Venture capital investments in the Middle East and North Africa (MENA) region plummeted by 41% in 2024, according to a new report from MAGNiTT, a MENA-based research group. The total amount raised across the region was $9.1 billion, a significant decline from the previous year. This trend mirrors the global decline in VC funding, particularly for non-AI companies.

The report, which covers Aggregate Emerging Venture Markets (EVMs), including the Middle East, Africa, Southeast Asia, Türkiye, and Pakistan, reveals a 20% drop in deal activity year-on-year, with the number of deals falling to 1,527. However, despite the decline, there are signs of recovery on the horizon, as interest rates decline globally, bringing with it lower inflation.

In the MENA region, startups raised $1.9 billion in 2024, a 29% decline annually. While this decline is significant, it is relatively small compared to the declines seen in Southeast Asia (45%) and Africa (44%). Moreover, funding levels in 2024 were still higher than 2020 levels, prior to the 2021 and 2022 boom years, indicating that the region continues to grow in the venture space.

There were some bright spots in the report, including a 7% year-on-year increase in deal count (571) and an 18% increase in the number of investors (to 475). Furthermore, 47% of all investments were in the $1-5M range, signaling a shift towards early-stage investments. This trend is encouraging, as early-stage investments are crucial for the growth and development of startups.

Fintech was a standout sector in the report, with $3.9 billion in funding in 2024. This is not surprising, given the lack of developed financial services in many emerging markets. The report notes that this presents an opportunity for M&A activity across geographies within the region.

The report also highlights the difference in investment strategies between international and local investors. International investors focused more on late-stage deals, such as Insider's $500M round and Tyme's $250M Series D, making up 53% of the 475 investors that backed startups in the region. Meanwhile, local investors tended to stick to early-stage deals.

The decline in VC investments in MENA is also reflective of the global trend, with global exits dipping by 32% year-on-year to just 94 in 2024. Late-stage capital has become harder to come by, as public markets have remained closed.

Philip Bahoshy, CEO at MAGNiTT, is optimistic about the future, stating that "we anticipate rate cuts to begin boosting capital availability within the next 6-9 months, paving the way for a stronger funding environment in 2025." He believes that 2024 was "probably the bottom of the curve" in terms of the funding downturn.

Bahoshy also highlighted the growth in deal activity in the UAE, Saudi Arabia, and Qatar, despite a slowdown in total capital deployment. The total number of investors also increased significantly in MENA, indicating that investors, especially international ones, may have increasing confidence in the region's startups.

Overall, while the decline in VC investments in MENA is concerning, there are signs of resilience and growth in the region. The shift towards early-stage investments and the strength of the fintech sector are encouraging trends, and the anticipated rate cuts and increased investor confidence may pave the way for a stronger funding environment in 2025.