The Middle East has long been received as the petrol port of the world. Based on different analysis and reports, there are no disputes on the fact that the Middle East has the largest share of proved oil reserves in the world, though the number of actual shares varied due to evaluation criteria. The title outshines the entrepreneurship and innovation on this land while the investment infused in this region grows unstoppably.
From analyzing these countries investment data in 2019’s first half, we discovered that i) entrepreneurship and startupship are rooting deeper since the investment scale is enlarged continuously; ii) the regional difference in investment is obvious and Israel and UAE ranked top; iii) in 2019 first half, to-B-related startups attract the most attention from investors.
Not only in the Middle East, other regions in the world also face the same decline in the count of investment. Middle East faced a decline in investment total deal count, 209 financing activities with a 44.0% YOY decline.
Comparing with the year 2015-2018’s first halves, 2019’s first half’s investment activity frequency is below the 4-year annual average of 329.2 investments. On the contrary, the total deal value increased 47.22% in 2019’s first half from 2018’s first half.
During 2015 and 2018, the growth of investment frequency and the amount is comparatively steady: the total deal value increased at a certain range while the financing frequency maintains at the same level. The drastic change in 2019 first half signaled that the capital market is still active but being stricter to the invested targets.
Cash rushed to the top players in the market and the concentration ratio climbed up to a peak. The average amounts per investment in the first half of the past four years (Y2015-2018) are 2.7 million. 2.6 million, 3.2 million. 3.6 million respectively. The average amount per investment in 2019 reached a climax, 9.4 million. The number is undervalued since the total financing amount of USD 1,958 million does not include undisclosed financing investments.
In the Middle East, investors become stricter in selecting the next unicorns but in the meantime, they are more generous to their portfolio companies.
In 2019 first half, there are more than 120 investments with more than USD 1,957 million landed in Israel, which composts 51.3% of the total investment counts in the Middle East and 83.7% of the total financing amount. Comparing to the first half of 2018, Israel yielded 2% of the investment count to other parts of the Middle East.
Respectively, the total financing amount share attributed to Israel decreased approximately 5.8%, from 2018H1’s 89.6% to 2019H1’s 83.7% and total financing amount attributed to UAE and Egypt increased approximately 3.0% and 1.14% respectively.
In the first half of 2019, Israel, a country with less than 2% of the regional population (8.8 million out of 463.4 million), is still the pearl of the entrepreneurship crown in the Middle East. In 2019 first half, investments are more decentralized in geographic scale but more concentrated on the top players than previous.
The uneven development of startupship in the Middle East leads to an uneven venture capital activity landscape. A critical factor lying behind is the regional social development and policies including education and steadily growing economy. The human capital in Israel is affluent even comparing with the U.S. In a report produced by IVC research center in 2012, engineers per 10,000 employees in Israel reached 135, while in the U.S. and Japan were 70 and 65 respectively.
For instance, it is easy to find that Israel and UAE have a better educational foundation in age 25+ population from the World Bank’s data. At the same time, these two countries in the Middle East region ranked high in startupship and have most financing activities. The richness in human capital contributes to the prosperity of innovations and startups.
Besides, encouraging policy for startups will correspondingly stimulate startup emergence. In Israel, the domestic company classified as a preferred technological enterprise can enjoy a reduced tax rate 12% (or 7.5% if its facilities located in Area A) while the regular tax rate in the country is 24%, according to Deloitte 2017's International Tax, Israel Highlights.
To B service enterprises babyboom
Due to the property and feature of the business itself, we will categorize the company into the vertical industry that it serves while considering its service and product type. For example, a company providing financial solutions for the healthcare industry will be tagged “Healthcare”， because it belongs to the Healthcare vertical, and the rule applies for other companies.
In the Middle East, to B service enterprises received the most of total deal count. To B business in this sector includes information service, cybersecurity solution, cloud service, and other businesses that don’t belong to any specific vertical sector. In 2019 first half, investment events in to B service enterprises composed approximately 30.0% of the total deal count of 237 in the region. Healthcare sector follows, whether in 2018 or 2019’s first half. In the healthcare sector, besides typical healthcare related companies like biopharmaceutical startups, there are some startups provide assistive service to the industry, i.e. health care financial solutions.
As mentioned earlier, Israel has a highly concentrated talent pool and a dense crowd of engineers. Among 72 to B startups who closed the latest financing rounds in 2019 first half, 49 of them are settled in Israel and most are IaaS, PaaS, or SaaS service providers. Cybersecurity is the most appeared keywords in these companies’ description.
From another side to interpret the thriving IaaS, PaaS, and SaaS startups, the foundation of individual’s accessibility to the Internet lies beneath the growth of the cybersecurity-related business. In the World Bank’s database, 55% of the population in the Middle East used Internet online activity in the Middle East region in 2017.
The top five countries with the most accessibility to the Internet were Kuwait, Bahrain, Qatar, UAE, Israel and Saudi Arabia (Israel tied with Saudi Arabia), and the percentages of the population using the Internet were 98%, 96%, 96%, 95%, 82%, and 82% respectively in 2017.
While enterprise service startups continued attracting investors’ attention, venture capital flushed into Auto & Mobility sector. In this sector, the autonomous driving contributed the most. Autonomous driving has been popular since the mid of the 2010s, and China and the U.S are the two largest markets for investors to look at.
In the first half, there are more than 50 startups raised more than USD 10 million in one deal and 6 out top 10 fundraising deal value companies are to B service startups. However, the most-funded startup Innoviz Technologies is under Auto & Mobility sector with a deal value of USD 170 million in its Series C financing round.
Consumer service is another minor trend in this region. Speaking of an eye-catchy consumer service startup, the on-demand delivery startup Flytrex, who received USD 8 million in its Series B financing in January this year, provides delivery service with flying drones.
The Middle East faced a decline in the total deal count, but the total deal value inversely increased. Led by Israel, the venture capital investment landscape in the region is getting more diversified in terms of sectors. The enterprise service sector took the lead in both total deal value and count but with a lower share compared to the same period in 2018.
Startups are defined as companies that founded less than 10 years dated the time being evaluated. For instance, companies founded between January 1, 2009, and June 30, 2019 will be considered as startups in 2019 first half’s investment assessment and companies founded between January 1, 2007, and June 30, 2017 will be considered as startups in 2017 first half’s investment assessment
Only regular funding series such us angel, seed, and Series A through pre-IPO are taken into consideration. No initial public offering, debt financing, crowdfunding or other types of financing activity will be analyzed.
Data ONLY contains disclosed financing series and hence the actual financing volume would be greater. The deviation from the real investment will not affect the conclusion made above
Countries selected Iran, Iraq, Saudi Arabia, Turkey, Egypt, United Arab Emirates (UAE), Qatar, Syria, Lebanon, Jordan, Kuwait, Palestine, Oman, Yemen, Bahrain, Cyprus, and Israel.