Magnitt: VCs Make a Swift Comeback in UAE 

The UAE's venture capital landscape navigated a period of readjustment in 2023, according to Magnitt's 2023 UAE Venture Investment Report. In line with global and regional venture trends, overall funding declined by 46% compared to 2022, relinquishing the Emirates' top position in MENA for total investment. Notably, mega deals were absent this year, for the first time since 2015.

Despite the funding decrease, the UAE retained its title as the most active ecosystem by deal count, albeit experiencing a 9% year-on-year drop in transactions. The second half of 2023 offered a glimmer of hope, with funding surging 65% compared to the first half. This potential rebound suggests investor adaptation and cautious optimism in the face of a changing market.

The top ten investors by capital deployed in the country accounted for a sizeable 36% of the total capital invested in the UAE last year. There was a definite move towards early stage investments as these big players dropped their average ticket size from $53 million in 2022 to $25 million in 2023.  Decreased interest in venture capital from non-traditional investors also seemed to pave the way for a VC comeback. 2023 saw traditional VCs claim five out of the top ten spots, up from three the previous year.

2023 was a year of adjustment for the UAE venture capital ecosystem. While funding contracted and investor numbers fell, signs of adaptation and strategic shifts emerged. The rise of smaller deals, diversification of investor profiles, and continued exit activity suggest a potential recalibration towards a much-anticipated "soft landing" in 2024.

The anticipation of rate cuts following the elevated interest rates of 2023 has the potential to stimulate both global and regional venture investments. Furthermore, the prospect of a resurgence in M&A and IPO activity is on the horizon, propelled by stabilised interest rates and the availability of dry powder. The question of whether international capital will return to the region in the midst of geopolitical unrest remains a significant unknown. Despite multiple fund announcements throughout the year, the translation into tangible investments was limited.