The Middle East and North Africa (MENA) region has a rich economic history, traditionally driven by oil wealth and government funding. However, in recent years, the region has seen a surge in entrepreneurship and the growth of a vibrant startup ecosystem. This development has opened up new opportunities for angel investors to support innovative ventures and contribute to the region's economic transformation.
A 2021 report by the Dutch Good Growth Fund highlights the rapid growth in funding to African startups, which exceeded $3 billion by October 2021. While the MENA region has some unique characteristics, it is also witnessing an increase in angel investing activity as the tech landscape matures.
This article will explore the current state of angel investing in MENA, the factors driving its growth, and the innovative approaches being adopted by angel investors to support the region's high-growth ventures.
Written by: Andrew Mazalkov
The Current State of Angel Investing in MENA
Source: ABAN Investment Survey Report
The MENA region has witnessed a significant rise in angel investing activity in recent years. As an article by Wamda highlights, several new angel investment networks have emerged over the past year, while existing networks are expanding their activities to support the growth of startups and their technology.
Some notable angel networks in the region include:
Cairo Angels (Egypt): Launched a decade ago, it is one of the region's longest-standing angel networks with investments in 29 companies across MENA. In November 2020, they launched a micro-funding syndicate to provide fast funding to early-stage startups.
Dubai Angel Investors (UAE): Follows a syndicate model, bringing together experienced and aspiring angel investors.
Najd and Spark (Saudi Arabia): Najd is a Saudi-based angel network, while Spark is a women-focused network in the country.
Sharjah Angel Investors Network (UAE): Launched in December 2020 by the Sharjah Research, Technology and Innovation Park (SRTI Park), SAIN aims to encourage more high-net-worth individuals to consider investing and provide them with training on key aspects of angel investment.
The role of angel investors in the MENA startup ecosystem has become increasingly crucial, especially in light of the COVID-19 pandemic. As venture capital firms focus more on later-stage investments or doubling down on sectors that boomed during the crisis, angel investors are stepping up to fill the funding gap for early-stage startups.
However, there are some key differences between angel investors and VCs in terms of experience and value-add, as explored in a recent African Business Angel Network Investment Survey Report:
VCs are better equipped to manage funds and conduct due diligence, while benefiting from the advantages of later-stage investments when startups have proven their model or gained traction.
Angel investors, beyond providing capital, also offer mentorship and guidance to facilitate a startup's growth. However, many angel investors in the region lack experience, which could impact the quality of deal flow and the overall evolution of the ecosystem.
As Musaab al Hakami, a Saudi-based angel investor, points out, "Unfortunately, what we have is a lot of money and less experience. Financially, the gap will be filled by the angel investors. However, they still lack the experience and the value that they need to add to the startups."
Addressing these challenges will require collaboration among angel groups in the region and globally to facilitate access to the market and exchange knowledge and expertise. Initiatives like the Sharjah Angel Investors Network, which provides training programs for new angel investors, can help bridge the experience gap and support the growth of the regional startup ecosystem.
Factors Driving Angel Investing Growth in MENA
Source: ABAN Investment Survey Report
Several factors are contributing to the growth of angel investing in the MENA region:
Maturing technology landscape and investable opportunities: The MENA region has seen a rapid development in its technology startup ecosystem, driven by increasing internet and mobile phone penetration, a young and growing population, and the application of emerging technologies. This has led to a significant growth in the number of investable technology startups.
Increasing exits and success stories: Recent success stories, such as the emergence of unicorns like Careem (acquired by Uber for $3.1 billion in 2019) and Souq.com (acquired by Amazon for $580 million in 2017), have attracted global investor interest to the MENA region, as seen in this article by Tomi Davies. These exits demonstrate the potential for high returns and are encouraging more angel investors to participate in the ecosystem.
Government initiatives and regulatory changes: Governments across the MENA region are implementing initiatives and regulatory changes to support entrepreneurship and encourage investment in startups. For example, Saudi Arabia's Vision 2030 plan includes measures to support SMEs and encourage venture capital investment, while the UAE has introduced various startup-friendly policies and funding programs. This can be further explored in a previous LVCN article on Middle East tech transformation.
These factors are creating a conducive environment for angel investing in the MENA region, and as the ecosystem continues to mature, we can expect to see more angel investors entering the market and supporting the growth of innovative startups.
Innovative Approaches to Angel Investing in MENA
Source: Millbrook Impact Report
As the angel investing landscape in the MENA region evolves, investors are adopting innovative approaches to support high-growth ventures:
Hybrid models combining angel investing, crowdfunding, and venture capital: New models are emerging that combine elements of angel investing, crowdfunding, and venture capital to increase the speed and efficiency of investments. These hybrid models often rely heavily on data and familiar business strategies to make quick investment decisions and add value to their portfolio companies.
Sector-specific angel networks: Some angel networks in the region are focusing on specific sectors, such as fintech or e-commerce, to provide targeted support and expertise to startups operating in these verticals. This sector-specific approach allows angel investors to leverage their industry knowledge and networks to add more value to their investors.
Increased use of standardised investment instruments: Angel investors in the MENA region are increasingly using standardised investment instruments, such as the Simple Agreement for Future Equity (SAFE), to streamline the investment process and reduce legal costs. The adoption of these instruments is making it easier and faster for startups to raise capital from angel investors.
These innovative approaches are helping to address some of the challenges faced by angel investors in the MENA region, such as the lack of experience among some investors and the need for faster and more efficient investment processes. As the ecosystem continues to develop, we can expect to see more experimentation and innovation in the angel investing space. This can be further explored in a Millbrook Impact guide on Angel Networks in Emerging Markets, which takes a much more granular look at the emerging behaviours of such networks around the world.
Challenges and Opportunities Ahead
Source: The Big Deal
Despite the promising growth of angel investing in the MENA region, there are still several challenges that need to be addressed to ensure the continued development of the ecosystem:
Lack of experienced angel investors: As highlighted in the Wamda article, many angel investors in the region lack the experience and knowledge needed to effectively support startups. This can lead to suboptimal investment decisions and hinder the growth of the ecosystem. Initiatives like the Sharjah Angel Investors Network, which provides training and education for new angel investors, can help bridge this experience gap.
Limited deal flow in some countries: While the MENA region as a whole has seen significant growth in the number of investable startups, some countries still have limited deal flow. According to "The Big Deal" database, 27 African countries (representing some 200 million inhabitants) recorded no public VC deals greater than $1 million between 2019 and 2021. Efforts to support entrepreneurship and develop startup ecosystems in these less active markets will be crucial to ensuring more balanced growth across the region.
Need for continued innovation in investment approaches: Early-stage finance remains nascent in many African markets, with a lack of funding instruments and approaches tailored to local contexts. While the MENA region has seen some promising innovations in angel investing models, there is still a need for continued experimentation and adaptation to address the specific challenges and opportunities in each market.
Looking ahead, the growth of angel investing in Africa presents significant opportunities for both investors and entrepreneurs. According to the Dutch Good Growth Fund report above, Africa has seen the largest global increase in internet and mobile phone users, creating a fertile environment for tech entrepreneurs. The continent's youthful and growing population, combined with increasing internet penetration and the application of emerging technologies, is driving the development of innovative solutions across sectors such as fintech, e-commerce, health tech, and agritech.
As the African startup ecosystem matures, angel investors have a crucial role to play in providing the early-stage capital and support needed to help these ventures scale and achieve impact. The Dutch Good Growth Fund report highlights the importance of angel investors in filling the funding gap for early-stage startups, particularly as venture capital firms focus more on later-stage investments.
Promising examples of angel investing in Africa, such as the Lagos Angel Network in Nigeria and ViKtoria Business Angels Network in Kenya, demonstrate the potential for angel investors to drive innovation and economic growth on the continent. As more angel investors enter the market and adopt innovative approaches to investing, we can expect to see a continued surge in the number and diversity of African startups receiving early-stage funding.
The MENA region and Africa are witnessing a remarkable surge in angel investing activity, propelled by maturing technology ecosystems, increasing exits and success stories, and supportive government policies. As the startup landscape evolves, angel investors are embracing innovative approaches, such as hybrid investment models and sector-specific networks, to better support high-growth ventures. However, challenges persist, including the need for more experienced investors and continued innovation in funding instruments.
To address these issues and fully capitalise on the opportunities presented by angel investing, governments, development institutions, and other stakeholders must collaborate to create an enabling environment. This can be achieved through initiatives focused on building investor capacity, such as increasing access to education and training programmes for aspiring angel investors to build their skills and confidence in making investments. Fostering collaboration among angel networks, both within the MENA region and globally, will facilitate knowledge sharing and cross-border investments, further strengthening the ecosystem.
Governments play a crucial role in supporting the growth of angel investing by implementing policies and regulations that encourage early-stage investing, such as tax incentives and streamlined registration processes. The development and promotion of standardised investment instruments, like the SAFE, can simplify and expedite the investment process, making it more accessible to a wider range of investors. Moreover, investing in the growth of startup ecosystems in underserved markets, providing access to resources, mentorship, and networking opportunities for entrepreneurs, will help unlock the full potential of these regions.
By harnessing the power of angel investing to support the next generation of entrepreneurs and innovators, the MENA region and Africa can position themselves at the forefront of the global tech revolution. With a young and growing population, increasing digital adoption, and a surge in entrepreneurial activity, these regions are poised to drive economic growth, create jobs, and solve pressing social and environmental challenges. The future of angel investing in the MENA region and Africa is undeniably bright, and by implementing these recommendations and continuing to support its growth, the opportunities for investors and entrepreneurs alike will be truly boundless. As the world watches, these dynamic regions are set to reshape the global entrepreneurial landscape, one investment at a time.
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