In a momentous development for its startup ecosystem, Saudi Arabia claimed the top spot in venture capital funding within the Middle East and North Africa (MENA) region for the year 2023, securing an unparalleled $1.38 billion in investments.
This milestone, as detailed in MAGNiTT’s Saudi Arabia FY2023 report, marks the first time the Kingdom has crossed the $1 billion threshold, indicating a 33 percent surge from the $987 million raised in 2022 and signaling a strong growth trend.
The Kingdom’s portion of total funding in the MENA region also significantly increased, soaring from 30 percent in the previous year to a dominant 52 percent in 2023.
The report by MAGNiTT highlights an impressive compound annual growth rate of 86 percent for Saudi Arabia’s venture capital sector since 2019, with the Kingdom attracting $879 million in mega rounds—deals exceeding $100 million—showcasing heightened investor confidence in the region’s startups.
Sectoral breakdown
The fintech sector in Saudi Arabia experienced an extraordinary boost in 2023, amassing $704 million, a 181 percent increase from the year prior. This growth spurt was largely fueled by the emergence of two Saudi-based “unicorns,” Tabby and Tamara, which both secured significant funding rounds, catapulting their valuations above the $1 billion mark.
Tabby, a leading MENA “buy now, pay later” platform, attained unicorn status following a $200 million series D funding round in November, increasing its valuation to $1.5 billion. Following its success, Tabby relocated its headquarters to Saudi Arabia, in line with its plans for an initial public offering in the Kingdom.
Similarly, Tamara, another significant BNPL player, became the first homegrown Saudi fintech startup to achieve a $1 billion valuation after raising $340 million in a series C round in December. These two financing events were seminal in solidifying Saudi Arabia’s position in the fintech funding landscape, representing the top investment rounds of the year.
The e-commerce sector also saw a significant increase in funding, with $428 million raised, marking a 153 percent growth compared to the previous year, indicative of the Kingdom’s rapidly evolving digital commerce landscape.
Online flower marketplace Floward and digital supermarket Nana were key contributors to the e-commerce sector’s expansion in Saudi Arabia. Floward raised $156 million through series C pre-IPO rounds at the beginning of the year, and Nana followed with a $133 million series C funding round. These investments highlight the strong investor interest and potential in the Saudi online retail market, with Sary, a B2B e-commerce marketplace, also raising $50 million during the year.
Investment deals analysis
Although Saudi Arabia’s funding surged in 2023, the number of deals decreased by 20 percent compared to the previous year. Nevertheless, the Kingdom represented 26 percent of all transactions within the MENA region, up from 22 percent in 2022, with early-stage startups accounting for 81 percent of all deals.
The number of exits remained relatively stable, with 9 acquisitions, and in terms of mergers and acquisitions, Saudi Arabia held 21 percent of the transactions in the MENA region, ranking second after the UAE.
Venture highlights
The year 2023 also witnessed significant advancements in the Kingdom’s venture capital and startup environment through various initiatives. The Makken Fintech program, introduced by the Saudi Central Bank, the Capital Market Authority, and Fintech Saudi, aims to support the growth of 150 startups in the financial services sector within three years.
The Saudi Venture Capital and Private Equity Association, alongside SVC, launched three programs to develop the sector, focusing on enhancing the management of venture capital and private equity funds. The Public Investment Fund’s Jada also launched the fourth edition of its Emerging Fund Manager program, bolstering support for venture capitalists in the region.
A regional glimpse
The MENA region’s funding landscape, however, saw a 23 percent year-on-year decrease, as cautious investor sentiment led to a total of $2.6 billion in funding, a decline from $3.4 billion in 2022. Additionally, investment deals fell to 477, down from 718 in the previous year.
The UAE ranked second with $691 million, a 45 percent decrease from the previous year, although it recorded the highest number of deals. Egypt saw a 30 percent drop in funding, while Morocco’s funding increased by 193 percent, reaching $81 million, making it one of the top five. Fintech and e-commerce remained the most funded sectors regionally, while in terms of deal count, Egypt’s Flat6Labs, the US’ 500 Global, and UAE’s Shorooq Partners led the region. UAE’s Chimera Capital, Saudi Arabia’s STV, and Shorooq Partners were the top deployers of capital.