Saudi Arabia: Supercharging Startup Opportunities
SOURE: Dubai World Trade Centre
As the Kingdom amps up its business-friendly credentials and welcomes a new wave of entrepreneurs, Kais Al Essa, Founding Partner and CEO of venture capital firm Vision Ventures, talks opportunity and accessibility
Supercharging opportunities for foreign startups is a high-profile focus for Saudi Arabia. While our nearest neighbours have historically been the go-to hubs, in future a much higher percentage of entrepreneurs are expected to venture into the Kingdom.
The Saudi Vision 2030 has flagged small and medium (SME) businesses as important agents of economic growth to help create jobs, support innovation and boost exports. More importantly, it has also pledged to raise SME GDP contribution from 20 per cent to 35 per cent by 2030.
Speaking at the World Economic Forum regional meeting, held in Jordan in April 2019, the country’s former Minister of Energy, Industry and Mineral Resources, Khalid Al-Falih, shared his prediction that, by 2030, ‘companies we don’t know today will be among the top 20, 30 companies in Saudi Arabia.’
And this focus isn’t just directed at Saudi entrepreneurs, with a raft of pro-startup regulatory and legislative moves aimed at positioning the Kingdom as an attractive destination for international startups looking to access the region.
Starting with the 2018 announcement that foreign nationals would be permitted full ownership of Saudi-registered companies and the launch of a special entrepreneurship licence, the raft of game-changing measures has continued to gain momentum.With the Saudi Arabian General Investment Authority (SAGIA) reporting a rise in foreign direct investment (FDI) of 127 per cent in 2018, and the country ranked fourth best reformer among the G20 countries by the World Bank in 2018, the business environment for tech startups is extremely positive.
Opening up for new opportunities
One of the fastest-growing startup and VC markets in the MENA region, Saudi’s figures look promising. A September 2019 report from online entrepreneurship tracking platform MAGNiTT noted an 82 per cent increase in year-on-year funding in the first six months of 2019, with a 44 per cent rise in deal volumes and a total of US$40 million invested into Saudi Arabia-based startups. This follows US$48 million-worth of investment ploughed into startups in 2018 across 34 VC deals.
From our perspective, this year to date we’ve seen one Saudi startup increase its monthly sales tenfold in just 10 months of operation, and another report a sevenfold increase in the period between our verbal agreement and inking of the deal.
One of the e-commerce tech startups we invested in made a single transaction deal valued at SAR1.2 million (US$320,000), in what is possibly the largest single e-commerce transaction in the MENA region.
Looking at our own story, Vision Ventures began as a small tech firm in 1989 with a bulletin board service to enable electronic communications in the pre-Internet era, and grew to become the first company to offer Internet services in the Kingdom with the launch of sahara.com in 1994. As we grew, we gained invaluable knowledge about how tech entrepreneurs can raise capital and develop their business through experience rather than access to a bank of established resources.
One major sticking point we see with tech startups is an inability to raise that vital first ticket investment because there simply aren’t enough funds in the region or there’s not enough money available for the initial investment. The angel community is also developing; so there’s lots of room to grow and improve in both areas.
But it is changing for the better with the advent of entities such as government-owned Saudi Venture Capital (SVC), which is part of Monsha’at, the Saudi entity established to support SMEs and MiSK Innovation, which is a division of Saudi Arabia’s non-profit MiSK Foundation, founded by HRH Crown Prince Mohammed bin Salman to encourage learning and develop leadership skills among young people.
MiSK Innovation has a number of fantastic programmes in place, including the MiSK 500 MENA Accelerator Program and the Misk Growth Accelerator powered by Seedstars and Vision Ventures. These programmes are positioning the Kingdom as an increasingly appealing destination for startups looking for expert on-the-ground advice, support and smooth entry to market.
Removing red tape
A huge plus for inbound tech startups is ease of access. If I was writing this article a year ago, it would have been a very different story. We’ve seen a virtual overhaul of bureaucratic processes in 2019, with newly streamlined processes dramatically cutting the time it takes to set up your business.
SAGIA’s subsidised entrepreneurship licence offers inbound startups an accelerated process whereby they can obtain the necessary licences. It also comes with an exemption from foreign investment tax.
Startups only need two essential pieces of paperwork to kick-start the process: the articles of association of the company and an acceptance letter from an approved SAGIA partner, such as business incubators and select venture capital firms. A couple of our startups have gone through the setup process and I’m happy to report that it was smooth sailing, with the licence released within two weeks.
The usual commercial licences are also required to start operations, and these are usually dependent on a startup’s readiness. The SAGIA website has a handy one-stop-shop facility whereby you can complete the requirements of 10 or more government entities in one gateway location. This can all be done remotely, and it’s only at the very end, when documents require signature and delivery, that you need to visit the country.
SAGIA also reduced the time required to process a new business licence from several days to a mere four hours and removed unnecessary paperwork from the process. The only requirements are financial statements and the certified commercial registration. And it’s clearly making a difference, with 267 new licences issued to foreign investors in Q1 2019 – an increase of 70 per cent against the previous year.
We’ve also seen the unveiling of the Privileged Iqama green card style residency scheme, which permits eligible entrepreneurs, investors and highly skilled expatriates to work in the Kingdom without needing a local sponsor or employer.
A helping hand for MENA startups
Ambitious Dubai-based tech startups looking for a helping hand in the seed stage can benefit from the MiSK 500 Accelerator Program. A partnership between US-based VC firm 500 Startups and MiSK Innovation offers fledgling entrepreneurs with sound business ideas the opportunity to get a hotly contested foot in the door.
Now in its second year, it was created to help accelerate innovation and entrepreneurship by introducing Silicon Valley techniques to a small hand-selected group of young MENA-based startups.
Hands-on homegrown support
Local startups can call on the resources of Monsha’at, Saudi Arabia’s general authority for SMEs. The entity works with local authorities to do away with a host of obstacles impeding sector development, from administrative to regulatory and technical, and has introduced various stimuli packages to accelerate startup success.
It also established a support centre in Riyadh that offers hands-on programmes to help entrepreneurs and startups navigate new business challenges, with plans to open additional centres across the country.
Monsha’at’s flagship event, Biban (‘doors’ in Arabic), offers a wide-ranging suite of hands-on advice and support for startups at different stages of their evolution and opens the doors of commerce for tech entrepreneurs. Support includes help with ideas through to inception and building the product, to business growth, funding and more.
The roadshow event is held in several cities including Riyadh, Dammam, Jeddah and, most recently, Hail. Earlier this year, Monsha’at announced that its US$213 million indirect lending initiative has benefited 824 SMEs to date and its Saudi Venture Capital (SVC) offshoot, has already signed letters of intent with six VC funds to invest over US$133 million.
Nurturing the law of attraction
Further down the line, and an issue that needs to be addressed, is the challenge that MENA startups face in terms of scalability and growth. The initial set-up options are attractive but, once product-market-fit is achieved, taking the next step towards significant growth is a problem.
A comprehensive mentorship programme was urgently needed for the whole region and this is why we set up a three-way accelerator, through our joint agreement with MiSK Innovation and Seedstars. The MiSK Growth Accelerator by Seedstars and Vision Ventures focuses on post-seed startups and helps them really drive their growth. Our mentorship programme draws on Saudi market expertise from a line-up of more than 30 local, MENA-based and internationally renowned mentors, offering selected startups unprecedented access to the strong mentorship and guidance needed to achieve ‘rocket-speed’ growth via a three-monthacceleration programme that offers a mix of online mentorship and Riyadh based bootcamps.
And there’s more good news for startups weighing up the Kingdom’s appeal. In April this year, SAGIA launched the Venture initiative through its Invest Saudi communications platform. A move designed to attract global VC firms to the country as a ‘future-ready investment destination’, more than 20 companies from the UAE and Egypt to China, Singapore, the UK and USA have already come on board.
The initiative promises streamlined licensing procedures for VC portfolio companies with instant licences fast-tracked in less than three hours, effectively eliminating the accelerator/incubator middlemen. In tandem, an SVC initiative that co-matches VC and angel investor funding for stringently approved startups, is an exciting programme that further cements the government’s commitment to fostering a healthy startup sector.
The importance of adding value
While the physical process of priming your startup for business is relatively easy, there’s one major consideration that eager tech entrepreneurs often overlook: what’s in it for the country? What is the added value your business, product or service will bring to the market and the Saudi economy?
With emerging and rapidly evolving technologies such as 3D printing, autonomous transport, big data and the Internet of Things (IoT), there are endless opportunities to innovate and help transform entire sectors. But, to get a foot in the door, startups must first be clear on how their offering will help benefit industry and/or society, and be able to communicate that articulately.
On a more granular level, at the planning stage, you need to think about issues and opportunities such as Saudisation, what processes you can deliver locally, how you plan to integrate with the community and what kind of products, ingredients or resources you can source within Saudi borders.
It is also essential to understand the local culture. A great example of this is the Careem Saudi Arabia success story which eclipsed Uber’s attempts to capture the market. Careem employed local Saudi marketers and team members who understood the needs of the country and worked around them to add a high level of community value, which earned it acceptance in the market.
This collectively adds real value and will make your startup ultimately more sustainable in what is undoubtedly a dynamic marketplace. In the last year we’ve seen a significant increase in startup interest, both domestically and also from the MENA region and the rest of the world.
This is immensely encouraging and exciting because it adds diversity to the country’s economic offering and identifies gaps that new value-added businesses can fill as we move towards 2030. Of course there will always be a degree of risk for every startup, particularly in the rapidly evolving tech sphere, but each successful entrepreneurial business is an endorsement of Saudi Arabia’s incredible investment potential.