After a record-breaking 2021, startups across the Middle East, Africa, Pakistan and Turkey have continued to attract vast amounts of capital in the first half of this year, the latest report showed.
Yet, momentum in the market has started to show the first signs of a slowdown due to headwinds in the global economy, including market fluctuations, as well as soaring borrowing and operational costs.
Ventures in the Middle East, Africa, Pakistan and Turkey have raised more than $5 billion in funding from January through June, MAGNiTT, a startup data provider for emerging venture markets, said in its "H1 2022 Emerging Venture Markets Report."
This year’s funding has already accumulated more than 65% of 2021’s record funding with over half the number of total transactions, mainly driven by mega deals, which refer to individual investment rounds of more than $100 million.
Dubbed the MENAPT VC, the ecosystem had raised south of $7 billion in funding in 2021.
Last year’s pace carried into this year too, making January-March a record quarter. Nine mega deals were closed this year, accounting for 40% of the total capital deployed over the first half, MAGNiTT said.
The deals were closed by the likes of Nigeria’s Flutterwave, Turkey’s Getir and the United Arab Emirates' Pure Harvest Smart Farms.
The deals of over $100 million and the prominence of larger-sized rounds drove the ecosystem across emerging venture markets (EVM) to aggregate 70% of the 2021 financial year record funding, MAGNiTT said.
All four EVMs, namely MENA, Africa, Pakistan and Turkey, saw a year-over-year deal growth compared to the first half of 2021, it added.
Startups in Turkey raised north of $1 billion in the first half of the year, almost entirely dominated by mega deals that drove almost 80% of the country’s total funds.
Similar to last year, the rapid grocery delivery pioneer Getir raised the lion’s share of investment, raising $768 million of the $1.1 billion aggregated by the mega deals.
Investment in the MENA region grew by almost 50% year-over-year to near the $2 billion mark, the report said. The majority of this funding has been accounted for by deals worth over $100 million.
The figure marked a 46% rise from a year ago and accounted for nearly 62% of total capital raised last year.
The prominence of mega deals and larger-sized rounds was also reflected in the sizable incline in the average round sizes.
Turkey recorded a mean round size as high as $13.9 million while the mean round size in MENA went up to $8.2M up from last year’s $5.8 million, according to the report.
"Prevalence of larger-sized rounds led to a sizeable increase in the value of average fund rounds across emerging venture markets," said Philip Bahoshy, founder and CEO of MAGNiTT.
The first half of the year saw larger-sized rounds being closed, but had lesser deals compared to a year ago.
"In fact, Africa was the only EVM to cross the 50% mark of last year’s total transactions, MENA, Pakistan, and Turkey averaged 43% in H1 2022 – foreshadowing an end of year funding disparity coupled with the global cooldown of markets and the shift in VC dynamics," MAGNiTT said.
Compared to a notable activity in the first quarter, MAGNiTT said the market turned bearish over the second three-month period with a slowdown of venture capital activity resulting in a 65% quarter-over-quarter decline in capital investment across EVMs.
On average, MENA, Africa, Turkey, and Pakistan recorded a 47% quarter-over-quarter drop in funding while all saw a transaction decline except for Turkey, it noted.
Turkey had an unprecedented first quarter, yet the second three-month period marked its lowest quarter since the third quarter of 2020, according to the report.
"The funding activity in Q2 across MENAPT has been a signal towards a more reserved VC activity for the rest of the year. It remains to be seen if EVMs are able to cross last year’s numbers," Bahoshy said.