More than 45 start-ups valued at a minimum of $1 billion are expected to emerge from the Middle East and North Africa (MENA) by 2030, led by Saudi Arabia, a report from STV showed.
The acceleration of the start-up ecosystem is being driven by a growing talent pool, technology infrastructure and consumer adoption, as well as broad macroeconomic and regulatory reforms, all catering to Mena's growing technology-driven population, the Saudi technology venture capital fund said in the study released on Tuesday.
The kingdom, the Arab world's biggest economy, is "undoubtedly the gravitational centre" of the broader Mena catchment area, and its appeal is primarily driven by two factors — the size of its gross domestic product and the depth of its stock market, which increases opportunities for initial public offerings (IPOs), it said.
"The opportunity to exit through an IPO positively impacts the strategy and the level of ambition of Mena tech ventures that are moving from developing a specialised and conventional offering to become attractive acquisition targets for global players, to developing solutions tailored more to the regional market with the vision to become self-sustainable regional leaders," STV said.
Start-ups have grown exponentially over the past few years as they use innovation to address consumer needs, and they increasingly seek funding from global investors to accelerate their development.
The are more than 1,100 unicorns — start-ups with a valuation of at least $1bn — around the world, with a cumulative valuation of more than $3.83 trillion, private equity company CB Insights has calculated.
Three are hectocorns, or those worth at least $100bn — TikTok parent ByteDance, Elon Musk's SpaceX and e-commerce platform Shein.
Some of the world's biggest companies used to be unicorns, including technology majors Facebook and Google, and home rental company Airbnb.
STV said venture capital deployment in Mena more than doubled to $2.58bn last year from $1.09bn in 2020. In Saudi Arabia alone, it almost quadrupled to $548 million last year from $148m in 2021, it said.
A separate study last month from start-up data platform Magnitt and Saudi Venture Capital showed that capital funding in the kingdom, surged more than three-fold to $584m in the first half of 2022, surpassing the total for the whole of 2021, as the kingdom continues to accelerate its digital transformation projects.
Start-ups in Mena, meanwhile, raised $105m from 44 deals in July, the lowest amount of monthly funding so far this year as global macroeconomic trends dampened investor sentiment, according to venture capital platform Wamda.
STV's report said Mena's young and fast-growing population has high spending power and is keen to utilise technology for their activities, including for shopping, transactions, learning and socialising.
More than 55 per cent of the region's population is younger than 30 years and they are avid consumers of digital media with an average daily social media consumption of 3.5 hours, it said.
"These statistics set Mena apart in comparison to any other region across the world," STV said.
This, in turn, translates into strong demand for digital products and services across industries. STV said this "attractive user base" is an opportunity for technology ventures to cater to their demands and "achieve accelerated growth and deliver strong unit economics".
However, the STV report said the ratio of venture capital development to gross domestic product in Mena was still much lower than that registered by other countries and regions, showing that yearly invested capital still has room to grow at least five to 10 times more before catching up with peer regions.
“The start-up ecosystem in the Mena region is at an upward tipping point," Luca Barbi, general partner and chief operating officer at STV, told The National.
"Furthermore, benchmarks show that there is a clear opportunity to create more than 45 unicorns by 2030.
"We look forward to working with the founders of our current and future portfolio companies, as well as the wider ecosystem, to make this prediction a reality.”
Of the at least 45 unicorns STV is predicting to be created by 2030, one is forecast to have a valuation of about $20bn and become a decacorn, or a start-up with a value of at least $10bn. Five are predicted to be valued at $5bn by 2030, while 13 are seen with $2bn, it said.
Despite these projections, STV still believes that the next seven years will see the development of more decacorns.
STV's study analysed unicorn data in markets with GDP and/or population comparable to Mena, such as Brazil, Germany, India, South Korea, the UK and the US.
In May, STV joined forces with Facebook’s parent company Meta to support technology start-ups in Saudi Arabia and the wider Mena region.