Saudi MSMEs see 18% rise in credit offerings as sector thrives

Jeddah - Yasmine El Tohamy - CAIRO: Saudi Arabia’s startup ecosystem ranked first in regional venture funding activities in 2023, amassing an unprecedented $1.38 billion in capital.  

This achievement positioned the Kingdom at the forefront of venture capital funding in the Middle East and North Africa, surpassing the $1 billion mark for the first time, as reported by MAGNiTT in their Saudi Arabia FY2023 report.

During the year, the funding for Saudi Arabia’s startup ecosystem experienced a 33 percent increase from the $987 million raised in 2022, indicating a robust growth trajectory.  

Furthermore, the Kingdom’s share of the total venture capital funding in the MENA region also witnessed a substantial rise, leaping from 30 percent in 2022 to 52 percent in 2023.

MAGNiTT’s report underscores the consistent growth of Saudi Arabia’s venture capital sector since 2019, achieving a compound annual growth rate of 86 percent in 2023.  

Notably, the Kingdom attracted $879 million in mega rounds — individual funding deals surpassing $100 million — reflecting a strong investor interest in the region’s startup scene.

Sectoral breakdown

Saudi Arabia experienced a remarkable growth in its fintech sector in 2023, securing $704 million, marking a 181 percent increase from the previous year.  

This surge was largely propelled by the emergence of two Saudi-based “unicorns”, Tabby and Tamara, each receiving substantial funding rounds that elevated their valuations to over $1 billion.

Tabby, a prominent “buy now, pay later” platform in the MENA region, achieved the milestone of becoming the first fintech firm in the region to gain unicorn status.  

This was realized following a series D funding round in November, which brought in $200 million, catapulting the company’s valuation to $1.5 billion.  

Tabby, initially founded in the UAE, has recently relocated its headquarters to Saudi Arabia, aligning with its plans for an initial public offering in the Kingdom.

In addition, Tamara, another significant player in the BNPL sector, was the first Saudi-born fintech startup to reach a $1 billion valuation.  

This achievement came after securing $340 million in its series C funding round in December.  

These two major funding events played a crucial role in bolstering Saudi Arabia’s position in the fintech funding landscape, representing the top two investment rounds of the year.

The e-commerce sector also witnessed robust performance in 2023, with $428 million raised, a growth of 153 percent compared to the previous year. 

This highlights the Kingdom’s rapidly evolving digital commerce landscape, alongside its growing fintech ecosystem.

The e-commerce sector in Saudi Arabia saw substantial growth in 2023, with major contributions from online flower marketplace Floward and digital supermarket Nana.

Floward, a Saudi-based online platform for flowers and gifts, commenced the year with a significant capital boost of $156 million through its series C pre-IPO rounds.  

This funding was secured in February during the company’s participation in LEAP, a startup and technology conference held in Riyadh.

Following suit, the grocery delivery startup Nana announced a substantial $133 million series C funding round in the same month. These investments underscore the ongoing investor interest and potential in the online retail market.

Additionally, Sary, a business-to-business e-commerce marketplace in Saudi Arabia, successfully raised $50 million over the year. The combined impact of these three funding rounds has been instrumental in enhancing the growth and appeal of the Kingdom’s e-commerce sector.

Investment deals analysis

Saudi Arabia experienced a notable surge in funding in 2023, yet there was a 20 percent decrease in the number of deals compared to the previous year.  

Despite this, the Kingdom accounted for 26 percent of all transactions within the MENA region, an increase from 22 percent in 2022.

Early-stage startups dominated the transaction landscape in Saudi Arabia, comprising 81 percent of all deals. This was followed by series A funding at 11 percent, while Series B and later stages each contributed 4 percent.

The number of exits in Saudi Arabia remained relatively stable in 2023, with 9 acquisitions recorded during the year, just one less than in the previous 12 months.  

In terms of mergers and acquisitions across the MENA region, Saudi Arabia accounted for 21 percent of these transactions, ranking second after the UAE.

Venture highlights

Beyond funding, 2023 also marked significant progress in the Kingdom’s venture capital and startup environment through various initiatives.  

Notably, the Makken Fintech program was launched by the Saudi Central Bank, the Capital Market Authority, and Fintech Saudi.  

This program is designed to support the growth of 150 startups in the financial services sector over a three-year period.

In addition, the Saudi Venture Capital and Private Equity Association, in collaboration with SVC, introduced three programs aimed at developing the sector.  

These programs focused on enhancing the management of venture capital and private equity funds to stimulate industry growth.

The Public Investment Fund’s Jada also contributed to these advancements by launching the fourth edition of its Emerging Fund Manager program, further bolstering the support for venture capitalists in the region.

A regional glimpse

The MENA region’s overall funding landscape experienced a 23 percent year-on-year decrease, primarily due to cautious investor sentiment, according to MAGNiTT’s FY23 MENA report.  

The total funding in the region amounted to $2.6 billion in 2023, a noticeable decline from $3.4 billion in 2022. Additionally, investment deals fell to 477, down from 718 the previous year.

The fourth quarter of 2023 emerged as the most significant period for funding, with $1.19 billion raised, largely thanks to substantial funding rounds by Tabby and Tamara. The first quarter witnessed the highest number of deals, totaling 141.

In terms of country-specific funding, the UAE ranked second with $691 million, experiencing a 45 percent year-on-year decrease. This marked the first time that Saudi Arabia surpassed the UAE in this regard.  

Despite this, the UAE recorded the highest number of deals in the MENA region, with a total of 158 transactions throughout the year.

Egypt observed a reduction in its capital deployment, with Egyptian startups raising $378 million in 2023, a 30 percent drop from the previous year.  

Meanwhile, Morocco made notable strides, entering the top five with $81 million raised, marking a 193 percent increase compared to 2022.

Fintech and e-commerce continued to be the most sought-after sectors regionally, securing $1.27 billion and $502 million in funding, respectively.

When it comes to venture capital firms, Egypt’s Flat6Labs, the US’ 500 Global, and UAE’s Shorooq Partners led the region in terms of the number of deals.  

In capital deployment, the UAE-based Chimera Capital topped the list with $260 million allocated, followed by Saudi Arabia’s STV with $128 million, and Shorooq Partners with $98 million.