Venture capital markets in MEPAT Region capture mixed signals in 2022

KARACHI: The venture capital market in the Middle East, Africa, Pakistan and Turkiye (MEAPT) region captured mixed signals in 2022, as it moved forward throughout the year, according to the Emerging Venture Markets Investment Report 2023.

The report, one of the MAGNiTT’s flagship publications, takes a comprehensive look at the ins and outs of the venture activity across the emerging venture markets.

It looks into the impact of the ongoing global macroeconomic uncertainties on the performance of the venture capital market in the region.

The region collectively succeeded in surpassing the $7 billion-mark for the second year in a row, despite overarching macroeconomic and geopolitical uncertainties, it said.

The year started strong with the first quarter carrying a spillover impact from 2021 to achieve a record high. However, the third quarter saw subsequent retreats, as the market absorbed the impact of global macroeconomic challenges, mirroring the performance of the global venture capital markets.

Delving into the numbers, the value of funding in the emerging venture markets (EVM) aggregated $7.2 billion in 2022, 2.3 per cent lower than its 2021 value. However, the deals reported a faster decline of 4.4 per cent to stand at 1,473 in 2022.

This contributed to pushing the mean value of deals in the EVM north from $5.6 million in 2021 to $5.9 million in 2022.

The breakdown of EVM deal sizes developed in 2021, as the market overcame the impact of the pandemic continued into 2022, with round sizes of $1 million plus, sharing around 25 per cent of the proportion previously captured by the zero to $1 million range. However, the tighter liquidity imposed by the rising interest rates has made funding harder to secure for larger investments, leaving the $1 to $5 million round size as the most attractive, it said.

Scanning the different geographies, the MENA Region, being the only sub-region to surpass its 2021 funding level, saw a record year of funding in 2022.

The MENA funding crossed the $3 billion-mark, reporting an annual rise of 8.3 per cent. The quarterly performance in the MENA Region echoed the overall EVM performance with the first quarter carrying forward the growth seen in 2021, due to the delayed impact the emerging markets face in reflecting the global macroeconomic shocks.

The region again saw subsequent declines in the second and third quarters, before reporting a rise in the fourth quarter, slightly offsetting the seasonal summer-based decline registered in the third quarter.

Africa reported a performance close to its 2021 levels in 2022; whereby, the funding was short of only $82 million. Pakistan and Turkiye reported a clear reflection of the EVMs’ performance in 2022 with both starting the year strong, yet falling short of 2021’s funding levels. Both countries saw a significant decline in funding; following the first quarter.

Fintech maintained the industry lead in MEAPT Region for both funding and number of deals. The fintech funding reached $2.256 billion across 351 deals in 2022.

The industry closed four of the 13 mega deals reported in the EVM in 2022, of which Nigeria’s $250 million Flutterwave deal and $110 million Interswitch Group deal, Bahrain’s $110 million Rain deal, and Saudi Arabia’s $100 million Tamara deal all aggregated $570 million.

The exits reported record high for the EVM and most of its sub-geographies in 2022. While exits usually are a sign of maturity, it is unclear yet how tighter liquidity has impacted the funding landscape and the ability to keep up with the investors’ returns.

The merger and acquisition activity in the region posted 144 transactions in 2022, up 36 per cent from its 2021 levels, the report concluded.

Philip Bahoshy, chief executive officer (CEO) of MAGNiTT, said that the venture investment landscape across the markets covered was turbulent in 2022, echoing the global industry.

“We saw record high in the first quarter; followed by the rapid realignment, as macroeconomic challenges took a hold. Interestingly, deeper analysis of the data showed greater complexity in terms of investment divergence and funding success across the different geographies,” he added.

“More than ever, particularly during this uncertain environment, there is greater engagement from the governments, regulators, investors and founders with the real-time analytics and the unprecedented depth and verification we are able to deliver via the MAGNiTT data platform. As we prepare to expand into Southeast Asia this year and launch a new predictive analytics capability, we can only anticipate greater progress for this promising industry, supported by robust policy- and decision-making that is driven by insightful data,” he remarked.