SME

PANDEMIC FAILS TO DAMPEN SAUDI START-UPS’ FUNDING PROSPECTS

The kingdom’s start-up segment saw record funding in 2020, as Saudi Arabia witnessed the global trend of new businesses being set up during the coronavirus crisis.

Last year was clearly a time for great upheaval for the global economy, but it has also left gaps in the market and opened up opportunities forenterprising executives.

The kingdom’s burgeoning start-up culture and an inviting platform for small teams with big ideas to find funding and venture capital led to a burst of activity in 2020.

“Against the backdrop of COVID-19, the KSA start-up ecosystem was the fastest growing of the top three leading hubs in MENA,” according to Magnitt, which tracks SMEs and start-ups in the MENA region. “In H1 2020, USD 111 million was raised with notable funding rounds including the USD 36.5 million and USD 18 million raised by food and grocery delivery start-ups Jahez and Nana, respectively.”

All told, USD 152 million were raised in the year in the kingdom’s start-up segment, a dramatic 55% increase compared to 2019 which saw USD 98 million raised for 65 new businesses.

The year saw 88 investments announced in the kingdom in 2020, with 67% of deals closing in the first half of the year. Among the most active investors were OQAL Angel Investors, Saudi Venture Capital Co., 500 Startups, Impact46, KAUST and Saudi Aramco.

“More international investors were active in Saudi Arabia in 2020 than in 2019,” Magnitt said in its report. “Although the number of the venture capital institutions remained the same in 2020 (47), 17% of them were based outside of the kingdom, an 11% increase from 2019.”

In a sign of growing importance of e-commerce in a digitising world, the segment saw a fifth of all transactions, followed by 10% in fintech. IT solutions saw 8% of all funding deals, while education accounted for 6% of all deals. 

In terms of the value of funding, e-commerce dominated with 45% of all monies being channelled into the sector.

Jahez, the food delivery company, raised USD 36 million – the biggeststart-up deal in the country in 2020. The company’s Series A funding round was led by Impact46, an advisor focused on alternative investment opportunities in Saudi Arabia.

“Our starting point when creating Jahez was to give restaurants the tools they need to remain competitive in a digital world. In the current climate in particular, we help restaurants, supermarkets, pharmacies, and other retailers gain access to a new digital channel and generate revenue by selling through Jahez,” said Ghassab Al-Mandil, co-founder and CEO at Jahez.

“With this funding round, we will further invest in building differentiated offerings, plugging the white spaces in the ecosystem, expanding in new verticals and developing our in-house technology, while keeping excellent customer experience at the core.”

 

The focus on start-ups and SMEs will only accelerate as the kingdom embraces new technologies and as COVID-19 accelerates digitalisation.

“During the pandemic that hit the world in 2020, it became clear that traditional companies are not as safe as they thought,” Talal Alasmari, founding partner at Raed Ventures, told Magnitt. “Amidst this global crisis, I can seemingly visualise that the Kingdom of Saudi Arabia will have growth in embracing new technologies. I believe that the recent fast-paced development in technology will continue to place the kingdom among countries that adopt modern technologies, which will change all sectors in it permanently.”

Saudi banks and financial institutions are also playing a major role in boosting funding for small to medium enterprises. Credit facilities to SMEs stood at SAR 176 billion by the third quarter, compared to SAR 115 billion during the same period last year, according to the Saudi Central Bank. 

The financial institutions raised funding for all segments, including micro, small and medium enterprises during the third quarter of 2020.

To add to financing options for SMEs, the Saudi Central Bank (SAMA) announced new rules in January to regulate debt crowdfunding activities. The new rules stipulate that crowdfunding companies must have a minimum paid-up capital of SAR 5 million for a license, although the central bank has the authority to raise or reduce the minimum capital according to market conditions.

The central bank aims to achieve several goals with its new rules, including attracting a new segment of investors and budding companies, encouraging innovation in financial services and providing modern financing products that can meet the needs of the beneficiaries, SAMA noted.