Investor interest increasing: Middle East food and beverage start-ups cashing in

31-Jul-2019 - Last updated on 31-Jul-2019 at 04:18 GMT

Dubai-based office lunch delivery company ‘Lunch:on’ recently closed its Series A round with US$5.5 million ©lunchon_UAE

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Middle East and North Africa (MENA)-based F&B start-ups received US$20 million in funding, and clinched 8% of deals in H1 2019, amidst findings that investor interest in the region’s food and beverage sector is on the rise.

These results were revealed during a webinar by Philip Bahoshy, founder and CEO of start-ups platform MAGNiTT.

According to the H1 2019 MENA Venture Investment Report, the first half of 2019 saw a 66% increase in funding across all start-ups in the region to US$471 million compared to the same period last year, as well as a 28% increase in number of deals to reach 238.

The report highlighted the quick growth of the start-up ecosystem in MENA region.

Geographic landscape

Within regions, the UAE remained the most active ecosystem, with 63 deals (26%) and 66% of funding (US$311 million) in H1 2019. However, these numbers dropped 2% from H1 2018.

Bahoshy said: “The UAE has been doing this for a longer time, compared to other smaller ecosystems. We are starting to see a shift as others are slowly emerging.”

The UAE has long been the hub for entrepreneurship and businesses in the MENA region, with the highest number of start-ups out of any country in the region.

With relatively wealthy local consumers and many regional business headquarters located in the country, the UAE is a good starting ground for both B2C and B2B start-ups looking to scale further into the region.

He continued, “Egypt and Lebanon represent 21% and 13% of total deals respectively, also dropped 2% from H1 2018.”

“New and smaller ecosystems are beginning to emerge like Saudi Arabia (11%, up 1%), Tunisia (8%, up 3%), Bahrain (5%, up 3%), Oman (1%, up 1%).”

“Tunisia is boosting its local entrepreneurship sector by recently enacting the Tunisian Startup Act, among other initiatives,” Sietse van de Kerkhof, MAGNiTT’s venture capital data manager told FoodNavigator-Asia.

“Many government initiatives have been launched over the past years in the region, including in Saudi Arabia, as the Kingdom aims to become the hub for entrepreneurship and innovation in the region. These initiatives include accelerators, like the recently launched MiSK 500 MENA Accelerator and MiSK Growth Accelerator, expedited startup licenses by SAGIA, and FinTech Saudi, among others.”

He added that smaller countries like Kuwait, are an up-and-coming F&B industry, saying: “Kuwait has been one of the main hubs for F&B start-up, investments and exits.”

H1 2019 also saw the influx trend of foreign investors where 30% of all entities that invested in MENA-based start-ups were international investors such as China’s MSA Capital and Germany’s food conglomerate Henkel.

Industry breakdown

During the webinar, Bahoshy also mentioned that more investors are paying attention to F&B now.

F&B saw a 1% increase from H1 2018, reaching US$20 million in funding in H1 2019. F&B made up 4% of total funding.

The largest F&B investors were Savour Ventures and 500 Startups – both investing in two F&B start-ups.

“As the total number of deals has been increasing steadily over the last few years, it is expected that the absolute number of F&B deals will increase as well,” Kerkhof added.

The top three industries with the highest amount of funding were real estate, e-commerce, delivery and transport.

Bahoshy cited some ME F&B start-ups like Dubai-based office lunch delivery company ‘Lunch:on’, and Egyptian junk-free food delivery app ‘Yumamia’.

Lunch:on had recently closed its Series A round with US$5.5 million, and Yumamia with US$2.8 million.

“This is encouraging as you see the ecosystem maturing and moving away from pure infrastructure, like transport and logistics, to more interesting and diverse industries,” Bahoshy said.

Kerkhof said, “We have historically seen that delivery & transport and e-commerce have been large sectors, with FinTech gaining prominence recently.”

“However, F&B is gaining prominence in the region, with acquisitions like Talabat and RoundMenu, as well as F&B-specific investors like Savour Ventures.”

Bahoshy said, “Governments across the region are being more transparent than ever before. You are slowly seeing a decrease in the barriers to enter new markets.”

He thinks, “I don’t believe it is necessarily the government’s primary role to solve funding challenges for start-ups, where they can have a bigger influence in facilitating an environment for start-ups to prosper. They should strive to create cost-effective environment for start-ups to set up, a cost-effective process to fail and still be incentivised to try again.”

“Now is the time that each country can clearly define its proposition, not only for local start-up growth but also scalable start-ups into their geographies.”

“Articulating the ‘how’ and ‘at what cost’ to grow into countries such as the UAE, Saudi Arabia, Lebanon, Jordan, or any other countries across the region, will result in more scalable and successful startups.”