Islamic Finance

Fintech firms dominate Saudi startup scene, attracting venture capitalists

Published 10 Aug,2021 via Arab News - Economy RIYADH - Saudi start ups in the financial technology sector emerged as the most funded in the Kingdom, and more private investors and venture capitalists are rushing to invest in these firms at early stages of their business life-cycle. The number of deals closed recently hit a record with over $150 million in the first half of 2021.

This represents a 1,738 percent year-on-year growth, topping other industries including food and beverage, as well as e-commerce, which was a star sector during the pandemic.

According to a report from Magnitt, fintech startups closed 12 deals during the said period, accounting for 24 percent of the 54 deals across the startup ecosystem in the Kingdom.

“The venture capital (VC) industry is essential in supporting the growth of the Saudi fintech industry,” Nejoud Saleh AlMulaik, director of Fintech Saudi, said in the report.

But this was not only the case in Saudi Arabia, the fintech industry also led the way with a total investment of $222 million across the Middle East and North Africa, Pakistan, and Turkey.

“Investor appetite has shifted toward bigger opportunities in the financial services space, which put fintech ahead of other industries,” Magnitt chief Philip Bahoshy said.

“I think by end of year, you’ll see many records breaking. We’ve already seen capital deployment breaking. I think you’ll see a record number of investments. I think you will see the return of accelerator programs in Q4,” he told the Arab News.

The Magnitt CEO predicted a strong merger and acquisition activities in the region’s startup scene, as startups seek for synergies post-pandemic.

Overall, the startup industry in the region has seen a 64 percent year-on-year growth in VC investments, attracting more than $1.2 billion local and international investors.

Saudi Arabia placed second with $168 million in venture funding, only after the UAE which raked in a total of $755 million. Egypt came in third at $166 million.

The report also showed a more equitable distribution of funds, as funding was not concentrated in the Kingdom’s top five deals during the period.

E-commerce startup Sary closed the largest funding round at $31 million. Startups in agriculture, IT and food and beverage were also among the top five deals in the Kingdom.

Despite the stellar performance of the region’s startup industry, Bahoshy said fewer deals were made in the last six months as investors only deployed capital in more mature startups.

“Accelerator programs which are big feeders of early-stage investments have basically reduced considerably compared to last year,” he said, adding the usually offline programs were affected by the COVID-19 pandemic.

“So when those programs are taken out of the equation, there’s a gap of early stage investments that need to be filled,” Bahoshy explained.

He also said angel investors turned to alternative assets, such as real estate or deposits, as opposed to “riskier startups.”

Bahoshy said it would be interesting to see if this investment activity continues toward the end of the year.

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