Venture debt growing in MENA Region

KARACHI: The role of venture debt has been growing in the Middle East and Africa (MENA) Region over the last five years, with 2021 reporting a record high funding, according to the MENA Venture Debt Investment Report, released by MAGNiTT, a research and analysis tool to discover and track new startups and potential investment targets.

The 18x rise in the venture debt funding between 2020 and 2021 highlighted its elevated position as a strategic tool to support startup growth.

The years 2021 and 2022 saw a growing appetite for venture debt as a funding tool, as the ecosystem started regaining momentum following the pandemic.

In a look at the numbers, the venture debt deals almost doubled between 2021 and 2022, despite 2022 falling $6 million short of the total funding in 2021.

The venture debt aggregated $260 million across 18 deals in 2022, a year that saw the first mega deal for venture debt in the MENA Region. The deal was closed by the UAE-based fintech startup tabby and contributed 39 per cent to the total venture debt funding reported in 2022.

To that avail, the rise in the number of deals accompanied by a drop in funding pushed the average transaction size down $14.4 million in 2022 from $26.6 million in 2021.

The venture debt funding was concentrated in four countries of the MENA Region, the United Arab Emirates (UAE), Saudi Arabia, Egypt and Jordan. The UAE-based startups were the MENA leaders in the number and value of venture debt deals closed, as they took over half the number of deals and value of funding reported for the region between 2018 and 2022.

Mirroring the venture capital trend in the MENA Region, the fintech captured the highest share of the venture debt deals between 2018 and 2022 by number of deals raising 61 per cent of the total venture debt funding over the same period.

While the fintech, transport and logistics and e-commerce remain the industries of choice, agriculture landed in the top three; following $50 million venture debt deal closed by Pure Harvest Smart Farms and to which SHUAA Capital and Shorooq Partners were the investors.

With the rising interest in the venture debt funding in 2021 and 2022, the number of investors reached 26. The share of international (Non-MENA) investors rose to 47 per cent in 2022 from 20 per cent in 2021, reflecting the rising international interest in the venture debt as a financing tool for the region.