Start-ups in Saudi Arabia, the Arab world’s biggest economy, attracted a record $168 million worth of venture capital funding through 54 transactions in the first half of 2021, according to data platform Magnitt.
This is about 94 per cent of the money extended to the kingdom’s start-ups in 2020.
Despite a 7 per cent drop in deals, the funding received in the first half of 2021 was 65 per cent higher compared with the same period last year, Magnitt, which tracks start-up investments across the broader region of Mena region, Pakistan and Turkey, said in its H1 2021 Saudi Arabia Venture Capital report, compiled in co-operation with Saudi Venture Capital Company.
“At a global level, reports highlight that venture capital has hit a record and we are seeing the same in the region,” Philip Bahoshy, chief executive of Magnitt, told The National in an interview.
“This is driven by returning venture capital risk appetite. Last year was a risk-off environment where VCs invested in their portfolios and did not make any new investments. Now we are seeing a return of activity.”
The total funding to start-ups in the Mena region rose by 64 per cent in the first half of the year as investors increasingly allocated more cash to promising companies.
The funding stood at $1.2 billion, more than the $1.09bn raised last year, according to a July report from Magnitt.
Venture capital funding in Saudi Arabia grew at a half-yearly compound annual rate of 33 per cent between the first half of 2018 and the first half of 2021, Magnitt found.
The kingdom accounted for 14 per cent of the venture capital funding invested into start-ups in the Mena region, the report said.
Saudi Arabia surpassed Egypt to be ranked second by share of total Mena funding behind the UAE, while accounting for 22 per cent of the region’s venture capital transactions.
“In Saudi Arabia, there is a very strong government focus, funding programmes such as SVC and Jada [Fund of Funds by the Public Investment Fund] and a sizeable entrepreneur population,” Mr Bahoshy said.
FinTech start-ups received about a fourth of the venture capital investment while e-commerce – a popular sector with investors amid the pandemic – had a 19 per cent decline in the share of total deals and a 46 per cent reduction in deal value, according to Magnitt data.
Together, FinTech and food and beverage start-ups accounted for 44 per cent of the capital invested in Saudi Arabia in the first half.
“E-commerce as a product was very popular during Covid-19 because it solved specific pain points. At a VC perspective, however, the boom in e-commerce was several years ago,” Mr Bahoshy said.
Investors are now looking to solve more infrastructure challenges in the financial services industry, both in Saudi Arabia and the Mena region, he said.
“There is a shift from a more mature industry like e-commerce [sector] to a more opportunistic one like FinTech,” said Mr Bahoshy.
About 75 per cent of investors that backed start-ups in Saudi Arabia in the first half were based within the country, the report said. Of a total of 39 active investors in local start-ups, 56 per cent invested in a single deal while 13 per cent backed more than five deals in the first half, Magnitt found.
Also, early-stage funding accounted for 82 per cent of the transactions closed in Saudi Arabia in the first half, while later-stage deals rose by 7 per cent. Funding rounds of $3m or less accounted for 73 per cent of all deals in the first six months of 2021, compared with 77 per cent of total deals closed across the Mena region, the report said.
Concentration of capital in the top five start-up deals in Saudi Arabia fell to 47 per cent during the reporting period, from 81 per cent in the first half of 2020, according to Magnitt.
E-commerce start-up Sary closed the largest round ($31m) in the country in the first half, constituting nearly all of the industry’s capital. Other companies that raised significant capital include FinTech start-up Lendo ($7m) and agricultural technology start-up RedSeaFarms ($10m), according to the report.