00:00Private capital data platform Magnet says Middle East venture funding fell 22 percent in the first half of the year
00:07with actual deal count plunging by about 41 percent.
00:11Many of the deals were signed before the U.S. Israel attacks on Iran and big investors are backing away
00:17and the real test will hit this summer.
00:20Joining us now to discuss the latest is Philip Bahoshi, CEO and co-founder of Magnet.
00:26Philip, good to have you on. I was taking a look at your report this morning.
00:30Let me just say some of the numbers that you know very well.
00:33One point three five billion dollars raised by startups in the first half.
00:36Two hundred and fourteen deals, although we're seeing total funding 22 percent down some other drops there.
00:41So behind the headline numbers, what is the story from the region over the first half?
00:47Yes, I think globally we've already started seeing a decline in the total number of transactions.
00:52Interestingly, that's been happening since 2021. But in terms of capital deployment, you have seen a pickup.
00:58Now that's been skewed to big investment deals in AI, defense and security.
01:03So that's the global trend. So the region is not immune to what's happening globally.
01:07Here in the region, there was already a decline in capital that was percolating from 2025, specifically here in the
01:15GCC.
01:15And total number of transactions has continued to drop. In fact, Q2 was the lowest level of transactions dating back
01:22to 2022.
01:24So the reality is, I don't believe that the impact of the war has come into the numbers yet.
01:29That will come in Q3 and Q4. But there has already been somewhat of a slowdown with focus on later
01:35stage deals over early stage transactions.
01:37OK, so that was going to be my next question, actually. The impact of the war. I'm sure a lot
01:41of people are asking you what the impact is.
01:43It hasn't translated yet. But when it does translate into this quarter and then towards the end of the year,
01:50do you think we're going to see even a bigger drop in the numbers?
01:54Yeah. So Magnet, the company put out a research piece in the midst of the war and we put five
01:59trigger warnings to look out for, regardless of the total amount of investment.
02:03Number one is international appetite for the region. A lot of effort from governments have been trying to attract international
02:09capital to the region.
02:11And given all of the geopolitical situation, will international investors continue to deploy capital?
02:16And in Q2 already, we've seen a decline in the total number of international participants.
02:22The second is late stage capital. Naturally, it's harder to get later stage capital when there's instability in the region.
02:29And we've already seen a slowdown at both early and late stage capital.
02:34And a third trigger is M&A transactions. How much liquidity, how many exits are happening here in the region.
02:40And we've begun to see that slowdown in M&A transactions.
02:43So they're kind of key triggers that we continue to look at to understand how it's going.
02:48But we anticipate heading into Q3 and Q4 a continued slowdown both in capital deployment and the total number of
02:54transactions.
02:54And I want to dissect the report a little bit, namely on the UAE taking the biggest piece of the
02:59cake here.
03:00But on exits specifically, it's a topic that we talk about in the newsroom quite a lot.
03:06Do you think that the region is at a successful place when it comes to exits?
03:10Look, I think it's in a healthy place.
03:12But the current situation creates instability and uncertainty.
03:15When we look at, we brought out a report actually just a couple of months ago reviewing five years of
03:20M&A transactions, 25% of all M&A transactions have come from international participants.
03:26And so those people want market entry into the region.
03:30Are those international players still looking to do that or are they looking to wait for a bit more certainty
03:35before they make those transactions?
03:3750% of those M&A transactions have come from larger tech companies acquiring and consolidating entities within their domains.
03:46And so, again, where companies are focusing on their business models, unit economics and trying to navigate the uncertainty, will
03:53they be looking for consolidation plays in the next six to 12 months?
03:56Or will that come after a little bit more certainty?
03:59And a final one was we actually brought out an MGTI index specifically on IPOs.
04:04And it's interesting to see many people are talking about IPOs here in the region.
04:09Look at what's happening in the U.S.
04:10But the performance of those IPO listings haven't necessarily given a huge amount of confidence to tech companies in the
04:17region to list yet.
04:19Okay.
04:19And just finally, on the UAE, it's the most funded in the region.
04:23But the deals there are concentrated.
04:26So what can you tell us about what exactly happened there?
04:29Yeah, so it's interesting.
04:30Now, this six-month period, the UAE has seen the most amount of capital in the region.
04:35But similar to global trends, they've been in a small number of bigger deals.
04:4060% have come from Blue Five Capital.
04:43They're a relatively new entity that have been playing in the venture capital space.
04:48Investments in Mal, Cargo X, AI companies.
04:51But that is still healthy in terms of capital deployment for the region, specifically against the backdrop of the region.
04:57But it's similar to what we see globally.
05:00Bigger deals in a smaller number of companies with a 60% concentration of the capital that has already been
05:05deployed.
05:05And between the UAE and Saudi Arabia, what do you think or which country do you think is going to
05:10start looking a little bit more positive over the next few quarters?
05:15I think just in general, they'll continue to all be positive.
05:18If you have a medium to long-term view, we're very optimistic.
05:22The challenge is trying to work out what are the challenges right now.
05:25And they could potentially be LP funding.
05:27So if we want to continue to develop the region, we need to see continued LP funding from both the
05:32government sector and the private sector
05:34to spur the next generation of startups into the second decade evolution of the region's venture space.
05:40We'll see you next time.
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