SME

STEADY FLOW OF FUNDING DEMONSTRATES CONFIDENCE IN SAUDI START-UPS

The kingdom’s start-up space continues to impress, becoming the most funded country in the Middle East North Africa (MENA) and securing the second-highest transactions in the region during the first half of 2023.

Capital deployed dropped 27% during the period compared to last year, but Saudi Arabia still garnered USD 446 million, or around 42% of total funding in the MENA region, according to Magnitt, which tracks regional start-up data. Egypt was a distant second with deals worth USD 305 million, while the UAE was third with USD 239 million.

Saudi Arabia captured 28% of total deals in the MENA region in the first half of 2023. Deals in the kingdom posted their second half yearly decline to stand at 54. On a yearly basis, deals retreated by 44% compared to H1 2022 to stand at their lowest since the second half of 2020. The UAE led the region with the number of deals reaching 60.

The kingdom’s start-ups captured 28% of total deals in the MENA region in the first half of 2023, however, on an yearly basis, deals retreated by 44% compared to H1 2022 to stand at their lowest since the second half of 2020.

“The first half of 2023 broke the record of the kingdom’s mega deal funding which stood at USD 289 million,” according to Magnitt. “The two Series ‘C’ deals closed by Floward and Nana captured 65% of the country’s total funding and were the main propeller behind uplifting the kingdom’s capital deployed in the covered period.

 

INVESTORS EYE E-COMMERCE

Interest in e-commerce and retail was on the rise in Saudi Arabia in the first half of 2023, with the industry accounting for 83% of total funding with USD 368 million aggregated across 11 deals.

“E-commerce/retail was the rising star of industries in the kingdom in 2023 with a 245%YoY expansion in funding mainly due to the two mega deals,” said Magnitt. “MENA’s industry of choice, fintech, slowed its funding pace in the kingdom and landed fourth with an 90%YoY drop in funding. However, SVC’s recent launch of the ‘Investment in FinTech VC Funds’ product with an allocation of USD 80 million promises a more prosperous picture for the industry

The kingdom is in the midst of a growing start-up ecosystem and it aims to raise the GDP contribution of small and medium-sized enterprises (SMEs) from 20% to 35%. SMEs’ operating revenues reached SAR 1.26 trillion in 2021, rising 25% compared to the previous year, according to the latest available data from the General Authority for Statistics (GASTAT). Operating expenditure amounted to SAR 659.5 billion (+33%), while employees’ compensation in SMEs amounted to SAR 155.8 billion, increasing 19% compared to 2020.

 

NEWTOURISM INITIATIVES

Authorities are also setting in motion new initiatives to nurture an entrepreneurial culture in the country. In July, the Public Investment Fund (PIF) launched the Saudi Tourism Investment Company (Asfar) to develop attractive destinations with hospitality, tourism, retail, and food and beverage offerings in cities across thekingdom, eventually creating a local tourism value chain.

Asfar will enable the private sector through co-investment opportunities and by creating an attractive environment for local suppliers, contractors, and SMEs to develop tourism projects and destinations, thereby building a competitive environment that will enhance the variety and quality of the hospitality and tourism offerings.

The Saudi Venture Capital (SVC), another major venture capital company supporting start-ups, is doubling its investment in the global specialty lending fund managed by Partners for Growth (PFG), one of the international and experienced fund managers providing venture and growth stage debt instruments to start-ups and SMEs, bringing the total investment by SVC in the fund to USD 32 million.

Last year, SVC announced its first investment in the venture debt fund managed by PFG, following the launch of the ‘Investment in Venture and Private Debt Funds’ product. The fund will continue to focus on offering venture debt instruments to high-growth start-ups and SMEs in several sectors. 

As a government investment company, SVC was setup in 2018 as a subsidiary of the SME Bank, one of the development banks affiliated with the National Development Fund. SVC aims to stimulate and sustain financing for start-ups and SMEs from pre-seed to pre-IPO by pouring USD 1.6 million through investment in funds and co-investment in start-ups. SVC has invested in 38 funds, which have then invested in 674 companies through 1,257 deals.

“Amidst a thriving landscape of innovation, venture capital activity has surged in Saudi Arabia and across the region,” said Armineh Baghoomian, managing director and head of Europe, Middle East, and Africa at PFG. “However, debt remains harder for venture and growth stage companies to access.We are pleased to expand capital availability through the introduction of custom debt financing and look forward to continuing to support the dynamic entrepreneurial ecosystem.”