Saudi Arabia invests in young technology firms


Rapidly expanding technology firms have become some of the most sought after targets in the global investment arena, and Saudi Arabian entities have played a prominent part in this trend. The emergence of Careem, a rival to Uber in the Middle East, is a prime example of how young tech operations in the region are attracting significant amounts of capital from both private sector investors and state-owned institutions in the Kingdom. In addition to securing funding from Al Tayyar Travel Group in an early financing round, Careem was the recipient of $100m from the government-run Saudi Telecom Company (STC) in December 2016, which amounted to a 10% stake in the ride-hailing platform. According to STC, the investment was “in line with the company strategy to invest in the innovative digital world”. The Kingdom’s Public Investment Fund, which owns 70% of STC, has also placed capital in tech operations beyond Saudi Arabia, most notably with a $3.5bn investment in US-based Uber in June 2016.

Domino Effect 

Careem began operating in July 2012 as an online service for corporate car bookings; five years and several funding rounds later, the company was valued at approximately $1bn. The speed and scale of Careem’s success has shown the domestic investment community the potential value of early-stage involvement with promising ideas.

Accordingly, the list of Saudi tech start-ups is growing, and the volume of funding for the most prominent concepts is increasing. A strong example of this is PayTabs, a company established in January 2014 as an online business-to-business payment solutions provider. The value proposition of the initiative was that it would tackle one of the major challenges faced by young online businesses – the collection of electronic payments. This idea was judged attractive enough to receive initial investment from Wa’ed Equity, the entrepreneurship arm of state-owned oil giant Saudi Aramco. Founded in 2011 Wa’ed has emerged as an important enabler in the Kingdom’s start-up arena, offering debt funding in the form of non-collateral loans, venture capital funding through minority equity partnerships and non-repayable micro-funding for incubated start-ups.

Wa’ed entered into a partnership with PayTabs in 2014, believing that the company was a potential industry trailblazer. Its decision was quickly validated: PayTabs secured more than 1000 customers in the first two months after its launch. The company’s initial focus was on the GCC market, but in November 2016 it began to process electronic payments globally. This stage of the company’s evolution required another capital injection: in August 2017 PayTabs reported that it had raised $20bn in funding, which it intends to invest in new product developments and a global expansion strategy to move into 20 new markets over two years. This process will involve a number of key strategic acquisitions, meaning that the company has gone from a start-up to an entity more closely resembling an expanding corporate in just a little over three years.

However, while investment in prominent tech firms is likely to produce more headlines in the financial press over the coming year, many industry observers believe that the more important investment activity is taking place at the smaller end of the market.

Government Initiatives

The launch of the Kingdom’s Vision 2030 strategy in April 2016 and the more recent formulation of the National Transformation Programme (NTP) 2020 have made clear the government’s desire to significantly reduce its reliance on oil revenues in order to drive economic growth. Boosting non-hydocarbons economic activity has become of paramount importance since the oil price decline that began in mid-2014; therefore, encouraging investment in promising areas such as ICT is a central pillar of the government’s future direction.

Historically, this strategy has faced a number of challenges. The inability of investors to secure a generous yield from the region’s largest stock market and a real estate sector where demand consistently outstrips supply are frequently cited as the principal roadblocks to more creative private sector investment. Furthermore, investing in technology requires deep industry knowledge and the acceptance of a certain level of risk. Therefore, with easier investment options so readily available, private equity and venture capital outfits were slow to target tech start-ups in the region.

This explains the prominent role played by the government in technology investment, a phenomenon that predates the strategy defined by Vision 2030 and the NTP. By 2016 the government had allocated more than SR2bn ($533.2m) to venture capital (VC) activities centred on assisting tech start-ups in establishing themselves. One such initiative was the VC fund that is operated by Taqnia, a government entity owned by the PIF, which acts as the technological investment arm of the Kingdom’s government.

Taqnia’s investment activity is based around the idea of transferring technologies to the Kingdom and supporting early-stage start-ups, and it has partnered with Riyad Capital to create the Riyad Taqnia Fund, which specifically targets promising technology concepts. The fund’s most prominent tech projects include Taqnia Space, which aims to provide a reliable platform to enable email, social networking and live streaming for passengers connected to the Taqnia Space Company Aero Platform, with the company outfitting flagship carrier Saudia’s entire fleet. Furthermore, the Ministry of Communication and Information Technology has chosen Taqnia Cyber to implement and operate the Saudi Internet Exchange Point, a technology that reduces the need for data to travel to other cities or countries to get from one network to another, thereby reducing cost and latency while boosting security.


Elsewhere, the government has played a central role in developing infrastructure to enable tech start-up growth, such as in the “techno valleys” it has established in locations such as Dhahran, Riyadh and Makkah. In 2008 authorities created Badir, a national technology innovation programme that has established incubator and knowledge transfer facilities across the Kingdom. The Badir initiative, which originated under the auspices of the King Abdulaziz City for Science and Technology in Riyadh, incorporates two streams of activity that are open to all local tech entrepreneurs who have an early-stage prototype or concept.

Badir’s incubators provide a mixture of services, including business consultancy, office and laboratory space provision, secretarial and administrative support, assistance with preparing business plans, financial modelling and idea pitching. The programme also assists its clients in securing funding for further development, which it does by building relationships with both new and existing funding channels. In April 2017 Badir signed a bilateral cooperation agreement with Amazon Web Services (AWS), a subsidiary of Amazon Global, aimed at helping the Kingdom’s emerging technology companies improve their performance through innovative cloud technologies and solutions provided by AWS’ on-demand computing platform.

Roadside Assistance

The key test for semi-government organisations such as Badir is their ability to transform the detailed strategy documents and development targets of state agencies into tangible results. This test has been met with considerable success. In 2017, two of Saudi Arabia’s most promising start-ups made it into the top-20 of Forbes’ “Top 100 Startups in The Arab World” – the Wa’ed-backed PayTabs and a graduate of the Badir progamme, Morni.

Launched in 2015 Morni is a smartphone application that allows both individual and corporate users to access roadside assistance in Saudi Arabia and the GCC. Badir spent more than a year working with the company to develop its business model, build its website and establish Morni’s mobile phone application. In 2016 the company secured $1.1m in funding from Raed Ventures, a Saudi VC outfit established by Almajdouie Holding.

Morni is the first roadside assistance technology company in the region. It has partnered with a number of providers to grant its users access to a range of services 24 hours per day, including towing, battery check and replacement, tyre change and repair, and fuel delivery. Morni also has deals with luxury car brands such as Bentley, Lamborghini and Ferrari to transport their vehicles to customers in Saudi Arabia. By March 2017 the app had been downloaded more than 600,000 times and served over 18,000 customers. On average, the firm handles 200 service requests per day.

Private Pursuit

The private sector, meanwhile, has overcome its initial reluctance to engage with the younger end of the tech market. In regional terms, financial technology and IT accounted for 14% of MENA private equity investment in 2016, according to data collated by Thomson Reuters and Deloitte, behind only the transport, retail, and food and beverage sectors. Saudi Arabia was the second-largest source of private equity investment by value, despite challenges arising from low oil prices and a programme of fiscal reform. In 2016 the Kingdom was also the third-largest source of VC in the region, with IT being the most popular target for MENA VC operators, accounting for 26% of the total.

The combination of increasing smartphone penetration and a flourishing e-commerce arena is likely to ensure that the ICT sector will remain an area of interest to private equity and VC players over the coming years. As competition mounts for what is still a limited flow of capital offerings, ICT start-ups and early-stage companies are becoming increasingly attractive to investors looking for rapid growth prospects.


While private sector participation is gaining ground on government entities as the primary driver of ICT start-up activity, various institutions of the state continue to play a salient role in the industry. For example, the MiSK Foundation – created by Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud to cultivate “learning and leadership for the Saudi Arabia of tomorrow” – is emerging as an important component of the ICT start-up ecosystem. In late 2016 it launched three new ventures in Riyadh, which, if their ambitions are fully realised, will make a major contribution to the skills base of the Kingdom’s technology businesses.

The MiSK Academy aims to bring international standards in technology training to Saudi Arabia, and has been tasked with equipping 5000 leaders, developers and designers across all major and emerging disciplines, from app development, coding and artificial intelligence to gaming, virtual reality and animation. The academy is also sponsoring 400 traineeships in 50 leading international companies across the tech, media and consulting sectors, as well as working with global training partners in a bid to transfer skills to the Kingdom, such as Silicon Valley’s Udacity, which offers online tech-focused educational courses.

“Two IT training fields are especially in demand by the market: building the capabilities of Saudi employees in the field of business process engineering, and training in data management and quality,” Hamad Al Saleh, CEO of software provider Codelab, told OBG. “The government has legacy databases and needs chief data officers to maintain and operate them.”

The MiSK Technovation initiative, meanwhile, is focusing on supporting young talent by providing facilities to incubate new ideas and creating a community of digital experts to help convert concepts into tangible business initiatives. Targeted fields include programming, big data, cybersecurity, cloud computing, artificial intelligence and the internet of things. The initiative will place particular emphasis on the development of novel domestic applications and increasing the number of women working in the sector.

Yet another initiative, MiSK Booster, is made up of three components: a $50m VC fund that will invest in start-ups that provide new digital solutions and services to assist the Kingdom in reaching its Vision 2030 targets, as well as incubator and accelerator functions, which will help develop start-ups and create a community of mentorship among Saudi peers, thus setting the standard for entrepreneurship in the Kingdom.

Saudi Arabia is demonstrating its determination to establish the tech start-up arena as an important driver of economic activity, and with the private sector showing an increasing willingness to invest in early-stage concepts, the Kingdom’s ICT ecosystem looks to be entering a new phase in the march towards maturity.

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The Report: Saudi Arabia 2018

ICT chapter from The Report: Saudi Arabia 2018

The Report: Saudi Arabia 2018

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