As we head into 2025, I believe that the MENA region’s venture capital ecosystem is going to benefit from declining global interest rates and a renewed global interest in risk assets. This shift is going to present a clear opportunity for startups and funds across the region. I just hope that we have collectively learned our lessons from the past and continue to highlight the importance of measured, disciplined growth. I hope that the days of irrational exuberance, growth at all cost and sky high valuations don’t make a comeback.
The Return of Risk Assets
The signs we are seeing in the US, with several rate cuts already and a new administration likely to support the continued decline of interest rates closer to the days of ZIRP, are that risk assets are likely to be where exposure will shift towards. We’ve already seen all time highs in the crypto markets, continuing advances in the stock market, and with that, an IPO window likely to open up again and reset benchmarks for exits in the private markets. Private credit, which was all the vogue over the past few years, is already seeing declines and stresses as benchmark rates go down.
All this means good times are likely ahead for the global VC ecosystem. And that usually translates into good times for the MENA VC ecosystem. We’re already seeing global funds at the growth stage invest in startups in MENA such as General Catalysts investment into Lean and General Atlantic’s
investment in Eyewa, and I expect this trend to continue. Both the pull factors of funding coming to these global funds from the MENA region, expecting investments in our region in return, as well as the push factors where our startups are more attractive when things get overheated in the US, will play a role in the next cycle.
MENA’s performance in 2024 underscores its ability to capitalize on these trends. Despite a 13% decline in total funding to $1.3 billion, non-mega deal funding grew by 7%, indicating a healthy appetite for early-stage investments. International investor participation doubled to 34%, and with over 30% growth in active investors year-on-year, the region has already laid the groundwork for a strong rebound in 2025 based on data compiled by Magnitt.
As we look ahead, this influx of capital is going to accelerate. With early-stage startups and growthstage companies alike poised to attract funding, 2025 could see a 15%-20% increase in deal volumes across MENA. However, the challenge remains to ensure this growth is grounded in reality rather than hype.
One thing has become worrisome to note – our cycles, across all the investment landscape, have become shorter than at any time in the past. This could result in the dangerous game of investors in long term assets, like Venture Capital, trying to time the market, which is absurd. Our investment cycles extend beyond any short term market moves, and should remain so – as our investment horizons are 5-7 years.
AI: Table Stakes, Not a Differentiator
For many startups entering 2025, AI has become a foundational tool, not a unique advantage. This echoes the transitions seen in previous tech revolutions:
• In the 2010s, cloud computing went from being a differentiator to a baseline necessity for scalability and efficiency.
• Similarly, mobile-first strategies transformed from innovative ideas to industry standards as smartphones became ubiquitous.
Today, AI is following the same trajectory. While its potential is vast – improving efficiency, enabling personalization, and unlocking new business models – it is no longer sufficient to stand out solely by leveraging AI. When a startup thinks just throwing the word AI into their pitch is enough, that just doesn’t cut it. Tell me how AI is being used to offer a better experience, a better product, a cheaper operations system compared to what is already out there. Just integrating ChatGPT into a chatbot in your site or app to talk to customers does not make you an AI startup.
Investors and customers alike now expect startups to integrate AI into their offerings. What truly sets companies apart in 2025 will be how they use AI to solve specific problems, enhance customer experiences, and drive measurable impact.
For MENA startups, this means focusing on practical applications of AI tailored to local and global challenges. Whether it’s using AI to optimize logistics in densely populated cities or enabling more efficient financial inclusion, the emphasis must shift from adopting technology to innovating with it.
Learning from the Past
The 2021 funding boom offers a critical lesson for 2025: unchecked exuberance can lead to unsustainable outcomes. During that period, record-breaking funding rounds and inflated valuations created a landscape where “growth at all costs” overshadowed sustainable business models. As economic conditions tightened, many startups faced challenges, including down rounds, layoffs, and closures.
To avoid repeating these mistakes, the MENA ecosystem must prioritize:
Disciplined Valuations:
Startups should focus on creating value, not chasing inflated metrics. You should be building a real business – your objective is not to raise funds or chase a high valuation, but to build something real. Investors, in turn, must stay realistic and resist the temptation to overpay for deals. The mentality that it doesn’t matter what price you enter into a deal as long as it becomes a unicorn is so wrong on so many levels. Paying $20m for a deal that is worth $10m reduces your potential outcome. if it was going to return you 50x at $10m, it’ll return you 25x at a $20m valuation. Still good, but a lot of upside lost. Valuations rooted in fundamentals like unit economics, market fit, and scalability are essential for long-term success.
Responsible Scaling – Positive Unit Economics are key:
I hope that we have all collectively learnt our lesson about scale at all cost and growing a business with negative unit economics. Instead of chasing hypergrowth, startups should adopt a balanced approach, scaling in line with their resources and market demand, while maintaining a close eye on their unit economics.
Support for Exits:
Although liquidity may remain a key challenge for MENA, we have seen this change in the past few years. We’ve seen the successful IPOs of Jahez, Fawri, Rasan and most recently Talabat. I also see many scale ups targeting a listing in the next year or 2 just from our previous portfolio. If you had asked me when I started investing in startups in the MENA region in 2010 if IPOs were a valid exit path I would have said no chance. Now, we’re seeing more and more viable startups get to the level where they can IPO, with the right support from the leadership in countries in the region. I believe that liquidity will develop as our ecosystem develops and matures and should not be a concern for investors. In addition, we see a lot of healthy secondary activity in startups once they are raising their Series B+ and are at $100m+ in valuation in the region, making it relatively easier for seed investors like us to exit. The only exit path we don’t see as much in our region is strategic M&A, but with time, that too will change.
Avoiding FOMO Investing:
Fear of missing out drove much of the 2021 frenzy. In 2025, let’s not fall into that trap again?
2025 will be a good year for VC in MENA
The venture capital landscape in MENA is set for a good year, supported by positive macroeconomic trends and a maturing ecosystem, and positive global economic tailwinds. We’ll see more funds close in the next year, more deals and more funding, and we may even see an increase of global investors coming back to the region at the later stages.
As an early and nascent ecosystem, we must learn from the past, and the global mistakes of others, and chart a positive and sustainable path for startups and VC in the MENA region in 2025!
