Nabeel Koshak: Developing the venture capital market in Saudi Arabia

The Saudi government has been particularly proactive in nurturing its entrepreneurship sector, the result of which is a landscape of rapidly growing startups. As part of its Vision 2030 plan, designed to diversify the kingdom’s economy, several government-led initiatives have helped increase access to finance, ease the founders’ journey, and attract global talent to the country.

A flagship initiative is the Private Sector Stimulus Initiative (PSS), under which Monsha’at launched the Saudi Venture Capital Company (SVC), a fund of funds endowed with SAR 2.8 billion (750 million dollars) to invest. With its sector-based approach and focus on closing investment gaps in the Saudi market, SVC has so far invested $ 239 million in 17 venture capital funds and a total of $ 31 million in co-investment in 63 startups, covering various sectors of logistics and education. , management and entertainment services.

We spoke with Dr Nabeel Koshak, CEO and Board Member of SVC, about the current Saudi venture capital ecosystem.

How do you reconcile being a fund of funds and a VC?

We’re development / performance driven, so we always want to balance the two, and our ultimate success is really to have various VCs that cater to different industries, different stages, and different geographies to make sure they meet. really the funding gaps for startups in the region. We still want to be private fund managers as government venture capitalists, we don’t want to overburden private investors and angel investors.

What are your expectations regarding the performance of the Saudi VCs this year?

For the amount of venture capital deployed, we are certainly seeing growth. For Saudi Arabia, we expect no less than a 50% increase over investor capital last year. We noticed the 53% increase in asset capital in 2020 compared to 2019, and we also noticed the 35% increase in the number of transactions. We find that at least the total invested capital will increase by at least 50% this year from 2020.

What are the most active sectors at the moment?

Technology is now involved in all sectors so all sectors have been disrupted by technology and we are starting to see new sectors coming into contact with technology. For example, health care and education are becoming health technologies and electronic technologies. There is also energy technology and agritech, these are emerging sectors.

Fintech is definitely evolving and I think more funding will be needed, which is why we are now supporting sector funds. We have supported two funds, one on fintech and the other on health.

Healthcare technology is also becoming more attractive and difficult because of Covid-19, and it’s a global trend. Thus, we are seeing more and more startups in the health field evolving.

Saudi Arabia is now among the top three most funded startup markets alongside Egypt and the United Arab Emirates, what drove this growth?

The UAE and Egypt started approaching this sector and focusing on startups earlier, although we see this progression happening here specifically in recent years, mostly due to Vision 2030, and many initiatives have evolved since then, including the two funds of funds. , SVC and Jada.

In terms of regulation, too, the last two or three years have seen an aggressive update. We have the Sandbox and Capital Market Authority (CMA), as well as the Central Bank and Ministry of Investment leading aggressive regulatory updates to make startups easier and faster.

These are the pillars of the changes that have taken place in Arabia in recent years. Yes we got there late but it’s never too late so we try to catch up.

Do you see the pressure to catch up with the Saudi 2030 vision reflected in the Saudi venture capital landscape?

What is interesting is that we [have] achieved most of Vision 2030 goals so far, such as improving the quality of life and diversifying the economy. Most startups tackle these goals and help achieve the Vision. We never imagined fintech would emerge at this rapid pace in Saudi Arabia, or in healthcare or transportation logistics, and they play a crucial role, being backed by VCs, in that achievement.

There are certainly challenges, as always. But we actually see how resilient innovative entrepreneurs are and come up with creative solutions. The nature of these imaginary and evolving business models is to be resilient to challenges and changes.

Do Saudi venture capital firms offer any advantages to entrepreneurs over other companies in the region?

I think the nature of the countries in the region, the size of these countries is not addressable for startups to be high growth companies. So most of the funds that I see are not country driven, they are region driven. Now they might have a higher allocation for specific countries, but what is happening is that the market size for those individual countries is not eligible enough for high growth and fast growing companies.

Funds that significantly contribute to the Saudi market and help startups grow and expand in Saudi Arabia will certainly be a gateway to grow in the GCC, given the size and purchasing power of Saudi Arabia. Arabia.

Is there sufficient transparency between VCs and contractors?

Entrepreneurs in the region now have an interesting maturity in how they do their due diligence in assessing investors and VCs, and that’s healthy for the whole ecosystem. As a nascent market, having more mature entrepreneurs who understand the different fund managers and their investment thesis, which increases the maturity level of the VCs themselves, is very crucial and relevant in the ecosystem.

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