Challenges and opportunities for the early-stage venture ecosystem in the MENA region

In recent years, the Middle East and North Africa (MENA) region has witnessed exponential growth in capital invested in high-growth ventures. However, much of this capital is concentrated in a small pool of ventures, with investors citing challenges in unlocking the necessary pipeline to diversify their investments across a broader group. Hence, in 2022, the Dutch Good Growth Fund (DGGF) collaborated with Village Capital to launch an inaugural program for ecosystem builders in the MENA region. Furthermore, over the past eight months, we have engaged in discussions with some of the most prominent early-stage investors, entrepreneurs, accelerators and incubators, to report on the main trends impacting the early-stage venture ecosystem in the MENA region. The report seeks to inspire stakeholders to pursue collective efforts to drive the region's entrepreneurial potential towards sustainable growth and prosperity by sharing insights from key ecosystem players.

Image: ©Village Capital

Challenges in obtaining capital and building a team, especially for female entrepreneurs

On the one hand, the discussions showed that attracting founder talent has remained a historical challenge for the MENA region. Entrepreneurship has historically been seen as a less prestigious and riskier career track than consulting or working in a corporate, finance or government role. Moreover, it is difficult to attract a strong team without sufficient funds and securing funding without a team can be equally challenging. Founders and investors report difficulty attracting talent away from stable salaried jobs with established corporations or the government to take a substantial risk on a venture.

For women entrepreneurs, it is even disproportionately harder to raise capital than their male counterparts. Indeed, in 2022, just 5% of funding went to female entrepreneurs in MENA. The gender financing gap is not unique to the region. Globally, female founders attract around 2% of available funding. Yet, contrary to common misconceptions, research has found that women-led startups' quality, investability, and availability are not the issues in obtaining funding. This highlights the likelihood of a pattern recognition bias, and points to a need to innovate in sourcing and capital allocation systems.

Image: ©Village Capital

Growth potential with assistance from accelerators and incubators

On the other hand, trends also indicate that the talent pool of founders is diversifying, and success stories have catalyzed a new profile of founders. Furthermore, experienced funds are now investing in portfolio support for young talent, which can help founders build and strengthen their teams. Moreover, accelerators and incubators play an increasingly important role as well. The feedback we heard consistently from investors was that accelerators and incubators who do it well focus on thorough efforts to connect investors and startups. The second most consistent feedback we heard was that the accelerators who really add value either bring in high levels of technical skills or have it on their teams. Consequently, startups are receiving hands-on support with models, business fundamentals, go-to-market strategies, and their products.

Development partners emphasized the need for accelerators and entrepreneur support organizations to become the experts and build on the trends, so they are developing the right kind of programs. Accelerators need to clearly understand and adhere to the stage they are receiving the startups, point A, and where are they taking them to, point B. One size fit all doesn’t work. Finally, that donors need to re-evaluate the role they are playing, and how the organizations they are funding are being incentivized.