Who Dares to Finance Fresh Startups?

Saudi Business Angels Bridge the Startup Financing Gap
(Getty)

Who would take care of a baby idea with a problem-solving concept and spend a lot to have it materialized? Banks, in general, tend to lend bigger enterprises. The share of bank loans dedicated to young entrepreneurs and fresh ideas are relatively low everywhere in the world. When banks are conservative, venture capitals are the brave hearts who pay to give wings to entrepreneurial spirits to fly as high as possible.    

Saudi delivery and e-commerce Apps, whose brands are worth millions now, were just small ideas that were grown by angel investor and bright entrepreneurs.

We are taking a short trip to the concept of business angels in the Kingdom of Saudi Arabia.        

FILLING THE FINANCING VACUUM

From enterprise services to financial technology, and from digital learning to e-commerce, Saudi business investors are taking the risk of financing business startups for years without making immediate profits.

Those angels go through the journey of financing brand evolution stages until the bran stands on its feet, either alone or in groups or even specialized equity financing funds that are risk-handling-oriented.

To add more credibility and assurance, Saudi Venture Capital Company (SVC), a publicly owned company established in 2018, is investing three quarter a billion USD to support the entrepreneurial financing lines.

“They are true saviors. For some, they are guardian angels in a business context”, said Abdulrahman, a Saudi wannabe entrepreneur in his thirties.

Saudi public-funded business incubators have existed more than a decade. Back in 2005, Kafalah, a program created to finance SME’s in cooperation between bank and guarantees from the Saudi Ministry of Finance. 

“Fresh ideas need believers and sacrificers, who are patient with an eye on the big prize after a journey of patience”, said Fahad Albogami, a long-time Saudi economy journalist.

Fahad Albogami, economy expert and journalist. 

HOW DO THEY MAKE PROFIT?

Angel investors make profit only when the startup grows its equity and get sold to new investors. Uber bought the rival Careem in a USD 3.1 bn deal around a couple of years ago.

“After a journey of extreme patience and uninterrupted financing. The startup brand is sold and angels get the big prize.”, explains Albogami how the bigger the effort, the bigger the fruit in the field of angel investment.

“Business angels could be as simple as a small businessperson funding a project from scratch or a joint of angel funds”, added Albogami.

NEW FINANCING HORIZONS

“Saudi angel investors overcome bureaucracy of traditional financing channels, be they banks or lending institutions, private or public”, Albogami pointed his finger on the differentiation point, the edge, of business angels.

“Those investors have paved the way for the younger generation businesspeople to take part in the development of Saudi post-oil economy, where the share of oil decreasing in favor of non-oil sectors, especially in the fields of technology and IA and digital, and many innovation-based industries”, he added.

Saudi Arabia ranks 3rd after the UAE and Egypt in the size of finance among Arab countries, according to the 2020 Saudi Arabia Venture Capital Report, prepared by MAGNiTT Report, sponsored by SVC.

15% is share of investment of the Saudi venture capital from USD 1031 m, the value of total investments pumped in the Arab countries by business angels in 2020.

The good news is that 2020 saw the USD 151 m invested in Saudi-based startups with the deal flow 35% up compared to the previous year. This comes against the backdrop of COVID-19.

More international capitals landed in KSA in 2020 more than 2019, marking an increase of 11%, based on the SVC sponsored report. 

PROSPERITY PROSPECTS

For decades, the Saudi Arabian financing policies has been known for testing new ideas and digesting with exploration and long-term results, maintaining a steady growth rather than uncalculated fast growth. Once they discover the results are positive, they accelerate their steps.”

“Saudi Arabia is set for faster growth both in volume and number of deals to move to higher regional and international ranks with more business angels joining the industry”, concluded Saudi expert Albogami.