RIYADH: Saudi Arabia has been one of the best performing venture capital markets in the Middle East and North Africa, a major venture capitalist said.
According to Mohammed Al-Zubi, the founder of Saudi venture capital firm Nama Ventures, the Kingdom’s position can be attributed to four main factors.
The first factor was the unprecedented support from the government to facilitate funding programs in the country.
The second was the awareness of family offices and venture capital institutions as an asset class. The third was a growing interest from international investors to invest in Saudi startups and the opportunity they present.
“Finally, Saudi entrepreneurs had reached a high level of knowledge and sophistication,” Al-Zubi explained.
Nama Ventures has been an active investor in startups around the world and currently focuses on early-stage technology companies.
Additionally, the Kingdom has seen a record 76 investors participate in deals made in local startups, with 25% of investors outside the Middle East and North Africa region in 2021, according to the report. industrial research company MAGNiTT.
The report also said the Kingdom saw a 54% increase in venture capital deals year-over-year, with $548 million raised across 139 deals in 2021.
Saudi investors have been the most active in the Middle East and North Africa region in terms of deal participation, in addition to the Kingdom ranking first in amount raised in the first five months of 2022. , according to Wamda’s monthly report.
Start of bursting of a bubble?
With huge commercial traction among Saudi startups, pundits are starting to worry about a global bubble bursting.
Seif Shieshakly, co-founder and managing partner of consulting firm Four Principles, told Arab News that the region is experiencing a bubble burst.
Shieshakly explained that people are jumping into startup investment opportunities without ensuring basic business issues such as sustainability and cash flow, adding that it feels like the dotcom bubble of 2000.
“At the end of the day, you had companies that had very questionable business models, but just because they were intact, they suddenly received ridiculous valuations,” he added.
Four Principles is ranked as the Middle East’s leading consultancy for Lean and Six Sigma management practices, helping large corporations create startups within their business portfolio.
Moreover, experts around the world expect a massive drop in startup funding in the next half of 2022.
The global venture capital funding in May 2022 was the first time in more than a year that the market was valued at less than $40 billion, according to Crunchbase, a startup research firm.
The Middle East and North Africa region also saw a drop in venture capital funding when it saw a 40% month-on-month drop in the value of investments in May 2022 , according to Wamda Capital, an entrepreneurship research firm.
These signs could be taken as warning signs for investors, startups and economies, but venture capital is still booming for the period ahead.
“We believe what is to come is extremely exciting for the startup and VC space in Saudi Arabia. We believe that many Saudi startups have not realized their full potential and have not had the exposure and value enjoyed by their counterparts in other geographies,” Al-Zubi explained.
Another Saudi venture capital firm, BIM Investment, is doubling down on its presence in the Saudi market by announcing in June the launch of its second fund, BIM Investment II, a $32 million fund aimed at the Kingdom.
“We see that the Saudi market today is competitive and growing rapidly, creating qualitative challenges that allow emerging companies to have many opportunities,” Rayan AlSharif, partner at BIM Investment, said in a statement.