SME

Saudi Arabia has outpaced its regional peers in annual venture funding, achieving an impressive 33% year-on-year (yoy) increase despite a 23% decline in funding across the Middle East and North Africa (MENA). This marks five consecutive years of expansion, solidifying its status as leader in the region’s venture capital space.

Investment-friendly public policies have played a crucial role in attracting MENA start-ups to establish their bases in the kingdom. Additionally, significant deals involving Tabby, Tamara, Nana, and Floward have propelled fintech and e-commerce to the forefront, with these sectors experiencing 170% yoy funding growth, according to the General Authority for Small and Medium Enterprises (Monsha'at).

Saudi-based investors are also significantly contributing to the country’s thriving ecosystem, accounting for 57% of financiers in 2023. The country’s ability to attract local investors and sustain growth in key sectors have made it a formidable force in the MENA venture capital landscape.

According to the latest government data, total credit facilities allocated to SMEs by the private sector increased by 17.8% yoy, rising from USD 60.8 billion in the third quarter of 2022 to USD 71.6 billion in the same period of 2023. The growth, driven by robust lending from banks and financial companies, indicates the private sector’s continued confidence in Saudi SMEs. Medium-sized enterprises (50-249 employees) were the biggest beneficiaries, receiving 59% of total lending.

BILLION DOLLAR MARKET

Last year, the kingdom’s venture capital ecosystem reached unprecedented heights.

“For the first time, Saudi Arabia positioned itself at the forefront of the MENA region in terms of total venture capital funding, demonstrating a robust 33% yoy growth,” according to a report by Saudi Venture Capital (SVC).

“This achievement is even more commendable considering the global market turmoil and macroeconomic challenges faced worldwide. As the kingdom surpasses the USD 1 billion mark for the second consecutive year, reaching USD 1.4 billion in VC funding, it’s clear that we are witnessing the emergence of a vibrant, innovative, and resilient entrepreneurial landscape.”

In 2023, Saudi Arabia ranked first in the MENA region for total venture capital funding. The kingdom's VC ecosystem reached a record-breaking USD 1.383 billion in capital deployed, marking a 33% increase compared to 2022. This boosted Saudi Arabia's contribution to the MENA region's total funding from 30% in 2022 to 52% in 2023.

Despite a 20% yoy reduction in the number of deals, Saudi Arabia advanced to become the second most transacted country in MENA in 2023, accounting for 26% of total deals, up from 22% the previous year. The impact of mega deals was significant, with the average deal size rising by 73% from USD 7.4 million in 2022 to USD 12.8 million in 2023.

WHERE INVESTORS PUT THEIR MONEY

Mega deals reached an all-time high of USD 879 million across four deals in 2023, showing a 138% annual growth from 2022. Deals involving buy now pay later (BNPL) start-ups Tamara and Tabby, and e-commerce/retail start-ups Floward and Nana, captured 77% of all MENA mega deals (USD 100 million+) in 2023, up from 33% in 2022.

FinTech emerged as the leading industry for investors in Saudi Arabia, securing USD 704 million across 30 deals in 2023. E-commerce/retailalso saw rising interest, landing second in deals and funding, accounting for two of the four mega rounds and three of the top five deals in the kingdom in 2023.

Saudi Arabia recorded a growing funding gap compared to its MENA peers in 2023, being the only country among the Top 3 to see year-on-year growth in investments.

Five years ago, the funding gap between the UAE and Saudi Arabia was USD 502 million; in 2023, the gap increased to USD 692 million in favour of the kingdom. In terms of transactions, the gap narrowed from 53 in favour of the UAE five years ago to 33 deals in 2023.

In 2023, 114 investors backed Saudi-based start-ups, nearly matching the 116 investors in 2022. About 56% of these investors were from the kingdom. In contrast, the MENA region experienced a 30% yoy decrease in the number of investors, with only 45% coming from outside the region in 2023.

RIYADH EXPO 2030

Riyadh Expo 2030 is also expected to be a major boon for Saudi SMEs. To be housed in a strategic compound in the north of the Saudi capital, the six-month event will foster key knock-on opportunities for SMEs in the design, hospitality, transport, clean energy, and infrastructure sectors in particular.

“SMEs across the ecosystem will also benefit from nearly USD 1 trillion being invested in Riyadh over the next seven years, especially firms that prioritise sustainability, innovation, and creativity in sync with broader diversification eorts led by Vision 2030,” according to Monsha'at.

The government aims to invest USD 92 billion to make Riyadh more sustainable by 2030. Around 94,000 hectares of degraded land have been rehabilitated, and 43 million trees planted in the capital under the Saudi Green Initiative (SGI). In addition, the 176-kilometre-long fully automated Riyadh Metro will facilitate transportation and mobility during the six-month event and beyond. All these would have strong procurement components for SMEs.