Over the last few years, the global economy has been facing a lot of shocks and economic downturns that significantly impacted the investment landscape. Moreover, founders and dealmakers may well be justified for an unfavorable outlook on fundraising and deal activity over the upcoming 12 months. Yet, there are grounds to be cautiously optimistic about the fundraising environment in the upcoming year given that the recession in 2023 is predicted to be quite moderate and that there is a lot of dry powder to leverage.

According to Nadim Nazha, Executive Director at Goldman Sachs, at a panel entitled “Chronicles of The Recession: Impact on the Investment Landscape” at Techne Summit Alexandria 2022, there are five themes that shaped the 2022 Global Investment Landscape, which are (1) high levels of inflation and rising interest rates along with the synchronized responses from central banks, (2) a potential slowdown in the global economy (one and two are related since slowing growth causes consumers to lose confidence in the economy and cut down their spending in general), (3) the fear of a recession, (4) energy imbalances, which are a problem for both Europe and the MENA area, and finally (5) the geopolitical tension.

However, experts believe that the overall theme for 2023 is “better days ahead.” While inflationary pressures won't go away overnight, the Federal Reserve would not stop rising interest rates, and the short-lived spikes in volatility will not be over, after every storm comes the calm. This is clear in the predicted themes that shape the MENA regions’ startups’ foreseeable future, which include: 

Exit Strategies on the Rise

Anticipated for 2023 are more startup exits. Some startups will pursue acquisitions as a substitute for raising financing if funding stalls. This was made clear in 2018 as startups in the MENA region saw a record number of exits compared to 2021. The 2023 Venture Investment Report published by Magnitt states that M&A (Mergers & Acquisitions) activity climbed 71% from the prior year, with exits from the UAE, Egypt, and KSA doubling year over year.

Investment Squeeze

Less liquidity will be available in the market to finance companies in the area this year as investors continue to tighten their budgets. According to Magnitt, this funding crunch will lead to reduced startup valuations that will range across geographies and return to pre-pandemic levels. While the capital shortage is anticipated to last for the majority of 2023, funding may start to lighten up near the end of the year as markets begin to recover and as the prognosis for the global economy improves.

Henceforth and naturally, investors will still hold back and startups will struggle to raise funds. But does this necessarily mean that investors will stop investing? Or that startups will not be able to acquire funds at all? Definitely not! However, it has become more difficult as investors rebalance their portfolios and reassess their risk capital by pressing more scrutiny on the due diligence.

How about we talk numbers?

According to Ayman Taha, an investment and growth consultant, privately held startups/firms in the Middle East, GCC, and North Africa were able to secure equity rounds totaling $711 million, which is more than the funding secured over the same time the previous two years. In January and February of 2022 (total financing of $600 million), and throughout January and February of 2021 ($179 million in total finance). This indicates that funding is more readily available and plentiful than in previous years and that entrepreneurs were able to raise more funding this year. However, that does not necessarily mean that obtaining investment or financing has become easier. 

Again, that is due to the discomfort that investors feel towards investing in the current economy. That being said, it is now considerably more difficult and fewer firms are able to close investment rounds. Only 56 startups were able to close an investment round during January–February 2023, compared to 190 startups during the same period in 2022 and 125 startups during the same period in 2021.

Now, some might argue that investors will only invest in mature startups; however, statistically speaking, out of 56 startups, 46 early-stage startups (or 82%) were able to close an investment round between January and February 2023. While during the same time period in 2022, 155 early-stage firms out of 190 managed to close a financing round (81%).

A Closeup 

Many nations are demonstrating increasingly nationalistic attitudes as they seek to withdraw themselves from world trade; surprisingly, the MENA region is seeing the exact opposite. As apparent in Egypt, Saudi Arabia, and the UAE, there is more business-friendly legislation, regulation, general policy, and overall openness. The countries in the MENA region enjoy phenomenal infrastructure, innovative technology, and a pool of talented and skilled people. 

-The 2023 Venture Investment Report published by Magnitt states that Nigeria and Turkey saw an increase in the number of venture capital investments made in 2022 by 11% and 6% respectively, while most other countries experienced a decline in investment activity. So, despite the challenges posed by the pandemic and other economic factors, these countries were able to buck the trend and attract more investment, due to a combination of supportive government policies, a growing pool of talented entrepreneurs, and increased access to funding. Overall, the numbers indicate that there is a potential for growth and development in these two countries' startup ecosystems, as well as the importance of keeping an eye on emerging trends and opportunities in the venture capital space.

-Saudi Arabia witnessed a significant increase in funding of 72% compared to the previous year, resulting in a total funding amount of $1 billion. This increase exceeds the total funding amount that KSA received in the previous four years combined. This suggests that KSA's startup ecosystem is rapidly growing and becoming more attractive to investors, who are willing to commit more capital to support the growth of promising companies. There is also potential for KSA's startup ecosystem to continue growing and attracting more investment in the future.

-In Saudi Arabia and Egypt, despite a decrease in the number of investment deals made, the amount of money invested increased significantly. As a result, the average funding amount per deal also increased, indicating that investors were willing to commit more capital to fewer, but potentially more promising opportunities. This trend can be interpreted as a sign of growing confidence in the startup ecosystems of these countries, as investors are willing to make larger bets on companies, they believe have the potential for high growth and profitability.

8 Strategies to Help You Secure Funding in 2023

1.Develop a Thorough Business Plan: A solid business plan is the foundation for any successful startup. It should include detailed information about your product or service, market research, financial projections, and marketing strategies. Having a well-thought-out business plan will help investors understand your vision and see the potential for growth in your company.

2.Be Innovative or Tech-Enabled: In today's market, investors are drawn to companies that offer innovative or tech-enabled solutions. If you can demonstrate that your product or service is unique and has the potential to disrupt the industry, you'll be more likely to attract investors.

3.Create a Pitch Deck: A pitch deck is a visual representation of your business plan that highlights the most important points. It should be concise, compelling, and designed to grab investors' attention. Key elements to include in your pitch deck are how your product or service solves a problem, your innovative or tech-enabled features, your team's relevant experiences, traction achieved, long-term projections, an exit plan, and the percentage of equity you are offering.

o Solve a Problem: Investors are always looking for startups that offer innovative solutions to real-world problems. If you can demonstrate how your product or service solves a problem that affects a significant number of people, you're more likely to get investors interested.

o Showcase Your Team's Past Experiences: Investors want to see that you have a team with relevant experience in the industry. Be sure to highlight the experiences and accomplishments of your team members in your pitch deck.

o Demonstrate Traction: Investors want to see that your company is gaining traction in the market. If you can show that your product or service is gaining customers and generating revenue, you'll be more likely to attract investment.

o Have a Long-Term Plan: Investors want to see that you have a long-term plan for your company's growth and success. Be sure to include your long-term projections in your pitch deck and demonstrate how you plan to achieve your goals.

o Develop an Exit Plan: Investors want to know how they'll be able to make a return on their investment. Be sure to include an exit plan in your pitch deck that outlines how investors can expect to see a return on their investment.

It is crucial to remember that not all industries experience a recession's effects equally. Certain industries, including healthcare and commodities, typically operate fairly well because they offer necessary goods and services that people require regardless of the state of the economy. On the other hand, if consumers cut back on discretionary spending, cyclical businesses like travel and hospitality are likely to suffer during a recession. In conclusion, despite the fact that the financial landscape has been significantly impacted and investors are currently hesitating more than committing money and taking risks, there is always hope and an opportunity to be found.