Deep-tech is becoming a critical force and is rapidly emerging as an asset class in the Middle East and North Africa (MENA), driven by the region's need to address pressing challenges and diversify its economic structure. With its arid climate, young population, and dependency on oil, MENA faces unique socio-economic and environmental pressures that demand innovative solutions. As governments and private investors recognise these limitations and other societal threats at bay, there is a major pivot towards deep-tech ventures providing potentially transformative solutions in areas like clean-tech, sustainable agriculture and space exploration, laying the foundations of a more resilient and diversified economic future in the region.
Written by: Marcus McGrigor
Defining Deep-Tech
Until recently, deep-tech has been a source of confusion due to its ambiguous definition. Investors were uncertain whether it was too broad, encompassing diverse fields without clear boundaries, or too narrow, limiting its scope to a tiny category. Initially, "deep-tech" was coined to describe startups in sectors like life sciences, energy, clean technology, computer sciences, materials, and chemicals. However, now that deep-tech is attracting significant venture capital investment, it has been compelled to refine its characteristics.
In 2024, deep-tech refers to ‘science-based technology solutions associated with critical dimensions of uncertainty’. Phrases like "tough tech," "frontier tech," and "hard tech" are often used interchangeably. In investment terms, these are ventures rooted in scientific research, aiming to solve the world's most pressing problems and with the potential to shape the future in transformative ways. This is a key distinction from traditional technology sectors, also known as ‘shallow-tech’ which is easy to copy and commercialise.
Rationale for Investing in Deep-Tech
Why is deep-tech attracting so much attention from the world’s largest investors? And what is driving governments across the Middle East and North Africa to join them?
As investments, deep-tech is not for the faint-hearted. It is highly risky and typically requires vast capital expenditure and greater patience than other asset classes. Yet, the opportunities deep-tech offers, notably the potential returns, can be enormous.
Over the past five years, deep-tech has evolved into a mainstream funding destination for corporate, venture capital, sovereign wealth, and private equity investors. The average size of investments in this sector has increased year-on-year, with many now surpassing $100 million, and billion-dollar commitments becoming increasingly common. Since 2019, deep-tech has consistently captured a 20% share of venture capital funding globally - double what it was a decade ago.
Source: BCG analysis
The greatest pull factors for investors in deep-tech include the potential for significant societal, technological, and economic impact, which can unlock vast market opportunities. Investors are drawn to the possibility of substantial returns, while also diversifying their portfolios beyond traditional tech sectors and with the hope of making widespread, positive change. Furthermore, deep-tech investments remain at the cutting edge, are not mainstream and markets aren’t yet saturated with competition. This strategic advantage becomes even more enticing when you consider the pools of talent and white space in emerging markets such as the Middle East and North Africa.
Deep-tech in the Middle-East & North Africa
As a region, MENA accounts for a very small share of deep-tech funding globally. The US and China lead the way, with more than 60% and 12%, respectively; Europe collectively has 14%, and the Middle East and Africa as a whole, has 8% as of 2022. If you remove major tech hubs, such as South Africa, Kenya and Nigeria, MENA’s market share appears much smaller.
Deep-tech has long been underserved in the region, lacking knowledge, investment, ecosystems and incentives. A low amount of R&D funding has led to a poor appetite to build ventures of this nature throughout MENA. However, there is potential for this to change over the next few years with the announcement of major initiatives, such as Vision 2030 in Saudi Arabia and the Advanced Technology Research Council (ARTC) in Abu Dhabi. Driven by the need to diversify the economic structure of the region, GCC countries are pushing to change the tide by backing deep-tech.
MENA is now home to over 5000 deep-tech startups, raising $6.8BN from VCs in 2022. Like the rest of the world in 2021, venture capital investment in the region exploded, propelling it into a higher echelon. However, while funding fell by 31% between 2022 and 2023 amid a global pullback in VC, this drop was markedly less pronounced in MENA at just 10%. Furthermore, food-related and robotics startups received 14% and 5% of total VC investment in MENA in 2022. In addition, life Sciences businesses (incl. Food-tech, Clean-tech, micro-biology) saw 67 patents filed in MENA in 2021, Information start-ups (incl. AI, Machine Learning & Security) saw 155 and Energy, 37.
Souce: Dealroom
Saudi Arabia, Turkey, Egypt and the UAE are considered the Middle East’s largest investment powers, which is certainly true for deep-tech. The creation of the National Transformation Institute for Applied Research, the launch of the new Deep Tech Innovation Fund and the arrival of DeepMinds (not to be confused with London-born and Google acquired, DeepMind) are just a few examples of how these nations are igniting a deep-tech revolution in the region.
DeepMinds is a new venture studio focused on the creation, assembly and scaling of new deep-tech ventures in the Middle East and North Africa (MENA). Headquartered in Abu Dhabi, it also has offices in Canada and South Korea, providing global touchpoints for investors hoping to draw in foreign capital. Their mission is to shape, grow and fund the deep-tech ecosystem in MENA now that there is significant political alignment, and an appetite to build deep-tech start-ups among the region's young and technologically literate population. They want to be a ‘validation engine’ and platform in the region, bringing together knowledgeable advisors to validate new concepts, and connecting founders to the opportunities, resources and funding they need. “15 years ago, young people wouldn’t have thought to start a business [in MENA]; the ecosystem just wasn’t there”, according to CEO, Amine Staali. Now, it is seen as a prosperous career path with ample financial and government support available.
Tunisia - Africa’s Next Tech Frontier?
In N. Africa specifically, Tunisia is steadily establishing itself as a leading hub for entrepreneurship and innovation, particularly in the deep-tech sector. Between 2021 and 2022, Tunisia saw a 557% increase in VC investment. The success of Instadeep, a Tunisian deep-tech startup founded in 2014, exemplifies the potential of the country's burgeoning innovation ecosystem. Starting with just $2,000 and a couple of laptops, Instadeep has grown into a global player, attracting significant attention when it was acquired by BioNTech for £362 million in 2023.
Source: Dealroom
The rise of Instadeep is not an isolated incident but rather a reflection of Tunisia's broader efforts to build a robust deep-tech ecosystem. Since 2011, Tunisia has cultivated a vibrant entrepreneurial ecosystem, supported by a developed network of coworking spaces, incubators, accelerators, and investors. The country's Startup Act, a pioneering legal framework, alongside support initiatives such as Connect’Innov, Open Startup, and Technoriat, has further bolstered the ecosystem by creating a supportive environment that attracts international attention and investment.
Tunisia's strong STEM foundation, with active R&D in fields like AI, biotech, and robotics, has been key to its success. Ranking 45th globally in "Human capital and research" and 53rd in "Knowledge and technology outputs" in the 2022 Global Innovation Index, Tunisia is now recognised as a hub for startups in both Africa and the Arab world, paving the way for further investment in deep-tech.
Risks and Exit Outlooks
There remain huge risks and challenges for MENA to overcome in deep-tech, some specific to the region and others intrinsic to the sector and nature of its ventures.
We touched briefly upon the definition of deep-tech, which includes connotations of great uncertainty and difficulty; staple ingredients for a high-risk investment. This only increases the less developed an ecosystem is, where barriers to entry and later-stage hurdles are more common. For deep-tech businesses to become commercially successful, a lot needs to go your way, and often the smallest of challenges can stop a promising venture in its tracks. The ones that make it are the ones that have resilience etched in their DNA. You need a lot of patience and belief to go the distance, as often, it may take a hundred if not thousands of prototypes before you have proof of concept.
With patience, you also need deep pockets. Ventures in this space require long runways, taking an average of 25% to 40% more time between funding stages from seed capital through to Series D than other tech ventures. This can put off VCs who would rather invest in simpler technologies, like E-Commerce, where market entry is faster and easier.
In the earlier stages of deep-tech development, the principal risks are scientific. Beyond this, the big challenge is moving the technology out of the lab and into the real world. Sometimes, scientists can lack the entrepreneurial spirit or commercial acumen required to take a product to market. They can be overly focused on the technology rather than the problem they are trying to solve, and misalignment between company founders and investors is common. VCs can play a role here, helping teams to see the opportunity and guiding them through the process.
Source: BCG analysis
With this comes an understanding of the exit landscape. Analysis shows there is little difference between the percentages of traditional and deep-tech ventures that exited via corporate acquisitions (53% and 51%, respectively), IPOs (36% and 31%), and private equity buyouts (7% and 3%). Internal rates of return (IRR) are also similar when it comes to comparing traditional tech and deep-tech funds.
Source: BCG analysis
Startup Spotlight
Deep-tech companies that are building groundbreaking technologies with the potential to revolutionise industries and alleviate major societal issues are attracting funding across MENA. Encompassing fields like AI, robotics, biotech, and advanced materials science, here are a few to keep your eye on:
Mozn - AI, Saudi Arabia
Developing cutting-edge AI solutions that leverage big data and machine learning to address complex problems, driving efficiency and innovation across sectors such as healthcare and finance.
SaudiVax - Bio-tech, Saudi Arabia
Manufacturing high-quality and affordable vaccines and bio-pharmaceuticals localised to Saudi Arabia. Seeking national self-sufficiency and pandemic preparedness.
UKtob - AI, United Arab Emirates
A generative AI startup that deploys AI-driven solutions to help Arabic communicating businesses boost their operational efficiencies.
Intixel - AI/ Healthcare, Egypt
Leverages AI to transform medical diagnostics. Their AI-powered modules for medical image analysis enable radiologists to detect and classify growths more accurately.
DevisionX - AI/ Agri-tech, Egypt
Their solutions are used across agriculture, manufacturing, eCommerce, real estate, and retail for crop monitoring and sorting, inventory management, product recommendations, and urban planning.
There has been a surge in deep-tech venture capital investment across the MENA region in recent years, fuelled by a strong collective push for sustainable economic growth. The doors to innovation are wide open across the Middle East and North Africa, offering unprecedented opportunities for entrepreneurs ready to take the plunge. There is still so much to do and it remains to be seen if MENA can become a major global player in the deep-tech space, only time will tell.
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