Saudi Arabia's start-ups gain record amount of funding in first half

Despite the ongoing Covid-19 pandemic, a record number of venture capital deals were done in the kingdom in the six-month period

The agreement will help boost the liquidity in the market and provide more mortgages to encourage home ownership. Reuters.

Saudi Arabia's start-ups sealed a record amount of funding in the first half of 2020 as investors targeted later-stage businesses, while the number of deals done also hit new highs as venture capitalists targetted industries positively affected by the pandemic.

Start-ups in the kindgom secured $95 million (Dh348.8m) in funding during the first six months of 2020, more than doubling the amount raised in the first half of 2019 and surpassing even the full-year amount, data platform Magnitt said in its Saudi Arabia Venture Capital Snapshot report.

The number of deals rose 29 per cent to 45, with notable funding rounds including $36.5m for food delivery app Jahez and $18m for groceries delivery app Nana.

The increased activity meant Saudi Arabia ranked third in the Middle East and North Africa (Mena) by number of deals and total funding, behind Egypt and the UAE.

Overall, Saudi Arabia, the Arab world's biggest economy, accounted for 15 per cent of total funding and 18 per cent of deals completed in the Mena region in the first half of the year.

"Saudi Arabia has been one of the fastest growing ecosystems in the region for a few years now, which has continued during Covid-19,” Nabeel Koshak, chief executive of Saudi Venture Capital Company, the Riyadh-based venture capital fund that sponsored the report. “Saudi Arabia has always been an attractive market for local and regional entrepreneurs due to its large market size. In recent years, it has also developed a start-up ecosystem to match it.”

The kingdom has focused on stimulating small and medium enterprises (SMEs) and start-ups as part of Vision 2030, an economic overhaul plan designed to diversify revenue streams, develop local industries, create jobs and reduce the country's dependence on oil. This resulted in a series of government measures that aim to encourage its nascent start-up scene and facilitate access to funding.

The Covid-19 crisis has whet investors' appetite for industries that have seen increased growth during the pandemic such as e-commerce, delivery and logistics, FinTech and education.

E-commerce in Saudi Arabia maintained its dominance as the top industry of choice for investors. It accounted for 67 per cent of total funding and 22 per cent of deals in the first half of the year, as consumers turned to online shopping amid restrictions on movement to curb the spread of the virus.

Some 11 per cent of the total deals in Saudi Arabia were in education technology start-ups, as schools turned to e-learning while professionals sought online courses to upskill themselves. For example, Noon Academy's $13m funding round was among the most high-profile deals during the period.

FinTech start-ups sealed 7 per cent of all deals in the first half of the year while deliveries and logistics businesses took up 3 per cent of the funding raised due to increased demand for last-mile deliveries.

OQAL, 500 Startups, Kaust, Impact46 and the Misk500 Mena Accelerator were the most active investors, accounting for the biggest share of deals during the period.

While the overall number of deals and funding in the kingdom has increased, small businesses and start-ups are feeling the impact of the Covid-19 crisis, the report said.

In response, Saudi Arabia's government has rolled out support measures to relieve the burden on the country's small companies.

For example, the Saudi Arabian Monetary Authority announced initiatives to support SMEs including deferred payments, loan guarantees, funding for lending, support for e-commerce and exemption on all fees for e-banking services.