HOW IS START-UP ECOSYSTEM IN SAUDI ARABIA FARING?
Saudi Arabia has a growing start-up ecosystem, with several government initiatives and private investment funds aimed at supporting and promoting entrepreneurship in the country. In recent years, the Saudi government has taken steps to diversify the economy and encourage the growth of the private sector, including the development of a start-up ecosystem, under its Vision 2030 Plan. As part of this plan, the government has placed a strong emphasis on the development of a vibrant start-up ecosystem and has launched several initiatives to support entrepreneurship in the country. These initiatives include the creation of incubators, accelerators, and other support programs, as well as the establishment of dedicated investment funds to provide financing for promising start-ups. Additionally, the government has implemented several regulatory reforms aimed at making it easier for start-ups to do business in KSA.
An incubator is a program or facility that provides support to early-stage start-ups, typically in the form of mentorship, office space, and other resources. An accelerator, on the other hand, is a program that helps start-ups grow and develop quickly through intensive mentorship, networking opportunities, and access to funding. In Saudi Arabia, there are several incubators and accelerators that support the growth of the start-up ecosystem. These programs are often run by the government, universities, or private organizations, and provide a range of resources and support to help start-ups succeed.
A sign of growing startup space in KSA is significantly enhanced role that Venture capital (VC), and Private Equity (PE) firms are now playing. In Saudi Arabia, there are several VC firms and investment funds that provide financing to start-ups in the country. These include both domestic and international firms, as well as government-backed investment funds.
PE/VC funding in KSA grew by ~270% year-over-year in 2021 as startups accumulated USD 539 million in funding, while the total number of deals rose to another high of 143 in 2021. In 1H 2022, startup funding in KSA has already surpassed 2021 numbers and stood at USD 584 million.
Chart 1: Startup Funding in KSA, Volume and Value (USD Million)
In terms of sectors, as per the market intelligence platform, Magnitt, Fintech and E-commerce were leading industries in KSA in 2021. While Fintech startups closed 19% of total deals, E-commerce ventures accounted for 31% of capital deployed in KSA in 2021.
Chart 2: Startup Funding in KSA, Volume and Value (USD Million) – Sector Level
As per Forbes, this year’s 50 Most-Funded Startups in MENA have raised nearly USD 3 billion in total funding, with the top 10 alone amassing USD 1.9 billion. The UAE dominates the list, with 22 startups securing nearly USD 1.8 billion combined – over 60% of the list’s total funding. It is followed by Saudi Arabia, which is home to 12 startups that raised a total of USD 520.4 million, while Egypt’s seven entries raised a total of USD 248.6 million.
As of November 2022, there were more than 2,120 startups in Saudi Arabia. (Source: Tracxn). Some of the most funded startups headquartered in KSA include:
Jahez – Saudi Arabia’s leading online food delivery platform – presents a significant success story for startup success in the country. Launched in 2016, Jahez became the first Saudi Tech startup to list on a public exchange when it listed on the Saudi Exchange’s Parallel Market (Nomu) in January 2022 with a market capitalization of USD 2.4 billion.
Government Support for Startups – The Fulcrum of a Thriving Economy:
- Saudi’s Vision 2030 stands firm on three pillars – ‘a vibrant society, a thriving economy, and an ambitious nation.’ Saudi Arabia’s supportive government regulations, coupled with multi-faceted opportunities, aims to stimulate revenues across fortes, predominantly leading SME growth.
- Specifically underpinning Vision 2030, the government is providing regulations and commitments to fuel entrepreneurship and the SME sector. The Saudi General Investment Authority (SAGIA) has also played an integral role in developing the local entrepreneurship landscape, making it more inclusive to the global entrepreneurship scene.
- Saudi Arabia’s Public Investment Fund (PIF) created a fund with a capital of over USD 1 billion, to attract private sector participation through investments in venture capital and private equity funds.
- Saudi Arabia’s government aims to invest over USD 1.2 billion to ‘teach’ digital skills to over 100,000 Saudi nationals, by 2030.
- The Kingdom’s first International Technology Conference ‘LEAP 22’ – organized by Saudi Arabia’s Ministry of Communications and Information Technology, in cooperation with the Saudi Federation of Cybersecurity, Programming, and Drones – saw over USD 6 billion commitment for promoting entrepreneurial activity in the years ahead.
- NEOM, the Kingdom’s USD 500 billion future-proof city, is also under construction, spurring new innovations from entrepreneurs.
In recognition of its growing startup ecosystem, Riyadh hosted the Global Entrepreneurship Congress 2022 and around USD 13.8 billion in investment was committed to promoting entrepreneurial activity in the years ahead.
Apart from private investors and PE/VC firms, government institutions and sovereign funds are taking active interests in promoting startup ecosystem in KSA. These include:
- The Saudi Arabian General Investment Authority (SAGIA), which operates several venture capital funds to support the growth of the start-up ecosystem in the country
- The Riyad TAQNIA Fund, which is a joint venture between SAGIA and the Saudi Technology Development and Investment Company (TAQNIA) that provides financing to tech start-ups in the country
- The Public Investment Fund (PIF), which is a government-owned investment fund that has made several private equity investments in Saudi Arabia
- The Saudi Industrial Development Fund (SIDF), which provides financing to industrial companies in the form of equity investments, loans, and other financial instruments.
- Jada Fund of Funds, in partnership with the Ministry of Investment of Saudi Arabia (MISA), launched “Catalyze Saudi” platform and opened the doors for global fund managers to connect and collaborate with Saudi based innovative startups and VC/PE ecosystem stakeholders
In conclusion, Saudi Arabia’s entrepreneurial ecosystem is scaling exponentially. With Vision 2030 providing a strong pillar for the development of a thriving startup ecosystem, and the policies and funds supporting its prospects being well in place, Saudi Arabia is in strong contention to become the start-up hub of the MENA region.
