CAREEM HERALDS NEW MODEL FOR START-UP SUCCESS

The sale of ride-sharing platform Careem to Uber Inc. marks an important landscape in the business of seeding start-ups and small firms, which have grown to generate billions of dollars in value.

In March, the UAE-based company announced that it was sold to Uber for USD 3.1 billion. Careem is an app-based car service that makes ordering chauffeur-driven cars reliable, safe, convenient, and affordable. Its customers can book a car on the Careem app and website, or by calling a call centre.

Careem was founded in 2012 in Dubai, but quickly found investor backing from Saudi companies that helped it become a major player with operations in at least 14 regional countries, with major markets including Egypt, Jordan, Pakistan, Saudi Arabia, and the United Arab Emirates.

Saudi Telecom was a keen investor, with a USD 100 million direct investment in Careem in 2017. It also invested in the company through two funds: STC Ventures (STCV), which took a 6.4% stake and the Saudi Technology Ventures (STV), which owns a 2.9% stake. The company now stands to receive net proceeds of USD 274 million, according to the company.

Riyadh-based Al Tayyar Travel Group, another early investor in the company, said it stand to gain a gross profit of SAR 1.78 billion from its investments.

Investment firm Kingdom Holdings also sold its stake in the company for USD 333 million in the form of cash and convertible bonds.

“This is a milestone moment for us and the region, and will serve as a catalyst for the region’s technology ecosystem by increasing the availability of resources for budding entrepreneurs from local and global investors,” according to Careem CEO and co-founder, Mudassir Sheikha, who will continue to lead the company and operate the brand separate from Uber.

The mega deal highlights the value of venture capitalism and focus of large enterprises in Saudi Arabia to nurture small companies that will go on to create new champions and unlock wealth and business opportunities.

To boost the efforts, the Saudi Council of Ministers launched the Saudi Arabia Venture Capital and Private Equity Association (SAVCPEA), an industry association representing the kingdom’s private equity and venture capital sector.

The association, launched in February, aims to foster closer collaboration between innovative, high-growth businesses and venture capital and private equity companies.

The industry body and public policy advocate will play a major role in promoting interest and investment in the Saudi private equity and venture capital sector, while also providing key industry data, research and periodic publications. In addition to organising industry-related conferences, workshops and trainings, seminars and consultancy services will also be offered, according to the organisers.

“The VCPEA is committed to developing and accelerating venture capital and private equity investment in Saudi Arabia, with the aim of establishing a robust and globally competitive ecosystem for greater collaboration, innovation and growth," according to Abdulrahman Tarabzouni, the government's appointee as founding chairman of SAVCPEA.

Saudi Arabia was the region’s second most active market for start-ups in the first quarter of 2019, according to Magnitt, which tracks venture capital funding in the Middle East and North Africa (MENA). The kingdom saw 16 deals in the first three months of the year, a 114% increase from the same period in 2018.

Saudi Arabia is also planning to launch a small and medium enterprise bank, aimed at investing in companies in the nascent stages of their development, according to Dr. Majid bin Abdullah al-Qasabi, minister of commerce and investment.

Monshaat, or the General Authority for Small and Medium Enterprises, was established in 2016 to increase SMEs’ contribution to the GDP from 20% to 35% by 2030. It is also working on a number of initiatives to boost SME numbers and expand their capacity to create employment.

In March, Monshaat organised a franchise programme, featuring 800 brands, including 550 international brands, representing 27 countries.

The franchise programme is one of the most important initiatives implemented by Monshaat to build a sustainable commercial franchise industry. The number of opportunities spread through the franchise platform, which was launched in the middle of last year, reached 114 and the number of concessionaires reached 414. The concession was awarded to 784 grantees and the number of applications for concessions was 1,319, Monshaat said.

Meanwhile, the Saudi Industrial Development Fund said that it invested SAR 9 billion last year, which contributed to the establishment of 108 industrial projects with total value of around SAR 35 billion.