The Saudi venture capital renaissance

A potent mix of top-down institutional support and bottom-up creative vigor is propelling Saudi Arabia to the helm of regional tech and entrepreneurship. For the Kingdom, promoting social innovation and amplifying national development are symbiotic enterprises, two sides of the same coin. The link has never been more explicit: raising the current contribution of SMEs to GDP from 20 percent to 35 percent by 2030 is listed as a top national priority.

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Owing to this synergy, the Kingdom is rapidly emerging as a hub of innovation and tech-centric development – a transformation made possible by the sector’s central role in Vision 2030, its economic efficacy, and perhaps most importantly, its intrinsic value as a vehicle to empower the country’s youthful majority.

Beyond policy targets, what exactly makes this moment unprecedented for the Kingdom? Saudi Arabia is the Middle East’s largest economy and the fastest-growing G20 country. The region’s most comprehensive socio-economic reform program, Saudi Vision 2030, has been fueling this growth. Two-thirds of Saudi Arabia’s 36 million citizens are under the age of 35. Last year, the Kingdom’s GDP exceeded $1 trillion, achieving its highest growth rate in over a decade. In 2023 alone, the non-oil sector witnessed an impressive growth rate of 4 percent. Between 2018 and 2022, the Saudi venture capital ecosystem has grown at a CAGR of 74 percent. These figures suggest a massive potential for a thriving tech scene – one the Kingdom and its youth are leveraging accordingly. Recent sector-wide developments reveal the magnitude of this commitment.

Thanks to effective funding programs, regulatory reforms, and infrastructure support, Saudi Arabia is attracting both local and international investors. The uptick is two-fold: an increase in the volume and quality of start-up investments and an increase in the quantity of angel investor groups and venture capital funds. It is therefore, unsurprising that of the three MEGA deals ($100M+) closed this year, two came from Saudi-based start-ups, Floward and Nana.

Saudi-based investors are fanning the flames of youth innovation in the Kingdom. Venture capital firms such as SVC, and OQAL Angel Investors, and Waed Ventures are spearheading an unprecedented opportunity for Saudi founders, injecting capital and expertise to help them scale. Funding is only one part of the equation; key regulations have been amended to support entrepreneurs. Significant developments include the entrepreneurial license initiated by the Saudi Ministry of Investment (MISA), Venture by Invest Saudi – an initiative to attract international VCs and their portfolio companies – and friendlier regulatory frameworks for company registration that allow international VCs to expand within the Saudi ecosystem.

National strides, a favorable business environment and youth-centric entrepreneurial verve are collectively nudging start-ups to relocate their headquarters to Saudi Arabia. TruKKer, a tech-logistics company recently made the move from Dubai to Riyadh. Beyond inbound relocation, Saudi start-ups are expanding their corporate footprint and scaling operations regionally. RetailO, a Saudi Arabian e-commerce platform, is a clear case in hand. Ditto for Mohammed Aldhalaan and Aziz Alsaeed, co-founders of Noon Academy, the fastest growing edtech company in the MENA region. This makes the Kingdom an increasingly attractive destination for venture capitalists seeking high-growth opportunities, particularly at a time of economic downturn and the worst funding crunch for venture capital firms in over a decade.

Capital deployment is equally problematic: in America alone, venture capitalists are sitting on a record $300 billion in “dry powder” — money raised that has not yet been deployed. Cash that VCs put into start-ups has plummeted by over 50 percent over the past year. Although much of the slowdown is prompted by soaring inflation and surging interest rates, some forces that stymie growth are less universal. The problem is that, as I write this column, reviving growth and national development has slid down Western to-do lists. Politicians’ election manifestos are less focused on growth than sloganeering – the appetite for reform has withered in the storm of hyperpartisan election cycles.

Saudi Arabia, not unlike its Gulf neighbors, bucked the trend. National development and cross-sectoral growth represent foundational tenets of Saudi public policy today. Equipped by the vision and resources from the top-down, young Saudis view entrepreneurship as a high-leverage conduit through which they can actively participate in both youth empowerment and national development. Start-ups represent an indispensable vehicle to channel young Saudis’ creative potential, ambition, and genuine passion to see their nation thrive. The need for economic diversification is faced with an equally vigorous will to rise above its limitations.

It is, therefore, no surprise that top technology VCs such as Andreessen Horowitz, Tiger Global and IVP are tapping into the unmet – yet rapidly expanding – potential of the Saudi market. Sure, the Gulf represents a highly liquid market relative to the West. Still, the VC influx is a function of positive trends and policy commitments that precede the liquidity crunch VCs are grappling with today. The good news for Saudi and international investors is that many growth-boosting trends are just starting.

Sultan Althari is an advisor, author, and alumnus of Harvard University's Graduate School of Arts and Sciences (GSAS). His research focuses on public policy, national security and the geopolitics of the Middle East. He tweets @sultanalthari

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