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Saudi Arabia pumps funding into startups as it vies for Mena No 1

Co-working spaces, such as this one in Riyadh, complement state-led VC funding initiatives for Saudi startups Jan Kulmann / DPA / Picture Alliance via Reuters Connect
Co-working spaces, such as this one in Riyadh, complement state-led VC funding initiatives for Saudi startups
  • $1.3bn in Mena VC this year
  • Riyadh made up 39% of total
  • UAE seen as more mature market

Saudi Arabia is piling money and government support into its venture capital industry as it competes with the UAE to attract startups.

The VC market across the Middle East and North Africa raised $1.3 billion from January to September 2024 – and Saudi Arabia “led the region”, said startup analyst Magnitt.

The kingdom secured “39 percent of Mena’s total funding” and activity was driven by $100 million-plus “deals like SallaApp’s $130 million round” in March, according to Magnitt’s Q3 report.

The UAE was the region’s “most active market”, Magnitt added, “with a 12 percent increase in deal volume, accounting for 38 percent of all deals”.

“Egypt also showed strength, with sub-$100 million funding rising by 36 percent year on year, thanks to increased activity in the fintech sector.”

The $1.3 billion figure is down 13 percent on the same period last year

In August, 13 Emirati startups raised $55 million while nine Saudi ones raised $16 million, according to investment and research platform Wamda.

Analysts point out that Saudi Arabia is channelling its support through numerous entities as it tries to become the region’s top startup destination.

It previously offered $888 million in venture capital for companies in the digital payments, gaming and artificial intelligence fields. VC funding in ecommerce startups alone totalled $428 million in 2023. 

Saudi Arabia’s large population can offer startups greater potential to expand, according to industry observers, while the UAE is a maturing market with more M&A activity.

Startup funding in the kingdom comes from businesses such as Saudi Venture Capital Company, the small and medium enterprise financer Monsha’at, the General Investment Authority, Aramco Ventures, Wa’ed Ventures and the Public Investment Fund’s Jada. 

Anil Kumar, senior vice president for Tasc Outsourcing, said this proactive approach had been fundamental in developing the Saudi private sector, helping non-oil activity to increase so it accounts for more than half of GDP. 

“This surge in funding supports the scaling of startups and also stimulates job creation and enhances private sector growth,” he said. 

One of the kingdom’s first accelerators was Blossom, launched in 2017. It works with government entities and corporations such as banks and tech companies. 

“What we do is the build-and-operate model, owning stakes in startups,” said founder and CEO Emon Shakoor, adding that Blossom has helped 3,000 companies from nine countries to do business in Saudi Arabia. 

“If someone wants to raise $1 million, we help them with the first $300,000 and others can complete their funding round. We’re all winners, we all have stakes in it,” she said. 

Blossom also helps Saudi startups with free document templates in Arabic and English, drawn up by lawyers.

Farah El Nahlawi, Magnitt’s lead researcher covering Saudi Arabia, points out that startups in the fintech sector have been able to access the open banking model since 2022. This allows third-party vendors to check the transactional history of small new companies so banks feel comfortable providing loans. 

Outside fintech, however, the government has pushed the VC funding model for startups, particularly in artificial intelligence

“If you want to create a buy-now, pay-later fintech, there is open banking for that model of startups, but not for the startup ecosystem overall. It’s heavily reliant upon venture capital and accelerators,” El Nahlawi said.