Start-ups in Saudi Arabia, the Arab world’s biggest economy, secured record funding of more than $152 million in 2020 from investors despite a pandemic-driven economic downturn, according to data platform Magnitt.
The funding received was 55 per cent higher compared to the previous year, driven by a record number of investments from venture capital funds and angel investors into the kingdom's start-ups, Magnitt, which tracks start-up investments across the broader region of Middle East and North Africa, Pakistan and Turkey, said on Monday.
Investors concluded 88 funding deals for tech start-ups, a 35 per cent year-on-year rise, bucking the general trend of the broader Mena market, Magnitt said in its annual 2020 Saudi Arabia Venture Capital Report, compiled in co-operation with Saudi Venture Capital Company.
Start-ups in Mena secured record funding of more than $1 billion last year, however the capital was spread across fewer deals sealed mainly during the first half of the year, Magnitt said earlier this month.
The kingdom maintained its third place in the Mena region for both the number of deals and capital invested in the region. Its start-up deal-flow growth rate was the fastest across the region.
“All of these record-highs point towards a thriving and maturing ecosystem in Saudi Arabia,” Philip Bahoshy, chief executive of Magnitt, said.
Last year was a “roller coaster year”, as Covid-19 accelerated technology adoption and highlighted the importance of tech start-ups in emerging venture markets, he added.
“In Saudi Arabia, we’re seeing founders, investors, governments and enablers working together to solve the pain-points of the ‘new normal’, and these numbers are evidence of that.”
The Covid-19 pandemic has pushed the global economy into the deepest recession since the 1930s, upending trade and global supply chains and disrupting the travel and tourism sector. The pandemic, however, has benefitted sectors including technology, healthcare and e-commerce.
The pandemic-driven slowdown has also accelerated technology adoption, prompting venture capital firms and investors to re-allocate funding to tech start-ups that offer digitisation and automation to businesses.
The effect of the pandemic on fundraising was staggered across the start-up ecosystem, but was more evident in the second half, which saw $41m raised in 30 funding deals - a 63 per cent and 48 per cent year-on-year decline in the value and number of deals, respectively.
The full year amount of $152m was driven by the record first half, in which start-ups raised $111m, higher than the total amount secured in 2019.
E-commerce and FinTech retained the top spots by the number of deals, with the two sectors together representing 30 per cent of all deals in 2020. Investments in e-commerce start-ups accounted for 45 per cent of all venture funding in the country, according to Magnitt data.
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UAE currency: the story behind the money in your pockets
The National Archives, Abu Dhabi
Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.
Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
