African startups have faced a significant decline in funding, with a 50% drop over the past three quarters compared to the previous year, according to The Big Deal. This decline in venture capital is a global trend, but it poses particular challenges for Africa’s tech ecosystem, which heavily relies on external funding.
Key Takeaway
African startups, facing a decline in funding, are looking beyond traditional sources for capital. The Middle East, particularly the UAE, has emerged as a significant hub for investment, attracting African founders and venture capitalists. Events like GITEX have facilitated connections between African startups and Middle Eastern investors, opening up new opportunities for collaboration and funding. However, investors must navigate the evolving investment landscape in the region that demands specific criteria for support.
Looking Beyond Traditional Sources
In response to the funding crunch, African founders are exploring new sources of capital. One notable trend is the increasing interest in the Middle East as a hub for investment. According to data from Briter Bridges, the UAE has emerged as the third-largest source of foreign capital for African startups, surpassing countries like France and China. Over 80 Middle Eastern investors have participated in African transactions, with a growing number of them supporting African ventures.
GITEX: Connecting African Startups and Middle Eastern Investors
The growing connection between African startups and Middle Eastern investors was on display at GITEX, a global tech show held in the UAE. With over 170,000 attendees, the event provided an opportunity for African founders to forge relationships with investors in the UAE and neighboring Gulf Cooperation Council (GCC) countries. While it remains uncertain whether these conversations will result in investments, the event facilitated engagement between African technology companies and government officials, customers, and investors in the region.
Challenges and Opportunities for Investors
Investors focused on Africa have had varying experiences in the Middle East. Some attended GITEX to connect with their existing limited partners (LPs) and expand their network to include institutional investors from the region. Others explicitly sought institutional investors from the Middle East, while facing competition from U.K. investors. Venture capital firms, including prominent names like Tiger Global and a16z, have been exploring opportunities in the Middle East to diversify their portfolios.
However, the landscape of regional investment has become more sophisticated, with investors seeking specific criteria before providing support. Some institutional investors in the Middle East require African investors to have previously supported regional startups, while others are more accommodating. Building trust is essential in securing institutional capital from the region, making it a long-term strategic focus for many venture capital funds.
Expanding Opportunities in the Middle East
The Middle East, particularly Dubai, has been perceived as a source of readily available funding. However, the investment landscape has evolved to involve more comprehensive due diligence and selectivity. Some Middle Eastern limited partners are eager to support African general partners (GPs), but they inquire about the GPs’ investment plans in the MENA region.
African startups, attracted by Dubai’s efficient incorporation and tax system, as well as its facilitation of residence permits and visas for entrepreneurs, are also making the move to the Middle East. Egyptian startups, in particular, have benefited from venture capital investments from GCC-based investors. While some well-funded companies have relocated their headquarters from Cairo to Dubai to attract more investment, early-stage startups are increasingly seeking opportunities in the Middle East to overcome economic challenges.
