2023 in 5 Deep Dives

2023 in 5 Deep Dives 

Thought Leadership

The year now ending gave the world a lot to ponder and, on several levels, felt like a turning point. Here are 5 key highlights from a UAE and entrepreneur-centric perspective.

Disruption is a quintessential part of entrepreneurial life and, in that sense, the past years have been generous in experiences. 2023 was no exception. From the explosive emergence of Gen AI to the drive towards a greener economy, crowned with COP28, we deep-dive into a selection of trends that marked the year, the UAE, and our ecosystem. This review is not meant to be exhaustive.

1. 2023, the Year of AI

The rise of generative AI (Gen AI) is probably what we’ll remember 2023 for the most.

AI is not, in itself, new but by end-2022, its business adoption globally had plateaued for several years with 50% of organisations using it in one way or another, according to McKinsey’s 2022 Global Survey on AI; in contrast, less than a year after its meteoric introduction to the world, a third of McKinsey’s 2023 survey respondents were already utilising Gen AI – and more are joining every day. Indeed, since OpenAI released ChatGPT in November 2022, the race to capture Gen AI’s value has only been picking up, despite an ever-growing list of interrogations swirling both online and in boardrooms. New models are released at a quick pace, and investment in the technology is surging across the world.

In the Emirates too, AI has become a focal point, even though the UAE “has been talking about AI since before it was cool,” as OpenAI’s CEO Sam Altman said during a visit this year. Back in May, research by New York-based Dataiku showed that almost a quarter of UAE companies and organisations had either maintained or increased their investment in AI, with 68% dedicating up to half of their technology budgets to it. In July, PwC predicted that Gen AI would have a $5.3 billion impact on the country’s economy by 2030; it was also identified as one of the 10 emerging opportunities outlined by the Government Development and the Future Office in November.

In practice, Abu Dhabi’s Technology Innovation Institute (TII) launched Falcon LLM, an open-source large language model (LLM) in September; that same month, Mohamed bin Zayed University of Artificial Intelligence (MBZUAI), the world’s first graduate-level AI university, joined forces with Abu Dhabi tech firm G42 and US-based Cerebras Systems to launch Jais, an open-source bilingual Arabic-English LLM developed in the UAE; in October, G42 announced a long-term partnership with OpenAI to deliver cutting-edge AI solutions to the UAE and the region; its tech-enabled healthcare company M42 also unveiled Med42, a platform with Gen AI capabilities. Meanwhile, Bayanat, its geospatial intelligence company, has been harnessing AI to expand the scope of its autonomous taxi fleet, among many other uses; national telco provider Du is collaborating with Amazon to integrate AI into their consumer services; and E&, another UAE operator, launched the world’s first autonomous telco store powered by AI.

In parallel, a large number of AI-centric UAE companies have either emerged or gained further traction across a variety of industries. Insurtech firm Wellx was the only GCC startup selected to join Google’s AI for Health programme. Property portal Bayut launched BayutGPT, an AI-powered property search assistant; Botim unveiled Botim GPT, an AI-powered transaction processing service; and automotive technology startup Seez launched Seezar, its GPT-powered chatbot.

Importantly, funding is keeping pace. To name a few, Web3 startup Bedu expected to raise $5 million to $7 million in pre-seed funding back in August, at the same time AI data platform Lumi AI announced its successful first round of funding; in October, Legaltech firm App4Legal raised a seven-figure funding round; in November, AI cybersecurity specialist SpiderSilk raised $9 million; in December, AI-powered supply chain facilitator Immensa announced a $20 million Series B funding round.

Not that all these AI integrations are happening flawlessly.

The fact that Talabat’s customer-facing ChatGPT recommended a competitor remains one of the high points of our year. Still, you get the gist: Gen AI’s impact on the UAE, and the rest of the world, is poised to only increase.

2. A Rollercoaster of a Year for Funding

The past year mostly consisted of what could be described as a funding winter for UAE startups, with a 57% dip in venture funding to $371 million by end November, a 30% contraction in the number of investment deals, and only 20 exits, according to Magnitt’s Q3 MENA Venture Investment Report. This trend is in line with a challenging global landscape, subjected to pressures from soaring interest rates and economic headwinds.

2023 was particularly difficult for tech startups, as the Tracxn Geo Annual Report: UAE Tech 2023 recently showed. A 65% decline in capital inflows to $638 million, compared to $1.83 billion raised in 2022, made it the least funded year in this space since 2020. Seed-stage investments dipped by 7% to $223 million; early-stage funding dropped by 66%; and late-stage funding plunged by a distressing 80% to $175 million. What’s more, the number of funding rounds for tech startups fell by 21% year-on-year, only 16 acquisitions were recorded, and no new unicorn emerged from the UAE.

Thankfully, the trend seemed to start bouncing back upwards overall in November and a number of factors are hinting at the ecosystem’s resilience, including a 25% year-on-year rise in UAE startups’ mean valuation in seed funding rounds and the growing participation of US investors and UAE funders (UAE’s Chimera Capital led the regional pack with $262 million in the first nine months), as per Magnitt data. The most important signal may be the increase in mega-deals’ size in the region, first during Q1 2023 ($260 million for Egypt’s first unicorn, Fintech MNT Halan, $156 million for Kuwaiti Floward, and $133 million for Saudi Nana) and even more so in Q4 (Saudi Arabia’s first unicorn Tamara with $340 million and Emirati Tabby with $200 million).

3. Gearing up for Future Growth

A notable aspect of 2023 was the rise of new venture capital (VC) funds, accelerators, and programmes in the UAE, illustrating the ecosystem’s maturation.

Dubai kicked off the trend in January, announcing that, as part of its $8.7-trillion D33 plan, it would help 30 firms become unicorns within a decade. 

In May, Khalifa Fund unveiled Franchise UAE, an online portal designed to enable entrepreneurs to buy and sell franchises.

In July, Hub71 and Wio Bank launched a strategic partnership to transform the banking experience for startups in the capital, aiming to enhance bank account processes for SMEs and enabling founders to benefit from expert mentorship and commercialisation opportunities. Meanwhile, UAE-based food and beverage company Agthia Group launched Agthia Ventures, a $54 million VC fund designed to invest primarily in F&B and sustainable farming startups.

In August, Singapore-based VC firm Antler launched a Middle East North Africa and Pakistan (MENAP)-focused fund to invest in the region’s entrepreneurial ecosystem.

In September, Chimera Investment unveiled Lunate, an ADGM-incorporated alternative investment manager with over $50 billion in assets under management and a focus on a combination of investments, including VC. That same month,  Archie selected the UAE for its first global launch market, bringing its new growth acceleration model to the region’s fast-growing Fintech market.

In October, Hub71 revamped its Incentive Programme to provide startups with up to $204,000 in cash and in-kind incentives, gaining for the first time an ownership interest in companies selected to join its Company Building Programme.

In November, the Dubai Integrated Economic Zones Authority (DIEZ) introduced Oraseya Capital, a sector-agnostic VC fund with a total worth approximately $136 million, dedicated to supporting startups from pre-seed stage to Series B. Also in Dubai, Raiven Capital announced the launch of a new VC fund with a target size of $125 million, focusing on AI, Internet of Things (IoT), and distributed-ledger technologies in Fintech, cybersecurity, and sustainability. And ADDED launched the SME Finance Facilitator Programme to improve SMEs’ access to financial services.

The following month, Abu Dhabi Finance Week saw the launch of Numou, a revolutionary SME financing digital platform.

4. Fighting the Good Fight

As the energy transition becomes more urgent, Much needs to be done on the climate front, and environment action at large, in the Emirates. Startup Genome’s Global Startup Ecosystem Report: Climatetech Edition, released this November, shows that the UAE has plenty of room to grow in the Cleantech funding arena. Even though Abu Dhabi’s Flat6Labs, along with Dubai’s Intelak Hub and Incubayt Investments, are part of its MENA Top Cleantech Accelerators & Incubators list, no UAE entity is featured in its MENA Top Cleantech VC Firms & Investors review and only Masdar Capital is listed in its MENA Top Blue Economy VC Firms & Investors.

What’s more, according to PwC’s 2023 Middle East Climatetech Report, MENA investors contributed less than 2% ($69 million) to the $152 million invested in locally-based climate tech innovators, which itself dropped down from almost $1 billion in 2022. This is all the more significant that MENA investors actually went against the international tide in the first nine months of 2023, tripling their funding of Climatetech innovation globally (to $5 billion) whereas total global investment in these technologies was down by more than 40%.

The good news is that 2023, announced as the Year of Sustainability in the UAE, delivered many positive developments.

In February, UAE-based VC firm 8X Ventures announced it would deploy $20 million in the region’s Climatetech and Cleantech startups.

The following month, Hub71 inked an AUS$180 million partnership with Investible, an Australian early-stage investor, to help Abu Dhabi startups gain access to capital and grow in the Climatetech field.

In March, the Zayed Sustainability Prize, the UAE’s pioneering global award for excellence in sustainability, launched a new Climate Action category with a $600,000 prize.

In April, the Ministry of the Industry and Advanced Technology (MoIAT) invited 24 high-potential tech start-ups with a focus on sustainability and decarbonisation to compete for access to unique investment and collaboration opportunities, as well as a suite of incentives offered by the UAE’s Advanced Technology ecosystem.

In September, Emirates NBD launched a sustainability-themed accelerator programme, inviting leading global green Fintechs to co-create innovative sustainability-focused financing solutions; meanwhile, Emirates Development Bank (EDB) unveiled its Solar Energy Finance Programme aiming to support UAE mSMEs across diverse sectors and allocating AED100 million to bolster the adoption of green energy solutions, solar in particular.

In October, SME Climate Hub, the only climate action platform specifically dedicated to SMEs and backed by the United Nations’ Race to Zero, joined forces with the COP28 Presidency to launch the COP28 & SME Climate Hub for MENA programme, which enables participants from the region to officially join the UN’s campaign.

In November, UK-based net zero asset management company HYCAP Group, which had just opened an office in ADGM, revealed plans for a UAE-based fund that would invest in companies serving the net zero energy transition and clean hydrogen supply chain.

And in December, COP28 was the scene for unprecedented achievements – the most momentous of which was the launch by Lunate of the Alterra fund, the world’s largest private catalytic climate vehicle, positioned to mobilise $250 billion globally by 2030 and to which the UAE committed $30 billion. Importantly as well, ADGM also announced it would be home to the Global Climate Finance Centre (GCFC), an independent think-tank and research hub designed to help make climate finance available, affordable, and accessible. And Hub71 announced the launch of Hub71+ Climatetech to support startups advancing the development and deployment of sustainable decarbonisation technologies, while the Dubai Future District Fund (DFDF) said it would earmark a substantial 20% of its AED1 billion fund to support Climatetech.

Significantly, out of the 100 companies featured in ADDED and the Government Development and the Future Office’s Future 100 2023 list, released this December, 18 specialise in sustainability and the environment, second only to Fintech (24), while 6 focus on Agritech and 4 on renewable energy. The UAE is indeed fertile soil for entrepreneurs driving climate and green tech development in the region and beyond, and they have been actively pushing this agenda in 2023.

For example, online sustainability exchange The Surpluss became one of only 29 global organisations around the world officially designated as an accelerator by the UN-backed Race to Zero; UAE-based Agritech Pure Harvest Smart Farms acquired Red Sea’s controlled-environment agriculture (CEA) production facility in Saudi Arabia to expand its farm footprint; carbon accounting & climate consultancy ImpactGulf launched its ‘71 Climate Heroes’ initiative, offering 71 UAE-registered businesses and institutions a complimentary quantification of their greenhouse gas emissions for the past five years; EVLab launched the UAE’s first electric vehicle marketplace app and car service CAFU introduced an on-demand electric vehicle charging solution in Canada; Green Future Project and Emirati financial data science company Lune Technologies announced a strategic partnership to provide GHG emissions data related to consumer expenditures; startups Revibe, Zeroe, and Olive Gaea raised substantial $2.3 million, $2.2 million, and $1 million respectively, while HyveGeo raised a pre-seed round; and more UAE-based startups, like 44.01, FortyGuard, Nadeera, Udrive, Terra Tech, and Archireef, among others, are breaking new grounds every day.

5. Where Did These Trends Go?

We would be remiss if we concluded this review of 2023 without a brief look at trends that were all the buzz at the start of the year but didn’t pan out as expected as months went by – namely the metaverse, crypto, and NFTs.

In early 2023, smart bets were on 2023 being the metaverse’s decisive year, with McKinsey predicting it would reach $5 trillion in value by 2030. Yet, decisive 2023 wasn’t for the metaverse, which didn’t really make strides. At the same time, a deluge of crashes, scams, and scandals in the crypto and NFT sphere in 2022 made 2023 a difficult year for these fledgling technologies. In both cases, the collapse of big Web3 systems, cryptocurrency exchange FTX and crypto assets holder Terra, had a domino effect and stoked widespread mistrust among both the public and investors.

Interestingly, however, these events didn’t seem to keep UAE ecosystem players from continuing their exploration of these spaces.

In January, DIFC unveiled its Metaverse Platform to attract technology innovators from around the world, which was followed by the launch of its Metaverse Accelerator Programme in September, with a cohort of ten regional and global startups.

In February, Abu Dhabi’s Hub71 announced Hub71+ Digital Assets, a dedicated Web3 specialist ecosystem with more than $2 billion of capital committed to funding Web3 startups and blockchain technologies from the UAE’s capital. That month also saw the launches of Shaffra, the first metaverse-as-a-service solution in the region, and of F&B metaverse platform OneRare, with brands like Papa Johns, Cali Poke, and Foodlink signing up to release NFTs for their signature dishes.

In April, digital asset investment firm GEM raised its initial $10 million investment in Everdome, a hyper-realistic metaverse, to $60 million.

In May, UAE-based decentralised finance (DeFi) startup Reef launched a $10 million accelerator programme to support, incubate, and invest in Web3 companies. NFT and crypto investment platform Nealthy, founded in 2022, raised $1.3 million in pre-seed funding as well.

In August, UAE-based crypto VC fund Illuminati Capital raised $50 million to target multiple verticals, including DeFi, blockchain gaming, AI, NFT infrastructure, and real-world assets. Meanwhile, cryptocurrency exchange platform BitOasis, which has processed more than $5 billion in trading volume since its launch in 2016, raised new investment from CoinDCX.

In September, Varys Capital announced its intention to enter the GCC market and raise $75 million for its equity-focused venture fund centred around blockchain innovation. Zilliqa Group also relaunched its metaverse venture as MetaMinds (formerly Metapolis, established a year prior). And Lyvely, which enables freelancer content creators to monetise their work, raised a seed round.

In these times of volatility, a full recovery for crypto and NFTs, with regulations in the works across the world, seems still far ahead, as is the metaverse’s full maturation. Yet, one thing is certain: more time is needed for their maturation and the full impact of Gen AI is yet to be assessed.

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