidst this optimistic scenario, we must confront significant concerns regarding gender disparities in startup funding. Male-led startups secured between 78.5 per cent and 89.5 per cent of total investments in Q2 2024 – a trend that continued into Q3, where male-led funding peaked at a staggering 99.7 per cent in August.

Only in September did female-led startups manage to capture around 3.21 per cent of total funding—a small yet hopeful shift that signals the potential for increased inclusivity.

One significant barrier to women entrepreneurs seeking funding is the extra responsibility that comes with it. Many women may choose to refrain from pursuing funding because they feel it would add excessive pressure to their existing responsibilities. The reluctance can lead to missed opportunities for growth and scaling their startups.

Women entrepreneurs often tend to focus on sectors such as e-commerce, training, technology, financial services, retail, fashion, fitness, and beauty, where they can leverage their insights and passions. However, some women prefer to avoid the male-dominated investment environment altogether.

The desire for autonomy and the reluctance to have male investors impose influence over their business decisions can discourage women from seeking external funding. It may also lead to a preference for self-funding or bootstrapping their ventures despite the limitations that may impose on their growth.

Research consistently indicates that companies with diverse leadership outperform their peers and foster greater innovation and resilience. The MENA region must recognise this potential and work diligently to create a more inclusive funding environment. By addressing gender disparities, we can unlock the capabilities of female entrepreneurs and ensure a more dynamic and diverse economy.

The opportunity to cultivate female leadership in startups is not just a matter of fairness; it is a strategic imperative. Countries that invest in gender inclusivity in entrepreneurship often experience enhanced economic performance and growth. Encouraging women to lead startups can stimulate innovation and drive economic diversification—both critical for the long-term stability of the MENA region.

Looking forward, GCC is well-positioned to become a global hub for entrepreneurship, bolstered by its rich cultural tapestry and diverse talents. Embracing inclusivity in investment practices and fostering a culture that values diverse perspectives will be essential for unlocking new pathways for growth. This requires financial investment and a cultural shift towards recognising and valuing the contributions of women and diverse teams in the business sector.

As we celebrate the impressive growth of our startup ecosystem, we must commit to collaboration, mentorship, and a balanced investment strategy. Together, we can build a more inclusive and vibrant future for all entrepreneurs and ensure that our startup ecosystem reflects the diversity that defines our region.

Read: Saudi Arabia secures $1.4bn in 2023, leads MENA VC fundraising