The Rise of Entrepreneurship in Saudi Arabia: A Transformative Landscape
By Elias Aad
How Saudi Arabia's Entrepreneurial Ecosystem Is Reshaping the Nation
Over the past five years, Saudi Arabia’s entrepreneurial scene reached unprecedented heights: a staggering 87% annual growth in the number of startups (2017-22), the birth of the first Saudi unicorn with Jahez's IPO, and a record-breaking surge in VC funding, propelling the nation to second place in the GCC. A remarkable achievement in such a short time frame. As trusted advisors to key players Saudi Arabia;s ecosystem, we have observed this trend firsthand and identified a four key drivers.
1. Access to Talent
Vision 2030 objectives are geared towards boosting local employment and upskilling talent to enable the realization of ambitious goals, particularly in future-oriented industries. For instance, Saudi Arabia has set out to train 40% of its workforce in fundamental data and AI skills.
Substantial investments have been deployed to bolster local tech capabilities, encompassing a suite of government-led initiatives that were introduced in 2022 to enhance the digital skills of a hundred thousand (100,000) Saudi nationals, with a specific emphasis on AI, programming, cybersecurity, and gaming. An additional USD 1.4 bn have been earmarked to promote entrepreneurship and support digital content.
Demand for specialized talent will only continue to grow following ongoing Vision 2030 investments. Fortunately, the Kingdom boasts a youthful and tech savvy population - more than 50% of its citizens are below the age of 30 - which will partially fulfill domestic talent requirements. Any remaining skill gaps could be bridged through attracting top-tier talent from the region and beyond. The current global tech crisis that has severely impacted traditional startup strongholds presents a compelling opportunity for Saudi Arabia to lure and retain world-class talent and capabilities.
2. Regulatory Reforms
A progressive regulatory framework has been an instrumental catalyst for the growth of entrepreneurship in Saudi Arabia. The government has undertaken significant initiatives to stimulate private sector growth, encourage foreign investments, and enhance the overall business environment, all of which align with the nation's core national objectives. As part of Vision 2030, Saudi Arabia has set an ambitious target to increase the GDP contribution of SMEs from 20% to 35%, thereby underscoring its commitment to fostering a thriving entrepreneurial ecosystem.
The modernized regulatory landscape is best exemplified by the establishment of a one-stop-shop for business registration and licensing, which has streamlined the process of starting a new business, and the introduction of the new Saudi Companies Law. In force as of January 2023, the new law reduces statutory requirements and procedures, whilst also introducing a new company form aimed at facilitating the establishment of startup and VC operations in the country.
The recent regulatory changes, which have already served as a litmus test, are just the beginning of a long-term strategy to position the nation as a premier destination for startups and businesses.
3. Access to Funding
Saudi Arabia's funding landscape has experienced an exceptional surge, reaching a record high of USD 987 million in 2022, a remarkable leap from the USD 59 million recorded in 2018. Despite the global economic slowdown, Saudi startups demonstrated a year-on-year increase in VC funding by an impressive 72%. This growth has been largely attributed to the support of both public and private institutional investors.
Local VC funding growth has partially been led by the emergence of a category of Tier 1 private VC investors with Saudi origin, including names such as STV, RAED Ventures, Impact 46 and many more. However, government-backed initiatives have also played a crucial role in ensuring market liquidity, notably with the establishment of funds like Jada and SVC, boasting a combined committed capital of USD 2.2 billion.
Saudi Arabia's VC funding growth is expected to persist, as the nation seeks to close the gap to leading startup nations. Both supply and demand factors are expected to drive growth, with larger funding rounds as the local startup ecosystem matures and capital availability increases. For example, during the February 2023 LEAP conference held in Saudi Arabia, nine new funds with a total of USD 2.4 bn of dry powder were announced.
4. Establishment of Ecosystem Enablers
Drawing on learnings from successful startup ecosystems worldwide, accelerator and incubator programs have proved crucial in nurturing innovative startups through mentorship, training, and networking opportunities. Similarly, in Saudi Arabia, we have witnessed a wave of newly introduced programs supporting entrepreneurship across different investment stages.
Programs such as TAQADAM, Misk Launchpad & Accelerator and the Garage have played an important role in strengthening the local startup funnel by focusing on early-stage startups. This has been amplified further, via the entry of various leading international operators, such as Techstars, Endeavor, and 500 Startups.
We expect the upward trend in entrepreneurial initiatives to be driven by the launch and expansion of novel programs aimed at nurturing startups through all stages of maturity. Notably, the Misk Foundation, MCIT, and the National Technology Development Program have introduced the Saudi Unicorn program, a promising initiative with the goal of supporting early-stage startups to achieve unicorn status.
The rise of entrepreneurship in Saudi Arabia is a result of several key ingredients coming together, including access to talent, regulatory change, access to financing, and the establishment of key ecosystem enablers.
The groundwork laid in the last five years, will play a key role in fostering the next generation of local startups. As the country continues to drive towards the realization of Vision 2030 objectives, fundamental drivers of entrepreneurship will only solidify, all of which is expected to contribute to a continued positive trajectory for the entrepreneurship ecosystem in Saudi Arabia.
This article has been coauthored by Cyril Nasr and Emanuel Brendarou. We would like to express our sincere appreciation to both authors for their valuable contributions.